For some time now, the Federal Government, through both the Federal Ministry of Petroleum Resources and the Nigerian National Petroleum Company (NNPC) Limited, has promised to give Nigerians alternative fuel, Autogas. This alternative energy source, according to them, is expected to sale cheaper than the highly subsidized PMS, but several months after, despite the groundbreaking event conducted to introduce the alternative fuel and the promise by the government to convert 1000 vehicles free of charge to serve as a pilot experiment, nothing much has been heard again about the project. Yet, the same government that could not maintain the nation’s four refineries with a combined capacity of 450 thousand litres of PMS per day, which necessitated the importation of refined products for sale at a subsidized rate, has informed the nation that she could no longer bear the burden of subsidy anymore. Valuechain findings through opinion poll show that an immediate provision of alternative fuel for automobile and other prime-movers could be the needed buffer to cushion the impact of the eventual removal of subsidy on petrol by the Federal Government in 2022
By Gideon Osaka
The Federal Government, in late November, announced its plan to remove subsidy on petrol in 2022, following advice by the International Monetary Fund and the World Bank. In its place, the Minister of Finance, Mrs. Zainab Ahmed, who announced the government’s plans during the launch of the World Bank Nigeria Development Update (NDU), titled ‘Time for Business Unusual’ in Abuja, said about 40 million poor Nigerians would be paid a N5,000 monthly stipend for transportation. Corroborating the minister’s position, the Group Managing Director of the NNPC, Mallam Mele Kyari, said that by the end of February 2022, the nation should be out of the subsidy regime, asserting further that fuel subsidy removal would definitely be achieved in 2022 as it was now fully backed by law.
The government’s decision to finally take a backseat in the regulation of the price of petrol, after several failed attempts in the past, may have been triggered largely by cash crunch on the side of government, the signing into law of the Petroleum Industry Act (PIA), even as market forces and crude oil price remained key determinants of the cost of the product.
To transfer N5,000 to 40 million Nigerians monthly that are regarded as the ‘poorest of the poor’, the federal government would need about N200 billion monthly and about N2.4 trillion in one year if the plan to phase out subsidy on petrol becomes feasible.
Between January and October 2021, about N1.03 trillion was spent as subsidy (under-recovery) on petrol, according to NNPC in a November 2021 report made to FAAC. The removal of subsidy or under-recovery on petrol, which cost the country about N9.8 trillion between 2006 and 2018, will ensure savings and availability of scarce resources for more impactful projects. It will also help curb the corruption and smuggling associated with petroleum subsidies.
According to Valuechain opinion poll conducted recently, though many Nigerians, especially the low-income earners, are hoping for the subsidy to be retained, a good number of the enlightened category – ‘the middle class’ are entirely against the subsidy regime because they view it as a leakage to the economy, and an opportunity for sharp practices.
Although subsidy removal may address key economic situations in the country, especially conservation of foreign exchange, increase in external reserves, boost for local refineries and related industries, as well as job creation, the concern for many borders on the uncertainties surrounding alternative plans after the removal, and the cash transfer initiative. The irony of it all is that, while the government is doing away with subsidy that costs about N1trillion a year on one hand, it will be incurring about N2.4 trillion annually in addition to the overhead cost for the administration of the funds, on the other hand.
Valuechain reports that rather than expend N2.4 trillion on annual stipends for transportation for the poor, one third of that fund can be invested to relaunch the autogas programme that is still struggling to take off one year after an elaborate launch in Abuja, in December 2020. The thinking is that if the subsidy bill can be properly channeled to autogas expansion, it could finance the entire investment required to convert up to four million vehicles from petrol to gas, thereby stimulating employment and economic growth.
The opinion poll which was conducted to feel the pulse of Nigerians on the government plan to remove the age-long subsidy, the proposed N5,000 stipend for the poorest of the poor, and their view on alternative fuel, Autogas which government promised to make available at a cheaper rate, was widely responded to, where divergent views were recorded.
About 1920 people participated in the poll. The questionnaire, which has three questions as follows: Should Subsidy be removed outrightly? Should Government provide alternative cheap fuel (Autogas) before removal of subsidy? Should Government remove subsidy and pay N5,000 monthly to the poor?
1874 people responded to the first question which is, Should Subsidy be removed outrightly? Of this number, 49.1% agreed that subsidy on PMS should be removed, while 50.9% want it retained.
The second question, which is, Should Government provide alternative cheap fuel (Autogas) before removal of Subsidy? has a total of 1881 respondents. 82.6% voted for provision of alternative fuel before subsidy removal, while 17.4% said No.
The third question, Should Government Remove Subsidy and Pay N5,000 monthly to the poor? which attracted the highest number of respondents – 1920 has 83.5% voting Yes, while 16.5% voted No.
Autogas is the common name for liquefied petroleum gas (LPG) when used as a fuel in internal combustion engines in vehicles, as well as in stationary applications such as generators. It is also a cheaper, cleaner substitute fuel for transportation and the most accessible alternative fuel.
