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Nigeria dumps fuel subsidies. (Oil and Gas).

The Nigerian government has announced the withdrawal of all subsidies on crude oil and refined petroleum products in January 2002, following a two year struggle to force through the move. During the first half of 2001, trade unions threatened to bring the country to a standstill if subsidies were withdrawn and launched a series of pre-emptive strikes. Now that government support is finally coming to an end, their response has been more restrained although some form of backdash is expected.

Adams Oshiomhole, president of the Nigeria Labour Congress (NLC), served on the Presidential Committee that recommended the opening up of the sector, but trade unions have warned that wage increases and improved public transport must come before fuel price rises.

However, the agreement for across the board wage increases of 25% for public sector workers, which was reached between the NLC and Nigerian President Olusegun Obasanjo at the end of last year, has now been rejected by the National Assembly. Diesel and petrol have been much cheaper in Nigeria than in most neighbouring states for the past decade, and so much of the output from the country's four refineries has been smuggled out of the country. Coupled with the dilapidated nature of the refineries and an inefficient fuel distribution system, this has led to widespread fuel shortages.

Curbing corruption

The government will now sell crude oil to the Nigerian National Petroleum Corporation (NNPC) at market rates, removing much of the opportunity for corruption.

At the end of 2001, NNPC paid $9 a barrel for crude oil, around half the market rate at that time. The introduction of a market rate will also create a level playing field for private refinery operators who are expected to be licensed during the first part of 2002.

The four NNPC refineries will be privatised during 2002 and a petroleum products monitoring and price commission will be set up to regulate competition.

The Presidential advisor on petroleum matters, Alhaji Rilwanu Lukman, has also announced that six of Nigeria's 21 oil depots are to be sold off as part of the privatisation of NNPC this year. The federal government has appealed to state governments to cushion the impact of the rises. This is most likely to take the form of improved public transport, such as buses in Lagos state and boats in Bayelsa.

Under the new arrangements, petrol prices have increased from N22 per litre to N26, while diesel has risen from N21 to N26. Partly in order to restrict price rises, the government has decided to remove taxation on fuel sold at petrol stations and the NNPC's allocation has been increased from 300,000 bpd to 400,000 bpd in order to ensure that demand is met.

As with the announcement of every past fuel price increase, queues quickly built up at petrol stations in most Nigerian cities. The Lagos press reported that marketers were selling petrol for up to N150 a litre. Because of the current low price of crude oil, the new retail prices are no higher than those which the government attempted to introduce last year when subsidies were still in place. Those increases were partly reversed following a general strike and mass demonstrations.

Oil revenues to exceed $l6bn

Opposition parties, the Alliance for Democracy and the All Peoples Parry have both condemned the move. The Chairman of the House Committee on Inter Parliamentary Relations, Lawan Faruk, said: "There is a lot of relative insensitivity attached to the increase at this particular time when the economy does not appear to have significantly improved."

The government has also announced its expected revenues from all oil and gas related activities during the coming year. Total revenues are predicted at N1,833bn ($16.6bn), including crude income of N587bn; petroleum profit tax of N207bn; royalties of N135bn; and upstream gas sales of N33bn.

At a meeting in Abuja, Lukman said that subsidising fuel prices meant that the government had less to spend on education, social security, agriculture and health. He said that liberalisation would also encourage the use of natural gas within Nigeria itself.

Meanwhile, the federal government is planning to alter the petroleum tax law in an effort to reduce the opportunities for tax evasion in the upstream sector. It is expected that the responsibility for payment on joint venture contracts and filing tax returns is to be transferred from the NNPC to the relevant E&P companies.

A government statement said that this will ensure that "every tax payer irrespective of its status or nature of contract is directly responsible for filing its own tax returns". The current arrangement makes it difficult to hold defaulting companies accountable for any default. This and several other proposals are to go before the National Assembly during the first quarter of 2002.
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Author:Ford, Neil
Publication:African Business
Article Type:Brief Article
Geographic Code:60AFR
Date:Feb 1, 2002
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