Markets

Kerosene subsidy, tariffs, others frustrate LPG growth

Unless Nigerians switch to the use of Liquefied Petroleum Gas (LPG), the country will continue to lose about N2.914 trillion, spent annually on the use of firewood, kerosene and kerosene subsidy, according to data obtained by Sweetcrude.
 
Specifically, it was revealed that he Federal Government spent about N250 billion annually on kerosene subsidy, while N222 billion was spent monthly on the use of firewood and kerosene for cooking, bringing the total to about N2.914 trillion per annum.
The Speaker of the House of Representatives, Mr. Aminu Tambuwal, had during a House Committee on Petroleum Resources (Downstream) investigation into subsidy payments on kerosene between 2010 and 2013, stated that available information indicated that the Federal Government spent over N1 trillion on kerosene subsidy between 2010 and 2013.
Also, data obtained from the Nigerian Liquefied Petroleum Gas Association (NLPGA), revealed that households spend N4,000 each on firewood and N3,400 on kerosene every month for cooking alone.
Using total households of 30 million, this amounts to N120 billion spent on firewood and N102 billion on kerosene monthly.
According to the 1996 population census figures, Nigeria has about 28.9 million households.
Analysis of data obtained from the NLPGA revealed that LPG, despite its 85 per heat efficiency is more cost efficient than firewood which is 35 per cent and kerosene, which is 50 per cent heat efficient.
The NLPGA stated that using firewood, an average household spend N4,000 monthly; N3,400 on kerosene; and N2,800 on LPG.
NLPGA is the umbrella body of all Stakeholders in the LP Gas sector in Nigeria. It is a Public-Private initiative established in line with the directive of the Federal Government as advised by the World Bank in 2003.
Economic implications
This loss to the Nigerian economy, according to stakeholders, will continue until the Federal Government and other state governments showed significant commitment to promoting the usage of LPG, especially in the area of tariffs.
However, in an exclusive chat with Sweetcrude, the Group Executive Director, Commercial and Investment, NNPC, Mr. Attahiru Yusuf, disclosed that the Corporation is making strong efforts to increase the use of LPG in the country.
According to him, NNPC Retail started the sales of LPG in its mega stations a couple of days ago, and in the next couple of weeks LPG will be available in all its mega stations.
He said, “We also do bulk sales of LPG, supplying many retailers in all the nooks and crannies of the country. NNPC has also developed for the Federal Government an LPG market development master plan for the country, whose implementation has already started through our effort in NNPC Retail network.”
In his own view, President, NLPGA, Mr. DayoAdeshina, blamed the low consumption of LPG in Nigeria on insufficient number of coastal terminals, few LPG inland storage facilities across Nigeria and inefficient distribution system due to concentration of LPG logistics on road tankers (bob tails and abridgers).
He also listed high ‘first costs’ associated with acquisition of cylinders and LPG stoves by consumers, Federal Government’s subsidy on kerosene; excessive import duties; and Value Added Tax, VAT on LPG equipment; and inadequate road and transport network facilities.
According to him, kerosene, firewood and charcoal still make up 89 per cent of the energy mix in Nigeria, and hinder the growth of LPG in Nigeria and also significantly contribute to air pollution.
In addition, a report obtained from the Nigerian LNG Ltd., NLNG, stated that Nigeria consumes only about 70,000 metric tonnes, MT of cooking gas (LPG).
As a result, the country ranked among the lowest in cooking gas consumption with less than 0.5 kilograms (kg) per capita compared to 3kg per capita in Ghana; 1.90kg in Cameroun; 5.50kg in South Africa and 44.40kg in Morocco.
The report said, “This is the situation in the cooking gas market in Nigeria. So many encumbrances stood in the way of reviving this multi-billion naira industry and for a while, it seemed that our country, with over 180 trillion cubic feet of gas reserves would lose grip on efforts to provide clean, safe fuel for cooking.
The environment and health of the citizenry have been dealt the heaviest blow through tree cutting and fume hazards from kerosene burning.”
The report further stated that in a bid to save the situation, Nigerian LNG in 2007 dedicated 150,000MT of cooking gas annually, a situation which helped change the fortunes of the ailing LPG market, as the NLNG effectively guaranteed product availability.
The NLNG maintained that despite the fact that cylinders are the most critical component of the value chain, there are about 500,000 cylinders in the country.