Driving an LPG vehicle is safe, easy and in many countries considerably cheaper than driving a petrol or diesel model. Autogas is the most widely used alternative to conventional automotive fuel. It’s acceptance and use have been growing quickly in countries like Australia, Canada, China, France, Korea, India, Italy, Japan, Spain, Portugal, Thailand, Ukraine, Poland, Turkey, US with Nigeria being one of the foremost African countries to encourage the use of alternative fuel.
The autogas programme in Nigeria was launched under the National Gas Expansion Program (NGEP) to herald the nation’s transition from the use of petrol to gas, as well as the delivery of cheap transportation fuel. The programme was designed to include conversion of fuel-powered cars and generators to gas, in line with the government’s plan to make gas the first-choice source for cheaper and cleaner energy.
Minister of State for Petroleum Resources, Timipre Sylva, had during the unveiling of the initiative noted that the autogas programme was an alternative that will afford Nigerians a cheaper and cleaner option to fuel consumption, as the government’s target was to convert one million vehicles from petrol to gas usage by 2021 at no cost. However, one year after, the programme is yet to fully take off due partly to inadequate funding.
Going by the Valuechain poll, it is obvious that two popular demands are hanging between providing alternative cheap fuel to replace the subsidised PMS, and the disbursement of N5,000 stipends to the poor. Of these two popular demands, industry watchers are more inclined to the former. One thing is certain, with the potential removal of subsidy in 2022, reviving the gas for fuel scheme will not only cushion the effect of the downstream subsidy removal but would also create new markets and enormous job opportunities for Nigerians.
Substituting traditional white products with gas could help the country leverage its huge gas assets, cut down excessive demand for imported fuel and foreign exchange. The global focus towards the climate-change-net-zero-emission debate has further necessitated the need to optimize the use of Nigeria’s abundant gas resources domestically as a transition or alternative fuel to move the country from the conventional dependence on white products for autos and prime-movers of industrial applications to cleaner, more available, accessible and affordable energy source.
This move is much needed for Nigeria, which has about 600 trillion cubic feet of gas reserves and is Africa’s second largest gas producer, but still lags behind many of its continental peers in domestic gas utilization. Nigeria’s abundant gas reserves could become less useful as the global campaign against fossil fuel/hydrocarbons intensifies and the transition to cleaner energy increasingly becomes a reality.
Anticipated challenges
To be able to fully deploy gas as replacement for petrol, the government must immediately address some sustainability concerns of the autogas programme. Concerns such as inadequate micro-distribution centres to provide liquefied petroleum gas to retailers, lack of necessary kits needed for the smooth running of the programme, and the exorbitant cost of converting vehicles from fuel usage to gas.
Other major issues are gas shortage, pricing and downstream infrastructure deficit. For instance, the domestic gas market intermittently experiences gas shortage for power plants and household cooking and this often creates a major energy security challenge for the nation. Gas supply to the domestic market through the NPDC/NNPC hovers aroubd 1.5 billion cubic feet (BCF) compared to domestic demand of about 4.5 to 5 BCF.
According to Valuechain findings, the country’s gas sector is export-oriented and with plans to expand the country’s export foot prints through NLNG Train 7, exports of the country’s gas are set to witness an upsurge. While the export market thrives, there is a domestic market that currently suffers huge energy crisis and shortages. This then raises the questions about the sources of the gas that will be used for the autogas programme.
Added to this challenge is the fact that the recent spike in the exchange rate of the naira to the dollar, induced by the corona virus pandemic, and the introduction of 7.5 VAT on imported LPG have triggered increase in domestic prices of gas. This is coupled with the existing disparity in the export and domestic prices of natural gas.
Domestic users of gas, such as the power sector, fertilizer and other gas-based industries, pay significantly more for gas than international customers (export). A lot of factors, including the absence of a market-reflective tariff, have disincentivized gas producers from allocating greater molecules to the domestic market, which is dominated by the electricity industry and, now possibly, the autogas market. Therefore, the widening gap between domestic and export gas parity prices may have inevitable impact by the time more car owners opt for gas instead of PMS.
Valuechain findings show that the withdrawal of the subsidy by government will largely affect transportation activities in the country. Majority of the people depend on PMS powered vehicles for transportation, especially workers, and goods from one end to another. Consequently, the cost of transportation in the country is expected to surge by more than 100 per cent when the subsidy is finally removed. Forecasts also show that the cost of goods may relatively increase due to the transportation cost increase. Industries rely on diesel, which has been deregulated since, for production.
What the government should do
The government has to immediately work out an acceptable and sustainable framework that would encourage Nigerians to convert their automobiles to autogas in the coming months. To do this, it must incentivize investment in the procurement of kits to convert cars, as well as facilitate the procurement of equipment that will enable gas pump stations to come on board.
Relevant government agencies should facilitate low cost of installation of conversion units and easy accessibility of refueling stations. The government, through the NNPC, should make good its promise of assisting interested motorists to switch from PMS to gas by providing free conversion services at NNPC retail filling stations, especially in areas with existing autogas service stations.
The corporation’s focus now should be on how to migrate all those who are still using petrol for transport and domestic purposes to the use of Liquefied Petroleum Gas, because apart from being a cheaper fuel, it is also safer and more environment-friendly.
