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Abuja - Nigerian authorities announced on Sunday that a controversial plan to scrap fuel subsidies will be effective from January 1, a move likely to lead to strikes and street protests.
The plan is unpopular with Nigerians, many of whom see cheap fuel as the only benefit they get from living in Africa's top crude oil exporter. Previous attempts to remove the subsidy had prompted strike action and street protests, and many expect this one to be no different.
"The Petroleum Products Pricing Regulatory Agency wishes to inform all stakeholders of the commencement of the formal removal of the subsidy on Premium Motor Spirit," said a statement by the Petroleum Products Pricing Regulatory Agency (PPPRA).
"Petroleum products marketers are to note that no one will be paid a subsidy on PMS discharges after 1st January 2012," said the statement signed by PPPRA executive director Reginald Stanley.
Going ahead with the plan will save the treasury huge amounts of cash that critics like the International Monetary Fund (IMF) said was being wasted on spending whose main beneficiary was fuel importers.
Nigeria produces more than 2 million barrels per day of crude oil but a lack of investment in refineries and infrastructure means almost all of this is exported, while refined fuel products such as petrol have to be imported at great cost, making the subsidy a huge drain on public finances.
Finance Minister Ngozi Okonjo-Iweala told a town hall forum last month that the measure will save over 1 trillion naira in subsidies in 2012.
But she admitted letting markets determine the pump price of petrol in Nigeria would push it up to 120 naira per litre, from 65 naira at present.
Central Bank governor Lamido Sanusi said Nigeria spent $16 billion of its foreign exchange on costly imported fuel in the first 11 months to last year - $8 billion sold by the bank to petroleum importers and a further $8 billion spent by the Treasury on the subsidy itself.
Negative street reaction
Labour and transport unions, human rights groups, market women, taxi drivers and lawyers' associations have been bitterly opposed to having the subsidy removed.
"The government has deceived us," said Peter Udor, an Abuja electrical engineer. "They told us that the subsidy will be removed after the budget approval by the national assembly in march or April ... This shows that the government is insensitive to the plight of majority of Nigerians. It's unfair."
Rosemary Abiogu, a nurse, said: "Subsidy removal signals more hardship for majority of Nigerians. Prices of fuel will not only go up but also that of other essential goods. They should have put the palliatives in place before removing the subsidy."
The government has said that any increase in the cost of goods would soon be offset in the medium term by economic reforms, such as more efficient customs clearance at ports that would reduce the cost of imports. Analysts agree.
"There will be an impact on inflation -- my forecast is that at most CPI goes up by a modest 2 percent -- but the productivity gain is that the price of petrol will be efficient," said Bismarke Rewane, managing director for Lagos-based consultancy Financial Derivatives.
"It will attract more investments into the sector like building of refineries, pipelines, storage facilities etc and all these will translate into efficiency gains for the economy."
The plan is unpopular with Nigerians, many of whom see cheap fuel as the only benefit they get from living in Africa's top crude oil exporter. Previous attempts to remove the subsidy had prompted strike action and street protests, and many expect this one to be no different.
"The Petroleum Products Pricing Regulatory Agency wishes to inform all stakeholders of the commencement of the formal removal of the subsidy on Premium Motor Spirit," said a statement by the Petroleum Products Pricing Regulatory Agency (PPPRA).
"Petroleum products marketers are to note that no one will be paid a subsidy on PMS discharges after 1st January 2012," said the statement signed by PPPRA executive director Reginald Stanley.
Going ahead with the plan will save the treasury huge amounts of cash that critics like the International Monetary Fund (IMF) said was being wasted on spending whose main beneficiary was fuel importers.
Nigeria produces more than 2 million barrels per day of crude oil but a lack of investment in refineries and infrastructure means almost all of this is exported, while refined fuel products such as petrol have to be imported at great cost, making the subsidy a huge drain on public finances.
Finance Minister Ngozi Okonjo-Iweala told a town hall forum last month that the measure will save over 1 trillion naira in subsidies in 2012.
But she admitted letting markets determine the pump price of petrol in Nigeria would push it up to 120 naira per litre, from 65 naira at present.
Central Bank governor Lamido Sanusi said Nigeria spent $16 billion of its foreign exchange on costly imported fuel in the first 11 months to last year - $8 billion sold by the bank to petroleum importers and a further $8 billion spent by the Treasury on the subsidy itself.
Negative street reaction
Labour and transport unions, human rights groups, market women, taxi drivers and lawyers' associations have been bitterly opposed to having the subsidy removed.
"The government has deceived us," said Peter Udor, an Abuja electrical engineer. "They told us that the subsidy will be removed after the budget approval by the national assembly in march or April ... This shows that the government is insensitive to the plight of majority of Nigerians. It's unfair."
Rosemary Abiogu, a nurse, said: "Subsidy removal signals more hardship for majority of Nigerians. Prices of fuel will not only go up but also that of other essential goods. They should have put the palliatives in place before removing the subsidy."
The government has said that any increase in the cost of goods would soon be offset in the medium term by economic reforms, such as more efficient customs clearance at ports that would reduce the cost of imports. Analysts agree.
"There will be an impact on inflation -- my forecast is that at most CPI goes up by a modest 2 percent -- but the productivity gain is that the price of petrol will be efficient," said Bismarke Rewane, managing director for Lagos-based consultancy Financial Derivatives.
"It will attract more investments into the sector like building of refineries, pipelines, storage facilities etc and all these will translate into efficiency gains for the economy."
