Nigeria Oil Shutdown Would Be ‘Last Resort’ as Strike Enters Second Week

Nigerian labor unions spurned an offer by President Goodluck Jonathan to cut gasoline prices in Africa’s biggest crude producer and said they’ll extend a national strike over the abolition of fuel subsidies into a second week.

Oil union Pengassan said it will only shut down oil output as “a last resort” in Africa’s top crude producer to give more time for negotiations with the government to end the strike, which has slowed trading in stocks and the naira, closed ports and banks and sparked street protests. The President today unilaterally reduced gasoline prices and the country’s oil minister pledged to speed up oil industry reform.

“Government will continue to pursue full deregulation of the downstream petroleum sector,” Jonathan said in a statement. “Government is working hard to reduce recurrent expenditure in line with current realities.”

The strike began on Jan. 9 after the government ended subsidies on Jan. 1, which it said cost 1.2 trillion naira ($7.4 billion) last year, and pledged to spend the savings on power plants and roads. At the same time Jonathan is facing a surge in religious violence in parts of the north where he has declared a state of emergency and says Islamic militants pose a worse threat to the country than the 1967-70 civil war.

Bombs, Guns

At least 85 people have been killed in bomb and gun attacks since Christmas Day on churches in Abuja and in the north that the government blames on Boko Haram, a militant Islamic group inspired by Afghanistan’s Taliban movement. The northeastern Adamawa state on Jan. 14 declared a 24-hour curfew in four of its districts to curb the violence.

The price of gasoline was cut to 97 naira a liter. The price had more than doubled from 65 naira when the subsidies were abolished.

The government’s offer to reduce fuel prices falls short of the unions’ demand for a full reversal, the Nigeria Labour Congress and the Trade Union Congress, the country’s biggest labor federations, said in a statement yesterday, before Jonathan’s announcement. “The indefinite strikes, rallies and protests continue nationwide” as of Jan. 16, they said.

Diezani Alison-Madueke, the country’s oil minister, said that she has set up bodies to eradicate corruption and examine management in state oil companies including the Nigerian National Petroleum Corp. She will meet with the Senate this week to try and speed up the passage of a bill needed for reform of the industry.

Deferred Shutdown

“All hands are on deck to ensure full probity and accountability in the oil industry,” she said in a statement. “Having spent the last few months painstakingly reviewing its operations and designing a vision for the future, it is now time to deliver.”

The two labor federations have asked Pengassan “to defer the shutting down of oil production and export,” the union said in an e-mailed statement yesterday. The “postponement will enable labor and civil society groups explore ongoing consultations and negotiations in resolving the current nationwide strike.”

While oil output and exports remain unaffected by the strike, Pengassan is poised “to execute immediately the systematic shutdown of oil production should the negotiation with the government break down,” the Lagos-based union said.

Oil, Cocoa

Nigeria pumped about 2.2 million barrels of oil a day last month, according to data compiled by Bloomberg, accounting for almost all of its export income. At least 90 percent of Nigeria’s crude is produced by Royal Dutch Shell Plc (RDSA), based in The Hague; Exxon Mobil Corp. (XOM); San Ramon, California-based Chevron Corp. (CVX); Total SA (FP) and Eni SpA (ENI) in joint ventures with the state-owned NNPC.

The cost of the labor action to sub-Saharan Africa’s second-biggest economy may be more than $1 billion a day, according to Gregory Kronsten, head of macroeconomic research at FBN Capital Ltd. in London.

Trading on the country’s bourse last week was about a third of the 1.05 billion shares that changed hands the week earlier, the Nigerian Stock Exchange said in an e-mailed report. The Nigerian Stock Exchange All-Share Index (NGSEINDX) fell 0.2 percent on Jan. 13 to 20,840.97 while the naira fell 0.2 percent to 162.3 to the dollar as of 6:51 a.m. in Lagos, its lowest since Jan. 2.

Dented Credibility

Crude oil for February delivery gained 0.2 percent to $98.87 per barrel in electronic trading on the New York Mercantile Exchange as of 1:41 p.m. in Singapore. Cocoa prices in New York have advanced 4.6 percent in New York since the strike started on concern shipment from Nigeria, the world’s fourth-biggest producer of the beans, will be disrupted.

“We’re holding the necessary consultations” to end the strike, Labor Minister Chukwuemeka Wogu told reporters in Abuja yesterday. “We expect to have an agreement soon.”

The capping of gasoline prices in Nigeria, where two-thirds of the population of about 164 million live on less than $1.25 a day, led to a shortage of investment in refineries that forced the West African nation to import about 70 percent of its fuel.

In opposing Jonathan’s reform, union leaders and protest groups have focused their criticisms on government waste and corruption, especially those associated with fuel imports and distribution.

“The government’s credibility is seriously dented, ” Bismarck Rewane, analyst and chief executive officer of Lagos- based Financial Derivatives Co., said in an interview. “They’ll have to earn it back.”

To contact the reporter on this story: Elisha Bala-Gbogbo in Abuja at ebalagbogbo@bloomberg.net

To contact the editor responsible for this story: Antony Sguazzin at asguazzin@bloomberg.net

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