Nigeria’s Unending Fuels Price Crises – Issues and Matters Arising

(Part 1 of 5)

By

Abubakar Atiku Nuhu-Koko

aanuhukoko@yahoo.com

Tuesday, 10 July 2007

Once again, Nigeria experienced another national shutdown because of protests by Nigerians, led by the organised labour against the sudden, unexpected and unsolicited “parting gifts” from the outgoing administration of Chief Olusegun Obasanjo on May 27 2007[1]. These gifts came by way of: a 15% increase in fuel prices (petrol, diesel and Kerosene) across board; 100% increase in Value Added Tax (VAT); fire sales of the Kaduna and Port Harcourt refineries and Egbin power generation plant respectively, and the cancellation of the implementation of the 15% salary raise for federal workers as previously negotiated by the organised labour. These were the fundamental issues (which can be dubbed as Obasanjo’s “last-minutes.com” gimmicks[2]) and reasons for the four-day national shutdown that took place from Wednesday, 20 June 2007 to Saturday, 23 June 2007.

The pertinent questions agitating the minds of Nigerians include the followings: a.) Were there justifications for the sudden hike in prices of domestic petroleum products and the Value Added Tax (VAT) rate by the outgoing administration of president Obasanjo? b.) Was the timing appropriate? The answers to these questions and some matters arising from the debacle are at the heart of this analysis. We begin by examining the reactions and challenges to these policy actions by the organised labour unions and the response from the new administration of President Umaru Musa Yar Adua.

The events leading to the national strike debacle followed somewhat familiar pattern, style and scenarios, similar to all the previous national strikes against fuels price increases that took place in Nigeria from 1984 to date. For example, on May 27 2007, Chief Olusegun Obasanjo on the one hand, surreptitious announced and implemented the above-mentioned policy decisions. The decisions and actions were taken just two days to the May 29^th 2007 handing over date that ends the eight straight years of his presidency.

The organised labour on the other hand, which has always been the rallying vanguard against governments’ incessant fuels price increases, responded immediately to these rather unsolicited and unacceptable “parting gifts” from the outgoing President Olusegun Obasanjo’s Government. Hence, the organised labour under the joint leaderships of the Nigerian Labour Congress (NLC) and the Trade Union Congress (TUC) issued their traditional standard 14-day ultimatum and warning notice for an imminent nationwide strike action should the Government fails to heed the call to revert to the status quo ante by the expiration of the ultimatum[3].

Moreover, the National Association of Road Transport Owners (NARTO) and the Independent Petroleum Marketers Association of Nigeria (IPMAN) respectively, which are among the main stakeholders in the downstream petroleum sub-sector, had commenced a nationwide strike on Tuesday, 19 June 2007, even before the expiration of the 14-day ultimatum issued by the organised labour. This seriously affected transport system and industrial activities as road tanker drivers left most petrol stations without supplies.

The decision to embark on the national strike action according to NARTO and IPMAN spokespersons was taken after a joint meeting of both associations to protest against the fuel price hike and non-increase in freight levy for transport owners. However, they both reached an agreement with the Government by accepting the Government’s offer of 50% reduction on the price of petrol and offer of shares in the two privatised oil refineries located in Port Harcourt and Kaduna respectively. They withdrew their strike action on Wednesday, 20 June 2007.

Nevertheless, the failure by the government and the organised labour to sit on the negotiating table to reach acceptable and accommodating solutions within the 14-day window of opportunity ultimately led to the start of the national strike by workers on Wednesday, 20 June 2007and lasted until Saturday, 23 June 2007. The four-day standoff involved all categories of workers nationwide and it was total. Economic and social activities nationwide were paralysed and brought to a standstill for the duration of the strike action. For example, the strike shutdown schools, hospitals, banks, government and private offices and large businesses. Seaports and Airports were closed and in general, public transport system totally collapsed.

