Playing the fuel: reforming Nigeria’s subsidies

Hey, Ryan Reynolds here for Mint Mobile. You know, one of the perks about having four kids that you know about is actually getting a direct line to the big man up north. And this year he wants you to know the best gift that you can give someone is the gift of Mint Mobile's unlimited wireless for $15 a month. Now you don't even need to wrap it, give it a try@mintmobile.com Switch upfront.

Payment of $45 for a three month.

Plan equivalent to $15 per month.

Required new customer offer for first three months only. Speed slow after 35 gigabytes if network's busy, taxes and fees extra.

See mintmobile.com.

The Economist.

Hello and welcome to the Intelligence from the Economist. I'm Rosie Blore.

And I'm Jason Palmer. Every weekday we provide a fresh perspective on the events shaping your world.

In recent years, Bitcoin miners have been drawn to Texas for its purpose. Plentiful land, cheap power and libertarian ethos. But the state is becoming a little less welcoming.

And Indonesia is a country rich in history and folklore. Now it's using these stories to produce a new global export coming soon to a screen near you. Indonesian horror films Be very afraid. First up though, This week, something big changed for Nigerians. And there are hints of a far bigger change still to come. On Sunday, tanker trucks picked up the first batch of petrol from a mega refinery built by Aliko Dangote, the country's richest man. Nigeria is unusual in two ways when it comes to fuel. One is that it has plenty of oil reserves, but for nearly 30 years had no capacity to refine it into petrol until now. The other is that for decades the government insisted petrol was sold well below cost, something like 600 naira a litre when a fair market price is over 1,000. The subsidies that picked up the rest chronically squeeze all other public spending. But yesterday the state owned oil firm released estimates of what the new homebrewed petrol will cost. And it's close to that thousand mark. To talk about that coming pain at the pump and why it's needed, I spoke to two of our correspondents with plenty of experience covering Nigeria. Ora Ogunbi, our Africa correspondent based in Lagos, and Robert Guest, a deputy editor at the Economist. Hi both.

Hey Jason.

Hi, Jason.

Now, Orey, let's start with you. Because you grew up in Lagos, tell us how important these subsidies are, how they fit into the lives of the people you grew up with.

Well, as a kid, I don't think I fully understood the economics of fuel subsidies, but there was regularly what we call fuel scarcity. People would queue and fight over what little was available. And I think I learned quite early on that Nigerians get really riled up about petrol prices. And that's not just the Nigerians who own cars, but because people use petrol also to power lots of small generators, it ends up affecting a lot more than just the motorists. And despite the fact that Nigeria is actually a big oil producer, there are regularly fuel shortages which can then be really disruptive. Robert and I saw lots of queues in Lagos. How many hours have you been queuing for this petrol?

We've been here for almost 16 hours now.

16 hours?

Yeah.

You've been queuing for petrol for 16.

Hours since last night.

And Robert, given that Nigeria is a big oil producer, what is it that explains these fuel shortages?

One thing, the price. The government decrees that petrol should be sold for less than a market price. So that creates shortages as it does in all countries everywhere when people try this. Now I was first reporting on this in Nigeria 25 years ago and it was the same situation. Nigerians think that petrol should be cheap, but because the national petrol distributor loses huge amounts of money on all the petrol that it distributes, somehow the government has to make up the difference. But they often don't have enough money. So it runs out and the system is massively open to corruption. If you've got all this under market priced petrol, there's a huge incentive for insiders to steal it and smuggle it across the border and sell it for much higher price in all the neighbouring countries.

And presumably the expenditures on these subsidies that the government seems to think are necessary mean something else the government should be doing gets shorted.

It is the most wasteful policy I can think of in any country I ever go to. I mean, it varies, but right now they're spending about four times the health budget on petrol subsidies. So that encourages people to burn more petrol than they should. It's very inequitable because most of the benefits flow to better off people who own cars. Although it does affect everything else, like the price of food. And it just means that the government doesn't have money left over to invest in people.

And tell me how this new mega refinery might change the economics of all this. Or will it?

