Nigeria's Strike Seems to be Over.

Yesterday (16/1/12) Nigeria's main trade unions suspended their crippling general strike against the abolition of the government's fuel subsidy. Today (17/1/12) most people appear to have returned to work.

Matters seem to have come to a head towards the end of last week when the oil worker's union threatened to shut down the nation's oil production by joining the strike. This led to crisis talks over the weekend between the government and the unions. It would be nice to pretend that during these meetings the unions suddenly realised that the operations of the largest oil company in the country - Royal Dutch Shell - are largely automated and the people they do employ are non-unionised. Therefore any strike would at best only have a limited impact on their business. It would though have a catastrophic impact on all the other oil operations in the country, the union members they employ and the nation as a whole by starving the Nigerian government of it's oil revenues - the country's main source of income. In fact the spike in the oil price that taking Nigerian oil off the market would cause would actually help boost Shell's profits.

Sadly though the real reason was that the government backed down and re-introduced around 50% of the fuel subsidy bringing the cost of petrol down from 120 Naira (US$1) to a fixed price of 80 Naira (US$0.7). Obviously this compromise is not a real solution for either party because it sees fuel costing twice what it did at the start of the year and means that the government is only able to save around half of the US$8bn that it was planning to re-invest in national infrastructure.

While the fuel subsidy needs to be abolished entirely the suspension of strikes does give the Nigerian government time to consider and calculate the financial, social and practical factors in order to find the best way to gradually phase out the subsidy. One option would be to abolish the subsidy completely but bring in a subsistence level fuel ration that is given away free to Nigeria's poorest. The problem is that this will be massively bureaucratic and time consuming to set up and therefore very expensive to run. It will also create bitter political arguments about who is poor enough to deserve the ration and how much fuel do people need to sustain. A better option would be to reduce the subsidy in increments. So - for example - in two months the current 50% subsidy is reduced by 10% and then by another 10% every two months over the next ten months.

Then once the subsidy is finally abolished and it has the extra US$8bn per year to spend the Nigerian government needs to start work on planning and building an electricity grid powered by conventional power stations. Apart from being much more environmentally friendly this is a much cheaper way to provide ordinary Nigerians with power bringing the cost down from it's current market price of around US$0.40 per kilowatt hour (kwh) to around US$0.08 per kwh. Unfortunately though this approach requires a lot of money to build and takes about 10-15 years to complete.

Actually if the COP17/CMP7 had managed to get the Green Climate Fund up and running this would be exactly the sort of thing it would be doing.