The Deal that ended the Strike Action

The strikes were eventually called off on Saturday, 23 June 2007 following a deal reached between the government and the labour unions. However, the journey to cutting the deal was not as smooth as one might expect. For example, the government employed all sorts of tricks and entreaties including; cajoling, threats of use of coercion and intimidation to woe and or force the labour union leaders to call off the strike and or return to the negotiating table. Government mobilised religious and opinion leaders, and elder statesmen to pressure labour leaders. For example, the Sultan of Sokoto, the highest Spiritual leader of Nigerian Moslems intervened on behalf of the government. Other religious leaders were also mobilised by the government for the same purpose.

Paradoxically, some religious leaders also condemned the increases in price of petroleum products and VAT and urged government to rescind them in the interest of the poor people who will be mostly negatively impacted by the new pricing and tax regimes respectively. For example, the Press reported that Engineer Samuel Salifu, General Secretary of the Christian Association of Nigeria (CAN) saying that the people of Nigeria have a legitimate right to protest any policy that is not in their favour especially when an outgoing president unilaterally took the policy in question[4].

In addition, the newly inaugurated leaderships of the National Assembly also met with the leaders of the organised labour to pressure them to back-pedal and accept the offer made to them by the government, including the new pricing regime for petrol and other contentious issues at stake.

Unfortunately, when the government got frustrated with the labour union’s doggedness, it wrongly introduced Obasanjo’s military-style high handedness of issuing threats, intimidation and blackmail to force the labour union leaders into submission. For example, the acting Inspector-General of Police Mr. Sunday Okiro issued warnings and threats to the labour union leaders and the public that the Nigeria Police will deal seriously with protesters for violating public order laws of the land. A number of labour union leaders were apprehended and arrested by the various Police Commands nationwide[5].

Similarly, Ambassador Baba Gana Kingibe, the Secretary to the Government of the Federation of Nigeria (SGF) issued an official Statement accusing the labour union leaders of engaging in partisan political activities: pushing and promoting political agendas of the opposition political parties. He warned that government would invoke all available labour laws to bear. The labour union leaders denied the allegation but warned that they would resist all blackmail and intimidation attempts to force them to give up the struggle against the sustenance of the unfair policies[6].

It was against this backdrop that the government later adopted a more softened approach to handling the crisis. This involved the direct personal intervention of President Yar Adua himself via written letters to the respective labour union leaders[7]. For example, the leaders of the two main umbrella unions confirmed that Yar'Adua had intervened in person by writing to assure them, amongst other things, of a 12-month moratorium on any rise in fuel prices at the pump. Therefore, it was the personal intervention of President Yar Adua himself, which broke the ice that led both the government and the labour unions negotiating teams to agree to return to the negotiating table. The rest is now history, as a deal was cut. Under the deal, as explained by labour officials, the unions relented on their demand that the government roll back a 15% fuel-price hike, settling for the government's compromise of an increase half that size. This finally led to a 10-point joint statement signed by Comrades Omar and Peter Esele (representing the two labour unions respectively) and Ambassador Kingibe (representing the federal government) at the end of the concluding meeting on Saturday, 23 June 2007. The 10-point Statement that contained the deal, which heralded the end of the nationwide strike action, reads as follows:[8]

1. The increase of the VAT rate from 5% to 10% is hereby revoked.-The VAT rate is now reverted to 5%

2. Government to set up an expert committee to examine the pricing mechanism of petroleum products and make recommendations bearing in mind the strategic nature of the products and the impact of the prices on the economy and the social  lives and the livelihood of Nigerians. Both the NLC and .the T.U.C will be represented on the committee.

3. Government will set up an expert committee to examine the recent privatization and concession exercises, especially the sale of 51 % government equity in the refineries and the proposal for the power sector. Labour will fully participate in the work of this committee.

4. Government will implement the 15% salary increase for Federal Government employees with effect from the 1st of January 2007. The modalities for spreading the payment of the arrears in the first quarter will be worked out by the government.

5. The N10 per litre increase in the prices of kerosene and diesel is reversed.

6. The N10 per litre increase in the pump head price of petrol is reviewed to N5 per litre. Consequently, petrol will now sell at N70 per litre.

7. Government has assured that, there will be no review of this price level of N70 per litre for petrol for the next 12 months.

