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Analysis
By Briony Hale
BBC News in Lagos
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Nigeria's government has lost the latest battle in its war against the unions. The government has bowed to pressure and moderated its planned petrol price rises. But economists say the government is storing up trouble for itself in the future.
The cost of transport is highly contentious
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There are two things guaranteed to anger the average Nigerian: Firstly, the fact that their oil-rich country relies on fuel imports and secondly, the price of petrol.
Nigeria exports about 2.5 million barrels of crude oil a day, but is then forced to buy back petrol, diesel and other refined fuels from non-oil producing countries, such as Spain, at a far higher price.
Foreign investors
Nigeria's government has reaped an estimated $280bn from oil in the past 30 years but has failed to invest enough money in its own oil industry to ensure efficient refineries and a proper supply network to distribute the fuel to service stations.
The restoration of Nigeria's decrepit refineries - owned by Nigeria's state-owned oil company - has been a priority for a succession of ministers.
But chronic mismanagement, years of corruption and a string of political appointees has left the refineries in a worse state than ever.
As President Olusegun Obasanjo started his second term, he embarked on a different tactic altogether: wooing foreign investors to come and build their own refineries and distribution networks.
Bitter pill
Nigeria's downstream oil industry holds substantial appeal to international oil firms. The country has a population of 130 million and a large number of people with money to spend on fuel.
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Is it right to force people to pay higher petrol prices?
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The problem has been compounded by the fact that oil prices have been rising steadily since President Obasanjo was re-elected, thus pushing the gap between the true price of petrol and the price at which it is sold in Nigeria ever wider.
But there is one obstacle preventing their entry into the marketplace: the heavy subsidies on fuel prices which amount to about $2bn a year.
That is why the government has been trying to press ahead with the highly unpopular measures of raising petrol prices, a move that is broadly supported by economists.
It is only when Nigeria's petrol prices come into line with their true value on the international marketplace that the foreign investors will finally arrive.
Angry drivers
President Obasanjo has been trying to persuade people of the benefits of removing the subsidies by convincing them that the money could be spent instead on improved education or health care.
Indeed, the amount of money spent subsiding fuel is a huge drain on the budget and could be spent much more effectively elsewhere. Subsidies, after all, benefit the rich as much as the poor.
But there is no easy way of weaning people off cheap fuel, and the promise of future investment in social services is hardly able to sway people who are facing an immediate rise in petrol prices they simply cannot afford.
The cost of fuel already accounts for an unwieldy proportion of people's pay packets. The prospect that fuel prices may double again is met with incredulity and, increasingly, anger.
Long-term fears
Two thirds of Nigeria's population is sill living on less than $1 a day, and the proposed fuel price increases are crippling large swathes of society, preventing people getting to work and threatening some small businesses with bankruptcy.
The government wants to raise petrol prices by 25 per cent
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The government's plans have been strenuously opposed every step of the way: people are weary of hearing that they must swallow a bitter pill for their own future good.
And that bitter pill is made virtually impossible to swallow by the knowledge that vast amounts of cash have been squandered or stolen during the 1980s and 90s.
This time, the threat of another general strike - and the union's promise to deliberately target oil exports - caused the government to back down on its policy at the eleventh hour.
Avoiding the hugely unpopular petrol price rises is undoubtedly a huge relief for many Nigerians in the short term.
But it is one step backwards in the long-term goal of breaking the cycle that makes Nigeria reliant on imported petrol, which leads to the equally unpopular fuel shortages.
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Printable version
In light of the fuel reduction we decided to suspend the strike
In pictures
