Cheap fuel encouraged smuggling and shortages, the government says

Union leaders said they were responding to the government's decision to withdraw the tax.

However, the BBC's Anna Borzello in Lagos says the strike call had only been partially heeded, with cars on the roads but some markets shut.

On Tuesday, a court ordered the unions to call off the strike and the government to suspend a fuel tax, which would raise prices.

But trade union leader Adams Oshiomhole warned that another strike would be called if the tax was reintroduced.

Early on Wednesday morning, petrol prices had not been reduced at all stations.

"[The tax] has not been removed yet. But we expect it to be any time," a pump attendant at a government-owned fuel station in Lagos told Reuters news agency.

'Necessary tax'

A government statement said that as it believed in the rule of law, it "accepts the verdict of the court and hereby suspends payment of the price modulator of fuel until the substantive issue is finally disposed of".

Nigeria is Africa's largest oil producer

The latest fuel tax adds 1.5 naira, the equivalent of one US cent, to the price of a litre of petrol.

However, it came after a big jump in petrol prices in the second half of 2003 when President Olusegun Obasanjo pushed through the abolition of subsidies on petrol.

The scrapping of subsidies added roughly 35% to a litre of fuel, taking prices to around 40 naira.

The main trade union body, Nigeria Labour Congress, says that higher fuel prices hurt the poor.

President Obasanjo argues that the new tax is necessary to repair roads, laying a better foundation for prosperity.

The new fuel tax was also intended to encourage foreign investors to take an interest in the potential privatisation of Nigeria's refineries, Reuters news agency reported.

Resignation

The tax was part of a wider reform of fuel price policies which has prompted the NLC to call for general strikes three times in eight months.

It held an eight-day strike in July 2003, winning some concessions, but backed down ahead of another general strike in October.

President Obasanjo has sought to stamp his authority on the issue of fuel price reform.

Our correspondent says that although many Nigerians are angry over the price rises, they seem resigned, feeling that the government is unlikely to back down.

Nigeria is a member of the Opec oil producers cartel and produces about two million barrels of oil per day, yet it suffers from fuel shortages.

President Obasanjo opposed fuel subsidies because he said they contributed to fuel shortages by encouraging fuel smuggling and black marketeers.