The NLNG report noted that with only 500,000 cylinders to 150 million people, there is only one cylinder to 300 people.
The NLNG further stated that Nigeria needs about two million cylinders, adding that investment is needed in the importation of cylinders or the importation of steel plates to manufacture cylinders in the country.
“Currently, there are efforts by the government to increase  the volume of cooking gas supply to one million metric tonnes in the next four years. What does this mean for Nigerians? Investments.
It takes money to make big money and it is about time the multi-billion naira industry began to blossom,” the report noted.
The Managing Director, Pipelines and Products Marketing Company, PPMC, Mr. Haruna Momoh, confirmed that the high cost associated with acquiring cylinders and accessories start up kits, low public awareness, poor infrastructure, kerosene subsidy and a lack of investment in the value-chain discourage Nigerians from using LPG.
He further noted that resources spent on kerosene subsidy, could be put into more productive areas, such as infrastructure development, education, health and agriculture for the welfare of citizens.
Despite the challenges hindering the usage of LPG in the country, Momoh, however, disclosed that the company is planning to increase the supply of LPG to 500,000MT by the end of 2014.
He said that billions of revenue could be saved by Nigeria if the populace embrace LPG, rather than relying on wood and kerosene for cooking.
He, therefore, called on stakeholders in the downstream to join forces with government to pursue the vision of deepening the use of LPG.
Similarly, the Chairman/Chief Executive Officer, Ultimate Gas Limited, Mr. Auwalu Ilu, said of the less than one million cylinders in circulation, more than half of the cylinders are expired.
According to him, the development has prompted operators in the sector to invest heavily in branded cylinders, stating that the branded cylinders are directly supplied from the operators to the consumers.
He urged LPG dealers to adopt an innovative approach on price to boost cylinder circulation in the market, adding that LPG consumption is what drives cylinder circulation.
The Executive Vice Chairman, Techno Oil Limited, Mrs. Nkechi Obi, noted that kerosene subsidy is unhealthy for the growth of LPG in the country.
She stressed that the importation of cylinders is likewise unhealthy for the Nigerian economy, adding that efforts should be made to build cylinder plants in the country.
Benefits of gas usage
Despite the many challenges, the NLPGA report maintained that promoting the wide usage of LPG over other sources of fuels will bring about an increase in socio economic development for families and help save more than 55 per cent of Nigeria’s primary forest.
According to the report, over 36,000 primary jobs will be created for Nigerians through LPG switching in five million households within five years, while it will help in stimulating employment opportunities.
The report further noted that the use of LPG will encourage the development of alternative fuel for the transportation sector (auto-gas) and power sector in Nigeria, while it will bring about increased tax revenue for government at various levels.
On the social side, the report stated that LPG will bring about a reduction in deforestation and its very serious consequences; hence saving the huge amount budgeted for reforestation and tree planting every year.
Continuing, the report said, “It will bring about reduction of carbon emission into the atmosphere, carbon credit, clean development mechanism and economic returns to government and the private sector, community development and modernization of businesses.
“LPG promotion in Nigeria will also guarantee cleaner environment and reduction in pollution related health problems and bring about a reduction in child and maternal mortality rate through the mitigation of pollution related issues usually caused by unclean fuel (kerosene, charcoal, firewood, among others) used for cooking.”
Apart from cooking, the NLPGA report declared that LPG can also be used for agriculture, in the powering of farm tractors; in industries, for welding, food processing, automobile and manufacturing.
It further stated that it can be used for residential and commercial properties; captive power generation, for a minimum of five megawatts to 100MW and for transportation, using auto-gas.
The NLPGA report stated further, “Today, there are close to 30 million vehicles running on auto-gas around the world. Total auto-gas consumption reached 23.1 million tonnes in 2011, according to preliminary data.
“In some countries, auto-gas market development is being held back by ineffective or poorlydesigned policies, such as unfavourable tax rates and regulations that fail to account fully for the social benefits of switching to auto-gas as well as total neglect of auto-gas over other fuel types.
