By Felix Onuah and Joe Brock
ABUJA (Reuters) - Nigerian trade unions called off strikes and protests on Monday, pulling Africa's top oil producer back from a major confrontation after President Goodluck Jonathan announced a cut in petrol prices by a third.
His move partially reinstated a fuel subsidy, the scrapping of which was a key policy of Jonathan and his economic team. But it slashes the cost of the benefit to the government and leaves open negotiations to phase it out again later.
Jonathan said fixing the liter price at 97 naira ($0.60) was a short-term response to ease hardships.
"In the past eight days through strikes, mass rallies, shutdown, debates and street protests, Nigerians demonstrated clearly that they cannot be taken for granted and that sovereignty belongs to them," Abdulwahed Omar, president of the Nigeria Labour Congress (NLC), said during a press conference.
"Labour and its allies formally announce the suspension of strikes, mass rallies and protests across the country."
The strikes paralyzed Africa's second-largest economy last week and the oil workers union had threatened to shut down its 2 million barrel a day production.
Jonathan met union leaders late on Sunday in search of a compromise to end the strikes but he said later the talks had "yielded no tangible result" and he would pursue a policy of removing subsidies which he says breeds waste and corruption.
"The government will continue to pursue full deregulation of the downstream petroleum sector. However, given the hardships being suffered by Nigerians, and after due consideration and consultations ... the government has approved the reduction of the pump price of petrol," he said in a national broadcast.
Residents of Nigeria's biggest city Lagos reported soldiers in the streets in an apparent security move to contain any further protests.
It remains unclear whether the government will be able to keep the lid on the wider public anger unleashed by the subsidy protests, which is rooted in years of frustration at corrupt and incompetent governance.
A few hundred protesters chanting "solidarity forever" tried to continue protesting in Ketu, on the outskirts of Lagos, but were blocked by armed riot police and soldiers.
"He can't just set the price unilaterally at 97 naira per liter. That's not listening to the voice of the Nigerian people. We're not stupid and he shouldn't treat us as if we don't know what's going on," said IT consultant Mavila Sadiq.
When a price cap of 65 naira ended on January 1, pump prices more than doubled, to 150 naira. The new cap of 97 naira still represents a 50 percent price increase since January 1.
Analysts said the unions reckoned that Jonathan, having a made a large concession, would be unlikely to back down further.
Critics of the subsidy cut have urged the government to lower its own spending first. Jonathan pledged such cuts in his speech, though trade unions are likely to fear that that cost-saving could mean public sector job cuts.
"There was an implicit threat to the unions in that promise to cut recurrent expenditure," said Kayode Akindele, a director of the Lagos investment firm 46 Parallels, noting that much of that spending was on civil service wages.
"It will lead to job losses, and that's a big fight for the unions. They don't want to push it too far."
He added that the president had salvaged credibility by restoring only part of the old subsidy.
Analysts note the protests were only in some parts of the country, as most Nigerians away from the main urban centers have never had fuel at the official subsidized price anyway.
Oil output by Nigeria, Africa's biggest crude exporter, has not been affected so far by the labor unrest.
NO OIL CUT
Global oil prices were boosted by fears of reduced supplies from Nigeria late last week. A serious production outage would push them sharply higher, traders and analysts say.
Several people were killed in clashes between strikers and police last week and 600 were treated for wounds, according to the Red Cross.
Unions said they wanted the government to bring the petrol price immediately back down to 65 naira, at which point they would cancel strikes and protests and talks could continue.
Many economists argue that the subsidy should be dropped because it was wasteful and open to corruption. Protesters have countered that position by asking the government to work harder to tackle graft and waste before rescinding public benefits.
Jonathan gave approval on Sunday for an investigation. Oil Minister Diezani Alison-Madueke said she had written to the Economic and Financial Crimes Commission inviting the regulator to examine the subsidy procedure.
The state oil company NNPC and fuel regulators have come under fire for lacking transparency and for mismanagement, including in a report compiled by international accounting firm KPMG. Alison-Madueke pledged to review such reports, although some analysts question the ministry's good faith in doing so.
"The KPMG report has been on your desk for over a year. So why now?" said Akindele said of the oil minister. "The president might have to sacrifice somebody, and it might have to be the petroleum minister. Nobody has said anything in support of her."
Alison-Madueke said she would meet legislators in the next week to seek progress towards passing a wide-ranging Petroleum Industry Bill (PIB) that has been stuck in parliament for years, costing Nigeria billions of dollars in lost investment.
Africa's most populous nation holds the world's seventh largest gas reserves but its infrastructure only provides enough power to run one medium-sized European city, meaning most of the country's 160 million people live without electricity.
(Additional reporting by Camillus Eboh in Abuja, James Jukwey, Tim Cocks and Njuwa Maina in Lagos; Writing by Tim Cocks and Joe Brock; Editing by Alastair Macdonald)