VZCZCXRO3117
PP RUEHDE RUEHMA RUEHPA
DE RUEHOS #0199 1581241
ZNR UUUUU ZZH
P 061241Z JUN 08
FM AMCONSUL LAGOS
TO RUEHC/SECSTATE WASHDC PRIORITY 9933
INFO RUEHZK/ECOWAS COLLECTIVE
RUEHHH/OPEC COLLECTIVE
RUEHUJA/AMEMBASSY ABUJA 9642
RUEHC/DEPT OF LABOR WASHDC
RUFOADA/JAC MOLESWORTH AFB UK
RUEKJCS/SECDEF WASHINGTON DC
RUCPDOC/DEPT OF COMMERCE WASHDC
RHMCSUU/DEPT OF ENERGY WASHINGTON DC
RUEATRS/DEPT OF TREASURY WASHDC
RUEAIIA/CIA WASHINGTON DC
RHEFDIA/DIA WASHINGTON DC
RUEWMFD/HQ USAFRICOM STUTTGART GE

UNCLAS LAGOS 000199 
 
SENSITIVE 
SIPDIS 
 
DOE FOR GPERSON, CHAYLOCK 
DOL FOR SUDHA HALEY 
 
E.O. 12958: N/A 
TAGS: EPET ENRG ELAB PGOV NI
SUBJECT: NIGERIA: WILL GON RAISE GAS PRICES AS YEAR LONG 
MORATORIUM ENDS? 
 
REF: 07 ABUJA 1342 
 
¶1. (SBU) Summary: The year-long agreement between the GON and labor 
union on gasoline prices comes to an end this month.  Unions and the 
government are already holding informal talks on the future of 
subsidized gasoline prices.  In 2007, the subsidy totaled USD 1.6 
billion.  While the increasing world price of gasoline is pressuring 
Nigeria's budget, rising crude oil prices lessens the impact and 
hence the urgency for the GON to act.  End Summary. 
 
¶2. (SBU) The agreement between the GON and labor unions to freeze the 
retail price of gasoline at 70 naira per liter (USD 0.59 per liter or 
USD 2.26 per gallon) expires this month.  In June 2007, the then 
newly inaugurated Yar'Adua administration backed down from plans 
announced under the outgoing Obasanjo administration to increase the 
retail price of gasoline from 65 to 75 naira per liter (USD 0.55 to 
USD 0.64).  After four days of nationwide protests and strikes, the 
labor unions agreed to a price of 70 naira per liter with government 
assurances that it would not seek another price increase for one 
year.  The GON also agreed to form a committee with unions and 
government representatives to review future price increases 
(reftel). 
 
¶3. (SBU) One industry contact at a large European downstream 
petroleum company reports that the GON will meet with labor union 
representatives at the end of June to discuss a variety oil and gas 
issues.  He believes a possible price increase will be at the top of 
the agenda, but said his company has not been advised of any official 
plans.  A top trade union official told Econoff that labor unions are 
already holding informal discussions with the government.  He expects 
a formal announcement on an agreement in late June or early July, but 
declined to speculate on what would happen to gasoline prices. 
 
¶4. (SBU) Press reports of the end of the agreement have been almost 
non-existent, with only a brief back and forth between the GON and 
labor officials in March and April when the Minister of State for 
Energy (Petroleum) was quoted on the need to "do something" and labor 
officials responded by saying a price hike was unacceptable.  While 
government, labor union, and oil industry contacts are keeping quiet 
on the future of the agreement, a general consensus among downstream 
industry executives and local industry trade papers is that the 
rising price of refined petroleum is squeezing government coffers. 
Nigeria continues to import most of its gasoline, despite the 
resumption of output from the Kaduna and Warri refineries.  The 2007 
gasoline subsidy totaled USD 1.6 billion.  In a February 2008 report, 
the Petroleum Products Pricing Regulatory Agency, responsible for 
implementing the subsidy and running Nigeria's gasoline importation 
mechanism, estimated that Nigeria would spend another USD 1.6 billion 
in 2008.  Why the GON flatlined projections for gasoline subsidy 
expenditures is not clear, although it may have been counting on 
increased output from domestic refineries while underestimating the 
rise in worldwide gasoline prices. 
 
¶5. (SBU) Comment:  The unions, emboldened by a successful strike 
against ExxonMobil and seeing government coffers filled with revenues 
from record crude oil prices may feel they have no need to back down 
from a hard-line stance against a gasoline price increase. 
Government on the other hand, while wanting to avoid a strike, needs 
relief from the rising international price of gasoline.  The subsidy 
makes budget planning difficult and diverts substantial funds that 
could be better used elsewhere.  However, Nigeria's gasoline subsidy, 
when compared to subsidies in countries like Indonesia, Malaysia, and 
India, is relatively modest.  In the end, the most politically 
expedient solution for the government would be to leave gasoline 
prices unchanged, taking comfort in the fact that the rising cost of 
the subsidy, while painful, is partially hedged by higher crude oil 
prices.  End Comment. 
HUDSON