By: Ingrid Krüger
Earlier this month, the Nigerian government decided to more than double the domestic fuel price, from the initially subsidized price of 40 cents per liter. After a week of general strike, the Nigerian government gave in to the pressure, only keeping less than half of the initial price increase.
What makes a fuel price reform so difficult in Nigeria? Nigeria is the largest crude oil producer in Africa, producing more than two million barrels of crude per day(1) and cheap fuel is considered a birth right among Nigeria’s citizens as in the other OPEC member states. The Nigerian government’s ability to subsidize fuel is challenged, however, both by the vast size of Nigeria’s population and by the country’s lack of sufficient refinery capacity.
Nigeria is the most populous country in Africa, with a population estimated to almost 160 million inhabitants.(2) This makes Nigeria oil poor when crude oil production is measured in per capita terms compared to, say, sparsely populated Kuwait, that produces around the same amount of crude. Furthermore, the Energy Information Administration (EIA) reports that because of “poor maintenance, theft, and fire”, Nigeria’s four refineries are operating below capacity. In 2009 and part of 2010, Nigeria’s refineries were operating below 30 percent of capacity, forcing the country to import around 85 percent of the fuel it needed.(3) The vast population and the lack of sufficient refinery capacity in Nigeria make subsidization of the domestic fuel price a very expensive economic policy for the Nigerian government. This may help explain why international comparisons rank Nigeria’s domestic fuel price above the OPEC average and even above the OPEC average within Africa.(4)
Even though subsidization of fuel implies great costs for the Nigerian government, it is difficult to make the citizens in Nigeria accept a domestic fuel price increase. Corruption and poverty make domestic fuel price increases highly unpopular and fuel price hikes have led to general strike in the country in the past. Nigeria receives the very poor rating of 2.4 on Transparency International’s Corruption Perception Index (CPI), an index scaled from 0 to 10 where 0 is “highly corrupt”.(5) In December, the Economist wrote that “the most moderate estimates suggest that $4 billion to $8 billion is stolen from Nigeria’s state coffers every year”.(6) The corruption among politicians in Nigeria indicates a great waste of the country’s natural resources. To the citizens in Nigeria, it seems that they are picking up the bill for the politicians’ corruption. The revenues foregone by corruption could have been spent investing in poorly needed refinery capacity. Furthermore, poverty makes a doubling of the fuel price unbearable for many people. In 2004, which is the most recent year with data available, more than half the population was living below the national poverty line in Nigeria.(7) As long as corruption and poverty remain high, fuel price hikes will continue to cause great anger in the oil producing country.
1 OPEC Annual Statistical Bulletin 2010/2011: http://www.opec.org/opec_web/en/publications/202.htm
2 The World Bank: http://data.worldbank.org/indicator/SP.POP.TOTL
3 Energy Information Administration (EIA): http://www.eia.gov/countries/cab.cfm?fips=NI
4 GIZ. Data Preview ‘International Fuel Prices’ 2010/2011: http://www.gtz.de/en/themen/33729.htm
5 Transparency International: http://cpi.transparency.org/cpi2011/results/
6 The Economist. Dec 3rd, 2011: http://www.economist.com/node/21541042
7 The World Bank: http://data.worldbank.org/country/nigeria
Assumptions about the world wide oil and gas industry lie and the heart of our beliefs about the legitimacy of many of the important political events of our time. The stake multinational oil & gas companies have in Iraq, Afghanistan and Libya, for example, lie at the core of many of our assumptions about the legitimacy of military intervention in these countries by US led forces. Yet the public has scant little data with which to judge the comparative “government take” for a given level of production in each of these countries before and after the relatively recent military interventions, let alone data which enables an easy comparisons of the “government take” in these nations with that applicable in other oil and gas producing nations. With record high oil prices, the public really has no idea regarding the revenue from oil & gas production that flows back to the producing nation from each barrel of production. Yet we all make assumptions about these maters. Some assume, for example, that the interests of oil & gas companies in the mid-east and developing world is advanced on a level playing field which on balance is beneficial and fair to the producing nation. Others assume that the dynamic is anything but beneficial and fair to producing nations. Unfortunately the complex and often secretive arrangements between local governments and oil companies make any effort to identify the truth about our assumptions difficult. Sadly the industry as a whole is cloaked in secrecy and characterized by corruption. There appears to be no date available with which to easily compare the relative ” government take” and “corporate take” from oil & gas production in each of various OPEC nations at given time, let alone from time to time. This raises the question: Why do regional governments as well as oil & gas companies make it virtually impossible for the public to work out just how much revenue flows back to the producing nation’s public coffers from each barrel of oil extracted in any given country?
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