President Goodluck Jonathan won an election in April that was hailed by international observers as the fairest Africa's most populous nation had held in decades, raising economic optimism among foreign investors and many Nigerians. But his latest plan to remove subsidies on petrol imports has failed to convince Nigerians and threatens his wider agenda.
"To the foreign investor looking at Nigeria's downstream sector, this is a necessary step to take. But to the Nigerian populace seeing cheap petrol as almost a birthright, seeing a rise in petrol will spark confusion to the point of conflict," said Mark Schroeder, director of sub-Saharan analysis at risk consultants STRATFOR.
Sub-Saharan Africa's second largest economy after South Africa lacks adequate power supplies, and although a top crude oil producer, Nigeria has to import most of its fuel needs.
Jonathan won the vote on promises to transform Nigeria by fighting corruption, unlocking the world's seventh-largest gas reserves, ending decades of chronic blackouts and diversifying an oil-reliant economy to boost jobs and alleviate mass poverty.
He took office a year before elections when his predecessor Umaru Yar'Adua died, inheriting the Petroleum Industry Bill (PIB), an ambitious plan to overhaul Africa's largest energy industry, but reforms have deadlocked in parliament, holding back billions of dollars of foreign investment.
Analysts fear the subsidy row will now dominate public opinion and policy makers attention at a time the country desperately needs an overhaul of its mainstay oil business. Its sovereign wealth fund launch is in dispute and promised reforms to its gas, power and agriculture are yet to get off the ground.
Economists know the fuel subsidy is failing but any benefit the public gets from it they want to keep because they don't believe the $7 billion a year saved from its removal will be spent to change decades-old downstream oil sector problems.
"The fuel subsidy is a big problem but it is only a symptom. The heart of the dysfunction is the NNPC. Since 1977, Nigeria's state-oil company has evolved into a Byzantine and structurally insolvent mess. It is profoundly — sometimes willfully — mismanaged," said Ashley Elliott, West African analyst, at Control Risks.
OIL REFORMS
"To solve the really big issues — such as Nigeria's dependency on foreign imports to meet 85 percent of domestic demand for refined products — meaningful reform of the NNPC is the only rational hope," Elliott said.
The PIB was supposed to fix all these issues but parliament and the oil ministry are at loggerheads over which version to use. Diplomats and parliamentary sources told Reuters this week that if the PIB ever passes it will be heavily watered down.
The fuel subsidy removal is bolted on to the 2012 budget proposal, which Finance Minister Ngozi Okonjo-Iweala, a former World bank executive, has promised will be a break from the chaotic past. But this week she said that a proposal may not be ready until December, two months later than promised.
Previous spending plans have been so late ministries don't know how much money they will have to spend until months into the year. Another delayed budget will get Okonjo-Iweala's tenure off to a disappointing start and would set a worrying precedent.
Fuel subsidies are one of the most emotive subjects in Nigeria, where the majority live on less than $2 a day and see cheaper petrol and cooking fuel as the only benefits they get from living in an oil-rich country.
Trade unions have threatened to mobilize nationwide protests and lawmakers are hauling policy makers into the national assembly for an explanation.
Subsidy removal might bring extra government revenue but unless Jonathan can lend his weight to a backlog of reforms facing parliament, noticeable change could be limited.
CORRUPTION
"There has been so much corruption related to the oil sector that confidence in the government's ability to use oil revenue wisely has seriously waned over the years," said Kissy Agyeman-Togobo, partner at African-focused Songhai Advisory.
"People will be more concerned with results orientated outcomes — the reduction of poverty levels nationwide, particularly in the north and the Niger Delta, the provision of stable power supply and security sector reform."
Okonjo-Iweala says removing fuel subsidies would save Nigeria more than $7 billion this year, money which is often wasted on a corrupt fuel import process and subsidized petrol is often smuggled to neighboring countries.
The petrol price is supposed to be kept at 65 naira ($0.41) a liter but in the poorest, most isolated areas it goes above 150 naira and ministers supporting the policy say once it is removed, foreign investors will come into the downstream oil sector and petrol will eventually be cheaper countrywide.
But such is the mistrust in a country where corruption is still the biggest drawback for potential foreign investors, the Nigerian public are dismissing a seemingly sensible plan.
"How much money do you think the government needs to make our refineries work? Our power supply work? Our roads, hospitals, schools? They have had enough money to fix it all and now they want every last naira from the people," said Umar Mustapha, a student in northern Borno state.