8. The ongoing NLC and TUC general strike is suspended with effect from midnight 23rd June 2007. All business premises, factories and public offices shall now resume normal operations.

9. No staff or workers shall face any disciplinary action arising from their participation in the strike.

10. In the spirit of the strategic partnership between Government and labour initiated by President Umaru Yar'Adua in his letter of June 23rd 2007 to the NLC and TUC, both sides further agreed on the need for a mechanism for structured, proactive and routine interaction between government  and organised labour towards a development process."

The above deal shows that the government gave the labour unions significant concessions in order to end the strike action. For example, while the labour unions conceded to the government only 5% increase in the price of petrol, government succumbed to labour union’s demand to all of the other sticking points in the negotiations. In addition, President Yar Adua voluntarily including an assurance of a 12 months freeze in the price level of N70 per litre for petrol. Probably this was done in order lightened the public anger against the government and cultivate a friendlier relationship between the government and the labour unions.

Overall, had the government opened up and agree to negotiate with the labour unions within the 14-day window of opportunity offered by the leaders of the labour unions, the same outcome might have been archived without incurring the pains, anguish and the unnecessary economic and financial costs on the nation’s economy and citizens. There are definitely huge social, economic and financial costs because of the failure by the government to act earlier than it did. The deal itself raises some interesting matters arsing from the seemingly unending quagmire. These matters are examined next.

Matters Arising

Over the years, Nigerians always supported the strike actions against incessant increases in domestic petroleum products prices: the one that ended on Saturday June 24 2007 been one of the most effective protests in recent times.[9] Nigerians have been consistent in lending support to the labour unions against fuel price increases because majority live in poverty and the increase in fuel prices affect the cost of most basic goods and services. Moreover, Nigerians see fuel subsidies as one of the few benefits they receive from the successive corrupt and inept governments that failed to provide basic infrastructure like roads, schools, running water (i.e., general welfare services) etc despite the monumental inflow of oil revenues to the coffers of government over the past 40 years[10].

One of the fundamental matters arising from president Obasanjo’s action and the swift response by Nigerians through the labour unions is whether there was any economic justification for the sudden hike in the petroleum products prices and VAT rate made by the outgoing administration on May 27 2007. This is the more than 50 billion naira a day question agitating and running in the minds of Nigerians in the final days and last minutes public policy engagements with Nigerians by the outgoing President Olusegun Obasanjo. Unfortunately, however, President Obasanjo did not give Nigerians any justification for these sudden last minutes policy actions.

Similarly, the new President, Alhaji Umaru Musa Yar Adua did not help matters, as he did not issue any public statement defending or justifying and/or repudiating the price increases of petroleum products announced by his predecessor and implemented by the new administration. To compound the situation further, President Yar Adua was stoically silent on his position regarding these and the other related and associated issues that were agitating the minds of Nigerians especially soon after his inauguration as Nigeria’s new President. For example, his maiden Presidential Speech did not say much on any of these contentious issues bequeathed him by his predecessor.

Nevertheless, as the national strike action got underway, the shadowy architects behind the sudden 15% increase in the prices of petroleum products started talking and attempted to provide the answer to the above pertinent question. For example, Chief Rasheed Gbadamosi, and Dr. Oluwole Oluleye, Chairman and Executive Secretary of the Petroleum Products Pricing Regulatory Agency (PPPRA[11]) respectively, provided some insights of what happened at the closed-door meeting between the PPPRA Secretariat and the outgoing President Obasanjo that yielded the unpopular decision and its subsequent very costly outcome.

In a published interview that Chief Gbadamosi gave to a national newspaper[12], he confessed that the PPPRA Secretariat approached the outgoing President Obasanjo with the need to increase the prices of petroleum products by 30 naira in order to fulfil the commitment made by the PPPRA Secretariat to the petroleum products importers. Chief Gbadamosi was reported in the interview as saying in his own words that “First, we would have committed the importers to bring in fuel for us and we will not be able to reimburse them...” He said that the PPPRA observed, “At the tail end of May 2007, it was realised that funds were not sufficiently available in the Petroleum Support/Stabilisation Fund (PSF) to keep the suppression of the prices.”

