The powerful oligarchs in charge of the oil industry, Africa's largest, have been attacked in the media and pilloried at rallies after their abrupt withdrawal of the fuel subsidy on New Year's Day unleashed protests that crippled the economy.
“We call for a forensic audit of all the payments that have been made in the name of subsidy in the last 10 years,” independent daily This Day wrote in an editorial on Wednesday. “We call for the law to take its full course on those that have (become) fat on the nation's misery.”
Strikes nearly led to a shutdown of some of Nigeria's 2 million barrels per day of oil output, when oil workers threatened to join the action before the crisis was resolved.
President Goodluck Jonathan, elected with a healthy majority last April on an agenda to transform Africa's most populous country, was forced to partially row back on scrapping the subsidy, a key economic reform.
Its removal had doubled petrol pump prices to around 150 naira ($0.93) per litre from 65 naira, but Jonathan on Monday partially reinstated the subsidy, pegging the price at 97 naira.
Although the immediate cause of the strikes and protests was fuel prices, protesters said the underlying anger was more about years of frustration at corruption and mismanagement of the country's huge oil wealth.
Apparently sensitive to this, Jonathan and oil minister Diezani Allison-Madueke promised prompt action this week to implement long delayed reforms to the oil sector.
Allison-Madueke promised to investigate corruption in the sector and this week Nigeria's corruption watchdog on her orders launched an investigation into the subsidy system, sending agents to the state oil company and petroleum pricing regulator.
“This is the best outcome of this whole saga. If they bring in the long promised changes to the Nigerian National Petroleum Corporation and others it will be the best thing that happens,” said Stephen Eze, a lawyer involved with the oil industry.
“People are asking serious questions and government is on its toes.”
WILL HEADS ROLL?
Allison-Madueke told a hearing of a parliamentary committee on Tuesday there had been some malpractice in the fuel subsidy but steps were being taken to root out fraud.
“Yes, there have been some manipulations in the sector; there is no doubt about it,” she said.
Nigeria's oil sector has long been under fire for lacking transparency and for mismanagement, including in a report compiled by international accounting firm KPMG.
Allison-Madueke pledged to review such reports, but some analysts questioned her ministry's good faith in doing so now.
“The KPMG report has been on your desk for over a year. So why now?” asked Kayode Akindele, partner at Lagos-based financial advisory firm 46 Parallels, suggesting this may be too little, too late.
“The president might have to sacrifice somebody, and it might have to be the petroleum minister. Nobody has said anything in support of her during all of this – they've defended the finance minister, but not the petroleum minister,” he added.
Others doubt Jonathan will go that far because he has always stopped short of removing her under pressure in the past.
“Normally a sacrifice would be in order – sack a minister or something like that – to draw a line under it,” said Antony Goldman, the head of London-based PM Consulting. “But the trouble is the oil minister was always vulnerable. She was vulnerable before, but she has special protection.”
Similarly, few Nigerians are holding out much hope that the Economic and Financial Crimes Commission (EFCC) will deliver up top officials for prosecution after its latest investigation.
The watchdog has been seen as ineffective over the years, arresting senior political figures, including former state governors, but the cases often fail to go anywhere.
CRUCIAL OIL BILL
Despite being among the world's top 10 oil producers, Nigeria relies heavily on imported fuel as its own refineries are dilapidated, so the subsidy has become a cash handout of billions of dollars to a cartel of wealthy fuel importers.
Investment on refining and developing further oilfields for production hinges on passing a wide-ranging Petroleum Industry Bill (PIB) that has been stuck in parliament for more than four years, costing Nigeria billions of dollars in lost investment.
Crude oil exports account for 80 percent of government revenue and 95 percent of foreign currency earnings.
Allison-Madueke also said on Monday she would meet legislators to try to speed up this massive bill aimed at changing everything from fiscal terms to the state oil company.
On the same day, her ministry announced that it had set up a committee designed to facilitate this.
“The set up of a bipartisan Special PIB Task Force is probably one of the positive outcomes of the recent events in Nigeria,” said Samir Gadio at Standard Bank.
“My feeling is that there is now the right momentum to speed up the adoption of the long-delayed bill, although the risk of public policy inertia will remain a concern,” he added.
Another factor that protests brought to light is anger over the huge cost of government, particularly in the national assembly, where pay and perks are among the world's highest.
That could also help nudge the PIB along.
Akindele said: “One good thing is: this might push the PIB forward, because if this drags on, someone might start saying to the national assembly: what about your own salaries? … It will be a case of anything to keep the focus away from us. Let's pass the PIB quickly.”
But even if it passes, Nigeria might struggle to attract investment into refineries unless it can scrap the fuel subsidy, analysts say, as few will invest in a sector where prices are fixed below the market rate.
“In order to attract private capital to the refining sector, Nigeria will need to provide a path toward full deregulation of the sector so investors can earn returns excess of their cost of capital,” said Melissa Cook, Africa investment strategist at U.S.-based Enclave Capital LLC.
Economists say the fuel subsidy encouraged corruption and the wasteful use of fuel. The government estimates it will save 1 trillion naira ($6.2 billion) in 2012 by eliminating it.
But the government's willingness to back down on full deregulation because of the protests – the latest of several attempts that have been scuppered – has re-established a red line. That bodes ill for boosting refining capacity.
“You cannot alter the structure of that industry so long as there's a subsidy which means the price (of retail petrol) is fixed. … nobody is going to invest in that industry,” Bismarck Rewane of the Lagos-based consultancy Financial Derivatives, said.
That is not likely to be the end of it. The 2012/13 national budget is due to come into effect in April, and Nigeria has made no provision for a fuel subsidy. Some commentators reckon the drama just witnessed could be replayed. (Additional reporting by Tim Cocks and Chijioke Ohuocha in Lagos and Joe Brock in Abuja; Editing by Tim Cocks)
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