* Thousands demonstrate against fuel subsidy cut
* Unions plan “indefinite” strike
* No impact on crude oil production so far
* Economists say subsidy was wasteful and corrupt
By Chijioke Ohuocha
LAGOS, Jan 9 (Reuters) - Police shot dead two protesters and wounded more than two dozen on Monday as thousands of Nigerians demonstrated against the axing of fuel subsidies in Africa’s top oil producer and unions launched an indefinite nationwide strike.
Police fired live ammunition and tear gas to disperse protesters in the main commercial city of Lagos and in the northern city of Kano, killing one in each city, hospital sources and police said.
Nigerians’ anger over the subsidy cut, which has more than doubled the price of a litre of petrol, has united poor market traders and middle class motorists alike. The row is straining Goodluck Jonathan’s presidency just as he faces criticism for failing to contain an Islamist insurgency in the north.
Jonathan has said he will not back down on eliminating a subsidy economists said was corrupt, wasteful and unsustainable, and which siphoned off billions of dollars of public funds to a cartel of fuel importers.
The strikes in coming days will test his resolve.
Such labour action has forced previous governments into u-turns on cutting fuel subsidies, which many Nigerians see as the only tangible benefit they derive from an oil-rich state where corruption bleeds billions of dollars from state coffers.
Angry residents in Ogba, a trash-strewn suburb of iron-roofed homes in Lagos, where one man was shot dead, said police had fired on a crowd to disperse it.
At the hospital, where the man’s body had been transferred to the mortuary, three protesters lay waiting to be treated for gunshot wounds to the leg, a Reuters reporter there said.
“There were about seven policemen shooting in the air to try to disperse protesters ... The DPO (police chief) opened fire targeting these four people and shot them,” said Dickson Oracle, who witnessed the shooting in Ogba. “One died on the spot”.
In Kano, Nigerian police said they had shot dead one demonstrator, but protesters said two had been killed. The Red Cross said more than 20 people were being treated for gunshot wounds.
“In our record only one person is dead and 7 injured, we arrested 24 persons (who) attacked the government house,” Kano Police Commissioner Ibrahim Idris told a news conference.
“It was peaceful until criminals attacked the governor.”
Shops, banks and petrol stations were shut in Lagos, and the network of highways and bridges stretching over its wide lagoon, usually clogged with traffic at all hours, was empty.
Production of Nigeria’s average two million barrels of crude oil a day carried on as normal despite the strike, sources at two international oil companies and the state firm told Reuters.
Nigeria’s fuel regulator announced the end of the subsidy from Jan. 1 as part of efforts to cut government spending and encourage badly needed investment in local refining.
As well as being a source of corruption, economists say, the subsidy filled the fuel tanks of the rich and middle classes at the expense of a poor majority living on less than $2 per day.
“It was 25 percent of total expenditure in the budget, the single biggest item, more than education, health and agriculture combined,” said Bismarck Rewane, chief executive of Lagos-based consultancy Financial Derivatives.
Removing it, which sent the price of a litre of petrol up overnight to about 150 naira ($0.93) from about 65 naira, was a flagship policy of Jonathan and his economic management team.
The protests come at bad time for Jonathan, who is battling an insurgency by the Boko Haram Islamist militants. The president said on Sunday that even some within his own government back the sect.
But analysts expect him not to back down because the alternative, an economic meltdown, would be even worse.
“The government doesn’t have a choice because the fiscal cost associated with the subsidy is unsustainable. It’s going to become unbearable,” said Standard Bank’s Samir Gadio, adding that Nigeria has increased prices before in spite of protests.
“Fuel prices were increased in 2003. Every time you had popular discontent, but they managed to push them through. It’s too early to tell whether they can ride this one out, though.”
The government said it would be economic suicide to give in.
“Deregulation is inevitable to save the Nigerian economy ... and safeguard the future of Nigeria,” presidential spokesman Ruben Abati told Reuters by phone.
The government estimates it will save 1 trillion naira ($6 billion) this year by eliminating it.
The subsidy has also encouraged smuggling into neighbouring nations such as Benin and Cameroon where fuel is more expensive.
Critics say wealthy politicians could have found savings within government first and tackled oil industry corruption.
In the capital Abuja, thousands gathered under tight security, some in cars adorned with labour union flags.
“What is happening is an injustice. I voted for Jonathan but he has disappointed me,” said Michael Uche, a 32-year-old bodyguard, after checking the Twitter feed on his Blackberry for the latest on the protest.
He complained that when he tried to fill his car on Sunday it was 200 naira a litre, so he could only buy two litres.
In parts of the north and centre covered by a state of emergency to fight Boko Haram, streets were deserted.
Oil workers said production in Nigeria’s oilfields continued uninterrupted, as many had predicted.
In Yenagoa, in the southeastern Niger Delta, a heavy police presence prevented demonstrators from protesting. In nearby Port Harcourt, hundreds gathered, hemmed in by police patrol vans.
Despite its huge oil wealth, Nigeria is forced to import costly refined fuel because it lacks its own capacity. The government hopes the new pricing regime will prompt investment to reverse disrepair of refineries, after decades of mismanagement.
The lower house of parliament urged unions and government to back down on Sunday, but both have refused.