Nigeria consulting unions before fuel subsidies cut

By Felix Onuah

ABUJA (Reuters) - Nigeria will forge ahead with the abolition of fuel subsidies despite the threat of a general strike but will not change pump prices until consultations with the unions are concluded, the presidency said late on Tuesday.

Fuel subsidies cost Nigeria 640 billion naira last year, almost a quarter of the country's original 2008 budget, and the government has repeatedly said they will be abolished as part of deregulation of the downstream oil sector.

"President (Umaru) Yar'Adua believes deregulation is central to the reform of the oil and gas sector and that we must begin to think and act not only with an eye on the short term," presidency spokesman Olusegun Adeniyi said.

"For that reason he insists on continuous dialogue with labour and other critical stakeholders until we reach a meaningful consensus, and hopefully that will come very soon," he told reporters in Abuja.

Despite vying with Angola as Africa's top oil producer, Nigeria imports around 85 percent of its fuel needs because of the chaotic condition of its four state-owned refineries.

Most Nigerians live on less than $2 a day and see subsidised fuel -- capped at 65 naira a litre -- as virtually the only tangible benefit of their country being an oil producer.

But the system means a handful of billionaire fuel marketers are effectively able to hold the country to ransom whenever they run into a dispute with government, which pays them the difference between the regulated pump price and the cost of importation.

Earlier this year, the marketers suspended fuel imports for several months causing chronic shortages because they said the government owed them hundreds of millions of dollars in subsidy arrears.