It is a fact that auto-gas has more than 60 per cent economical advantage over gasoline and diesel.
“It also plays an important role in mitigating climate change because it has among the lowest life-cycle greenhouse gas emissions of all commercially available fuels. In Ghana, the number of vehicles using LPG has risen from an insignificant number to about 6,000 cars consuming about 45 per cent of the available LPG.”
The report also disclosed that members of the NLPGA have over the years made significant investment in the LPG sector, stating that this has helped in ensuring an uninterrupted LPG supply and has led to the upgrade of filling plants as well as the injection of more cylinders in the market.
It added that stakeholders in the sector have invested in new trucks, equipment and accessories, safety trainings and workshops, while LPG terminals owned by stakeholders in the private sector are now operational.
Sustaining benefits
To ensure that these successes are sustained, the report noted that NLPGA members should be given the opportunity to visit and make detailed presentation to the Federal Government on the strategic importance of the association and also be allowed to partner with the government in the LPG roll out program.
It called on the government to waive Value Added Tax, VAT, Import Duties and Tariffs on LPG-related products for an agreed period of five years.
It said, “Federal Inland Revenue Service should implement VAT exemption on domestic LP Gas sales in line with Federal Government directive, while Federal Government scheme – which involves massive deployment of cylinders to the market should be encouraged, to increase usage of LPG.
“The Federal Government should embark on massive creation of awareness on the advantages of LPG over kerosene and firewood, and also, encourage legislation through environmental laws that will improve consumption of LPG.
“DPR and SON should reduce bottlenecks on licensing downstream players in the LPG value chain. NLPGA should partner with theministries of Petroleum Resources, Women Affairs, Finance and NNPC, with a view to having a road map for the full implementation of kerosene to LPG conversion.
“Facilitate the downward review of the price mechanism as currently applied by the Nigerian LNG Ltd. (NLNG) for the domestic suppliers.
“NNPC shoud create a domestic price from their equity volumes with NLNG and the inclusion of LPG infrastructure in city planning and building codes.”
What the Nigerians say
However, divergent views trail the usage of LPG as individuals who spoke with Sweetcrude differed on the benefits in the use of the commodity.
Chief EgbamunoEbebenuze, a gas seller at EsepeRoad off BadagryClose, said he uses gas and preferred it to kerosene, adding however, that the state of the Nigerian economy is not encouraging the use of LPG.
He said, “For me gas is safer. When you use kerosene you find out that the smoke and carbon monoxide that comes out of it poses a serious risk to individual’s health.
On his own part, Mr. Adeniyi Samuel, a gas seller at Joy Story Enterprize,EsepeRoad off Ile-Ipo, Badagry Close, said, “I prefer gas because it is cheaper and does not cause stain compared to kerosene.
Despite using gas in my house, we still have stove for emergency purposes. For instance, if your gas finished while cooking at night, stove would play a significant role in such situation.
“I would say gas remains the best a stress free when using it. What it needs is just to be careful and cautious. Otherthan that, it is the most preferred.”
MrsAjishafeSalamat, a shop owner at Araromi, said, “I use kerosene, because I am a mother with little kids and I am also careless in a way. Gas is supposed to be monitored and well supervised because of the risk that can be incurred when carelessly handling it.
Also, MrDolapoOgun,said the use of gas is not cost effective while kerosene is cheaper to use. He reasoned that kerosene can be gotten for as low as N100 for the quantity required while gas can only be refilled with a specific amount of money.
He noted that although the use of gas is effective, kerosene is what the masses can afford anytime. This makes kerosene to be in popular demand.
Another respondent who simply gave her name as Edith, believed that gas is more economical to use.
According to her, kerosene burns faster than gas, while gas cooks faster and burns less while kerosene cooks slowly.
She said, “If I buy kerosene for N3,500, it cannot sustain me for more than a month while gas bought for the same amount is used for more than six weeks.”
MrsOluwaseun, a food vendor encouraged the use of gas, she noted that it is economically wise to use gas, and that over time, she has found out that gas is cheaper.
 

Leave a Reply

Your email address will not be published. Required fields are marked *