Not necessarily. What the new refinery does is crude oil that comes out of the ground. You can't put that in your car. It needs to be refined. Right now, no one in Nigeria is really refining any. So this new refinery from Alikotangote could increase the supply of domestically refined petrol. So the refinery is fine and it will probably work, but it's the government that has to decide whether they're going to be allowed to sell the petrol at a market price. If not, then they can't actually produce petrol for the market because they'll lose money. So it's down to the government. Now, they could decide that the refinery is a good political opportunity to make a big, painful, unpopular change, so they can appeal to the sort of nationalistic view that because Nigeria is a big oil producer, they ought to be refining their own petrol. And when the prices go up, which they will if they get rid of the subsidy, they can maybe blame the big businessman for it and pretend it's not the government's choice, but it creates a chance to reform the system. Now, all previous chances to reform the system, they have blown, but there's a reasonable chance. I mean, the government is so broke at the moment, and they're having so much difficulty maintaining the subsidy because it's so expensive, that this is an opportunity for them to change.

And, Aurea, how do you think that's going to go down? If fuel prices really do get people riled up and these seem to be virtually certain fuel prices to come, how's that going to go?

Yeah, Nigerians aren't happy. There's a strong economic case, obviously, for removing these subsidies. This is something that we've written about for a while. But for Nigerians, it will feel like a very steep increase because they've been buying petrol at an artificially cheap price for so long. So even though the subsidy isn't completely gone yet, the prices of petrol at the pumps went up last week from a minimum price of 568naira, which is about less than 50 cents in American terms per litre. And they've gone up to 855naira. So prices go up, then there's panic, but there's also still shortages of the available petrol. So for days the streets have been jammed with these huge queues of cars that are forming outside the petrol stations.

And.

And just outside the petrol stations, we also saw black market traders who were holding jerry cans of 5 and 10 liters and plastic tubes offering to fill people's tanks for three times the official price.

You have to come and sell it to us at 9000.

Errors.

Are not selling Jericho inside the village.

So you sold you this five liter for 9,000?

I bought it for 9,000.

Yeah. So, I mean, I was there with you, Ore. And these scenes were exactly like the ones I saw in Nigeria 25 years ago when I first went there, 8:55 in this respect, nothing's changed.

And it's definitely an ongoing problem. And you can see still today just how it affects how many trips people can take. And basically people just don't if they can avoid it. So we met with an Uber driver called Ibrahim Yahya who told us a little bit about that.

You understand. But right now some people doesn't came out because of the situation, you understand, Some people decided if they're working for the office, they decided to walk into their house.

They decided to work in their house.

Yeah, yeah, they decided to work in. But it's also affecting transport costs for food because it's just pricier to get food from farms to markets and that's then passed on to consumers and that's driving up prices across the country. So there were even cost of living protests in the country last month and there are some planned for October as well.

So people are really unhappy. But scrapping the subsidies will be worth it if it's done properly.

Well, let's talk about that. What happens to that money if the government doesn't have to blow it on subsidies?

So the short answer is we don't know. I mean, obviously there's a possibility that they could squander all of it. But if they want to be able to sell to the public the idea that the price of petrol has to go up, they have to explain that they're going to spend the money on something that will benefit people in the long run. And the area where Nigeria is really lacking compared to most other African countries is in actually investing in its people in health care and education. So the public spending per head on education is only $6 a year and on health it's $4. This is tiny. This means that you've got more kids out of school in Nigeria than in India, which is a much bigger country. The World bank estimates that Nigerian children, achie achieve only about a third of their potential. So if they had proper healthcare, education, nutrition, they'd be nearly three times as productive as adults. And that's just a much bigger prize than being able to drive around cheaply.

And before any of those potential long term benefits are even seen in the short term, Nigerians have to deal with a new cost being driven up or how do you think people are going to deal with that when it comes to.

Well, they're trying to get creative. I mean those who can afford to are just sending their drivers to sit in those long petrol queues for them. Some People are switching to hybrid cars, so ones that use natural gas tanks as well. Some people who are really dependent on petrol for their generators are switching to solar panels instead. So hopefully, as more people move to renewables, they'll have a bit less to worry about. And with the right kind of support, maybe that could be the future. Although it's probably a way off for most people.