Chief Gbadamosi further revealed that, the PPPRA Secretariat pleaded with the outgoing President Obasanjo and said that, “Look, last year (2006), you were generous enough to have allowed a total of N250 billion as intervention mechanism to support the balance of the PSF in accordance with the pledge you made to Nigerians not to increase the prices in 2006. And hey, 2007, Niger-Delta problems, Iraq problems and the tension in Iran, the world price of products just went up. Marketers who were attracted by the Petroleum Support Fund just came calling.”

In addition, according to Chief Gbadamosi, the Secretariat also drew the attention of the outgoing President Obasanjo to that fact his government has “indicated it will subsidise petroleum products in the 2007 budget… but only 100 billion naira provision is contained in the 2007 budget for the PSF, which will not go anywhere to keep on supporting the prices.” Accordingly, the PPPRA Secretariat then “computed the extent of how much it will be required and discovered that additional N30 a litre should be set aside in the support fund. But that sort of money has not been provided for in the 2007 budget.”

They therefore concluded, “It would be uncharitable for those who are going to be the managers of the deregulation process to be faced with this kind of problem.” The Secretariat was also concerned about the issue vis-à-vis the impending “transition from one government to another” and therefore posed the question to Obasanjo: “Should the presidency bequeath this monumental dilemma to the incoming regime?” 

Therefore, a decision must be made as “they were confronted with the need for additional N30 a litre” and hence, something must be done to solve the problem. They inevitably proposed a formulae of 15/15 – that is, the government provide N15 and the consumers bear the other N15 (i.e., a 50/50 burden sharing). According to Chief Gbadamosi, the outgoing president Obasanjo said “no” to the proposal and hence, Obasanjo personally “proposed a 20/10” burden sharing formulae, with “the government providing N20” and “the consumer paying the balance of N10.” This was how the decision to raise the fuel prices by N10, thus increasing the pump head price of petrol from N65 a litre to N75 a litre was reached, if we are to go by Chief Gbadamosi’s testimony as reported in the interview. This shows that former president Obasanjo, at the prompting of the PPPRA Chairman and Executive Secretary, unilaterally determined or set the new petroleum products prices by executive fait.

Moreover, according to Dr. Oluwole Oluleye, the Executive Secretary of the PPPRA in a separate interview[13] granted to the press, he remarked that “market fundamentals” were responsible for the sudden policy decision and implementation of the 15% increase in the prices of domestic petroleum products by the outgoing President Obasanjo on May 27, 2007. Therefore, these two testimonies by the two top-level officials responsible for the day-to-day management of Nigeria’s domestic petroleum products prices, supply and demand management summarises the insights into the decision-making process that led to the four-day government versus labour debacle. Therefore, a number of nagging issues and matters arising from this debacle need to be isolated and addressed. These are as follows:

1. The Economics: To what extent “market fundamentals” played a role as the driving forces behind the hike of prices of domestic petroleum products as claimed by the PPPRA and the Presidency?

2. Accountability: Who bears the costs associated with the four-day strike action (in other words, who should be held accountable for the policy failure)?

3. Transparency and the Policymaking Process: How democratic, transparent and participatory were the decision-making process that produced these outcomes?

4. Getting the Timing Right: How appropriate or otherwise was the timing of the hike in prices announced and implemented? and

5. Post-Strike Policy Directions: How appropriate are the post-strike policy directions?

These menus of issues and matters arising from the government policy actions and the reactions from the labour unions are briefly examined in the subsequent sections in the remaining forthcoming parts 2 -5 of this analysis.

Abubakar Atiku Nuhu-Koko

(Executive Director)

The Shehu Shagari World Institute for Leadership

and Good Governance (SSWI), Sokoto, Nigeria/

(Research Fellow, Petroleum Economics & Policy)

Centre for Energy, Petroleum and Mineral Law and Policy (CEPMLP)

University of Dundee, Dundee, Scotland, UK

E-mail: aanuhukoko@yahoo.com

Tuesday, 10 July 2007