Since the Nigerian
government ended
longstanding gasoline
subsidies as of New Year's
Day, Nigerians have
responded with nationwide
strikes and protests, resulting
in several deaths. The
government has a chance to
respond in turn, by
addressing the rampant
corruption and
mismanagement of the
country's oil industry.
The gasoline subsidy
embodied the worst
characteristics of the
country's economic
governance. In 2011, the
subsidy on gasoline cost the
government over $9 billion,
more than the entire federal
government capital budget
and about double the
subsidy's cost in 2010. Global
fuel prices did not, of course,
double during this time
period. Nigeria's tab
skyrocketed thanks to the
costly, corrupt system by
which the country produces
and imports gasoline, as well
as rising interest charges and
insurance premiums as
government failed to pay fuel
importers on time.
By the end of 2011, Nigeria
owed importers over $4
billion. Relying on the
Nigerian National Petroleum
Corporation (NNPC), the
national oil company, the
government devised
complex, opaque methods
for covering import costs,
including swap deals where
crude oil was awarded to
commodity traders in
exchange for gasoline and
other refined products.
Officials allowed the subsidy
to rise because it included
lucrative opportunities for
corruption. In 2009, then
President Umaru Yar'Adua
called the manipulation of
prices and supplies "the
greatest institutional
corruption in the history of
the nation." Only when NNPC
faced bankruptcy -- owing
billions of dollars to
importers as well as to the
treasury -- did the
government decide to end
the subsidy.
This will not eliminate
corruption in the oil sector.
That would require the kind
of coherent reform that the
administration of President
Goodluck Jonathan has so far
postponed. The Petroleum
Industry Bill , which would
restructure the industry, has
idled in parliament for years.
NNPC, which is unique
among the world's largest
national oil companies in its
total reliance on international
traders to sell its crude, has
similarly resisted change.
Unable to pay its share of
operating expenses, it
maintains financing deals
with international oil
company partners that cut
deeply into national
earnings. Yet it is allowed to
regulate itself and manage
the country's four refineries,
which produce at 40 percent
capacity on the best of days.
Transparency and oversight
are limited throughout the
sector. The petroleum
ministry and regulatory
bodies provide no
information to the public,
and NNPC fails to disclose
even an annual financial
report much less its audit
statements. Most of the
sector's financial
transactions -- including
NNPC's earnings, and
transfers to the diminished
Excess Crude Account -- do
not appear as part of the
budget thereby sidestepping
legislative and public
scrutiny. Nigeria's reports
under the Extractive
Industries Transparency
Initiative suffer delays, so far
covering only the years
through 2008. Executive
discretion prevails over most
decisions, including the
allocation of valuable
exploration, production and
export licenses.
High oil prices and increased
production should have
made 2010-2011 the most
profitable years yet for the
Nigeria. However, the
country's economic health
worsened. Budget deficit
estimates exceeded $8 billion
in 2011 and, over the last
three years, foreign reserves
dropped by 40 percent and
public debt doubled.
Only a package of reforms
will correct the paradox of
robust revenue potential and
declining fortunes. Removing
the subsidy will not solve the
larger economic problems
unless additional reforms
take place, including the re-
drafting, passage and
implementation of the
Petroleum Industry Bill in a
manner that eliminates the
current system's
opportunities for inefficiency
and graft.
Much can be done to make
the sector more accountable
to the public interest. NNPC
should make public its
financial reports. Discretion
and secrecy should be
removed from the allocation
of licenses and the regulation
of exports and imports. The
status of the Excess Crude
Account requires
explanation, as does that of
the proposed new sovereign
wealth fund. And these
reforms must include clear
deadlines for action.
To generate economic
development, the
government will also need to
fulfill its promise to
transparently use these
savings to improve
infrastructure and social
services. It will also need to
implement the public sector
cuts announced by President
Jonathan on Dec. 8, including
a 25 percent reduction in civil
servant pay . Moreover,
public trust will only be
rebuilt through committed
investigation and prosecution
of corruption, and measures
such as declaration of
assets.
The problems are well
known, but so are the
concrete steps that can
increase transparency,
accountability and the
earnings of the state. They
have worked in other
countries and can help
Nigeria too.
It is not too late for Nigeria's
government to make the end
of its fuel subsidy the
beginning of reform. Citizens
will bear the cost of the
higher fuel prices. This
sacrifice will be worthwhile
only if the nation's oil wealth
begins to serve the public's
interests rather than those of
only a favored few.

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