I think that's a very long way off. I mean, it takes real time to transform an economy that's built around the idea of petrol being cheap to other forms of energy. But if Nigeria wants to prosper in the long run, then ultimately it's got to be investing in people, not petrol.

Yeah, Robert, I think I agree with you on that.

All right, Robert, thank you both very much for your time.

Well, thank you.

Thanks, Jason.

America is home to more bitcoin mining than any other country, and it's especially popular in Texas. The process involves using giant banks of powerful computers to solve mathematical problems. And the reward is valuable cryptocurrency. The trouble is, all those machines whirring away use huge amounts of energy, and that means the activity has taken on a political edge. Senior Republicans, including Donald Trump, say that any attempt to crack down on crypto mining is un American. But the enthusiasm of some of their Texan colleagues now seems to be waning.

This summer, Texas politicians have started to show signs of turning on crypto.

Rebecca Jackson is our Southern correspondent.

There are a couple things that happened. The first is that Texas politicians have been excited about bitcoin for a long time. In 2014, Greg Abbott, who's now the governor, took campaign donations in bitcoin before it was cool. Fast forward many years, and in 2021, China banned Bitcoin miners. And so they went looking for refuge in Texas. They found everything they needed. There was lots of land, cheap power, low taxes, and a libertarian ethos that matched their own. But in recent years, the Texas grid, which is disconnected from any other grid in the country, has become more and more fragile. That also made it more likely to attract bitcoin miners.

Okay, explain that relationship between the grid and bitcoin mining.

After a big winter storm in 2021 that left 4.5 million Texans without power and killed about 300 of them, the politicians were looking for a way to stabilize the grid. They wanted to make sure that there wouldn't be blackouts in Texas's big cities. One of the main issues is that there wasn't enough power being generated. Greg Abbott figured that if you brought on more large loads like bitcoin mines that would actually incentivize power plants to generate more energy for everyday Texans.

So you said that the grid in Texas is very creaky. It doesn't sound like this relationship is really working quite as anyone thought.

Texas politicians are starting to get fed up with bitcoin miners. And one of the reasons for that is that in June, ercot, the grid operator, predicted that demand for energy could double in Texas before 2030. There are a bunch of reasons for that. More people are moving to Texas. There are harsher winter storms and hotter summers, and we're already seeing blackouts in big cities like we did this summer in Houston. But new data centers, including ones for bitcoin mining and artificial intelligence, are expected to account for half of the surge. That means that while bitcoin initially was brought on to help stabilize the grid, it's now also causing problems for the grid.

Does that mean that Texas is no longer a hospitable environment for the bitcoin miners?

Every day, it is becoming less hospitable. And one of the reasons for that is that the bitcoin miners have also learned how to play Texas's energy market. And they're doing it in a way that is very economically beneficial to them and from the outside, can look quite pernicious. What they do is that on the hottest and coldest days, when demand for energy surges and the price of electricity soars, bitcoin miners do three things. Either, they voluntarily curtail mining because it's just not worth it for them economically to mine bitcoin when the price is so high. But there are two other things that they do. One, they sell power back to the power markets that they bought it from at a higher price. And two, they curtail their own mining for a fee paid by ERCOT that has become more lucrative than mining itself. In August of 2023, Riot, the biggest bitcoin mine in the world, got over $30 million for curtailing mining and only 8.6 million for mining Bitcoin.

Wow. So they earned four times as much, or nearly four times as much from doing nothing as from doing the thing they were actually supposed to be doing.

That's right, and they're not doing that all year. August last year was a particularly hot month, but it's gotten pretty controversial. A group called the Tech Transparency Project has accused bitcoin miners in Texas of acting as energy arbitrage businesses in disguise, holding Texas hostage and wasting taxpayer dollars. The industry disputes that. They say that they offer the state flexibility at a price that no one else can match. They're simply the lowest bidder for these programs, and Riot says that replacing mines with batteries would cost the state even more. They're adamant that they're not doing anything wrong. They're just doing what's economically in their best interest.

So where's this row going to end up?

