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* Fuel subsidy overspend will deplete oil savings
* Central bank, economists say subsidy unsustainable
* Earlier attempt to remove subsidy caused mass protests
By Joe Brock
ABUJA, May 30 (Reuters) - Nigeria has already spent half its 2012 fuel subsidy budget on arrears for last year, the finance ministry said on Wednesday, risking Africa's second-largest economy racking up further debt or running out of money to sustain huge subsidy payments.
Nigeria tried to remove gasoline import subsidies in January, but the move more than doubled the petrol price to 150 naira ($0.94) per litre, from 65 naira per litre previously, prompting more than a week of strikes and street protests.
The government backed down and partially reinstated the subsidy, bringing the price down to 97 naira per litre.
A parliamentary probe that followed uncovered a $6.8 billion fraud in the subsidy regime and said Nigeria spent 2.58 trillion naira last year on subsidy payments, more than 900 percent the budgeted amount for the year.
President Goodluck Jonathan, the state-owned oil company NNPC and the finance ministry pledged to clean up any inefficiencies, but the latest data shows spending remains out of control.
Nigeria budgeted 888 billion naira for fuel subsidies this year but it has already spent 451 billion naira on back payments for 2011, the state oil company and finance ministry said, more than double what it had expected to pay in arrears.
"This is clearly not sustainable and the ministry has a responsibility to ensure that the lapses that may have led to this unhealthy situation are not repeated," a statement from the finance ministry said on Wednesday.
Africa's biggest crude exporter will need to dip into its oil savings once the budgeted amount runs dry and with only around $3.5 billion in the excess crude account (ECA) it could be wiped out by the end of the year, economist have warned.
The NNPC also owes about $3.5 billion to oil traders, including Trafigura, according to the parliamentary probe. If that is the case, the excess crude account is essentially empty anyway, so government finances could very quickly go into the red.
The ECA, which is supposed to cushion the economy against sudden oil price falls, contained more than $20 billion in 2007 but has been depleted by continual raiding despite a period of record oil prices.
"The subsidy has prolonged a vicious cycle: Nigeria is the top African oil producer, but the country is forced to import large volumes of refined fuel," Samir Gadio, economist at Standard Bank said in a research note on Wednesday.
"From a macroeconomic standpoint, the cost associated with this distortion is becoming unbearable."
Decades of corruption and mismanagement mean Nigeria sells almost all its 2 million barrels per day of crude oil production rather than refining it for domestic use.
Nigeria's central bank governor, Lamido Sanusi, told Reuters in April the subsidy money would run out well before the end of the year. Sanusi wants the subsidy scrapped but this would be a big risk for Jonathan, given the public reaction in January.($1 = 159.1250 Nigerian nairas) (Editing by Tim Cocks and Helen Massy-Beresford)