It's not clear, and that's what makes it kind of interesting. Because Texans are getting very anxious about losing power during bad weather and because miners benefit from the state's energy crisis, it's looking really bad. And Texas politicians are getting really angry. If everyday Texans blame Bitcoin for their lights going out when it gets too hot, eventually their leaders will too. Last year, a bill to restrict minors from taking part in these demand response schemes passed in the Texas Senate but stalled in the House. There will probably be more of this type of bill come January when the session starts again. But national politics could play a part in this. It seems that Governor Abbott is pining for a cabinet position in the Trump administration, and Dan Patrick, lieutenant governor, is a known Trump yes man. If Trump wins the presidency in November, it will surely not be in their interest to chase out his new favorite industry.

Fascinating stuff. Thanks so much for talking to me.

Thanks for having me, Rosie.

Joko Anwa grew up in a rough neighborhood in North Sumatra in Indonesia.

Moeko Iida writes about Japan for the Economist.

His family was poor and neglectful. As a child. He used to worry about ghosts.

The most prominent ghost that I heard as a child was Weiwei Gombel, W.

E that's the name of a famous female ghost in Javanese mythology. Many Indonesian children are told by their parents that if they stay out until late, Webek Gombel might kidnap them. But Joko was familiar with another telling of the story.

Sometimes I was worried that I was going to be kidnapped by Weiwei Gombel, you know, because I thought I was not loved enough by my parents.

But Joko rose from poverty, cultivating a successful career as an award winning horror movie director. His breakthrough moment came in 2017 with Satan slaves, a film about a family haunted by the death of their mother. His most recent blockbuster, Grave Torture, which is about two siblings whose parents are killed in a suicide bombing, came out in April. He now has a Netflix series called Joko Anwa's Nightmares and Daydreams, which was released in June. Joko said the response to the series has been overwhelming. It became the first Indonesian series to make the top 10 shows in America, and in a way, the series is putting Indonesian filmmaking on the Global map. Joko's work is part of a broader trend in Indonesia. Horror is by far the most popular genre and it's driving the film industry. In 2023, the country produced 50 horror films, which accounts for half of all domestic films. In 2022, a film called KKN Di Desipenari became a sensation. The film is based on a viral thread on X and it's about students who encounter malicious spirits in a rural village. It became the highest grossing film in the country. So why is Indonesia such a horror movie powerhouse? It's partly down to the country's rich folklore.

That's why we have abandoned of, you know, Limitless, actually ghost characters, demon characters that we can exploit to make horror films.

In Indonesia, parents often use ghost stories to make children behave.

That's why the genre is very popular in Indonesia, because we are very close to that and we actually believe that.

At the same time. The roots of the recent horror boom can be traced back to the 1970s and 80s. During the so called New Order regime of Suharto, the dictator filmmakers churned out dozens of scary films for the masses under the scrutiny of censors. Horror films back then usually had an ideological dimension. A typical storyline involves a woman who turns into a vengeful spirit until she is tamed by a pious Muslim man. And that's a popular trope in a Muslim majority country. In the 1990s, film production almost died out because of a recession, but it came back in the 2000s. A new generation of filmmakers emerged, partly inspired by Japanese and Thai horror film. The rise of streaming has helped spread Indonesian horror globally as well. These films tend to be popular in neighboring countries like Malaysia and Singapore, which share many cultural traits. But some people worry that Indonesian horror might be too local, that Westerners or people in other cultures might not get it.

Global audience are now become more familiar with it and I think they'll want more. A global audience will want more. To see more Indonesian films.

Joko is more hopeful. He now gets offers from Netflix and Hollywood. And when making films, he's primarily thinking about Indonesian audiences and themes that are relevant to them. He points to the recent success of South Korean cinema as a perfect example of how films can be accessible for a global audience while retaining their country's identity. He hopes that as people become more familiar with Indonesian horror films, they'll also become more familiar with Indonesian culture.

That's all for this episode. Don't forget that if you're a subscriber, you can listen to the intelligence and all our shows ad free on the Economist app. If you have any comments, you can get in touch@podcastconomist.com we'll see you back here tomorrow.