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Nigeria to spend N350bn on LPG consumption

By Ayobami Adedinni

The Federal government will spend the sum of N350 billion on the consumption               of Liquefied Petroleum Gas (LPG) if the recommendation in the National Gas Policy Draft is approved by the National Assembly.

According to the policy, this is to ensure the acceptability of LPG as fuel of choice among low income and medium income earners.

The draft said that the major reason for the low consumption of LPG in Nigeria is affordability and therefore intends to kick-start the market for LPG among the poorest which are currently using kerosene and firewood.

It said, “there are a number of financial disincentives in the current LPG system. For example, Value Added Tax (VAT) is levied on domestic production of LPG and LPG cylinders but not on imported cylinders,(there were once two domestic cylinder manufacturers but these have since folded up due to the financial challenges).”

It added that the LPG is the only fuel that is not only fully deregulated but is also taxed saying that VAT is applied to domestic LPG but not to imported LPG, thereby putting domestic gas at a disadvantage.

The draft policy also said the cost of acquiring an LPG cooking pack which includes cylinders, stoves, regulators when compared to other fuels is higher. It says despite the fact that domestic production capacity is limited, they are also subjected to import taxes.

“This has contributed to the shortage of LPG cylinders with the estimated number of cylinders in circulation within the country today at approximately 1.5 million units as compared with a minimum requirement of 100 million LPG cylinders in relation to the population. This is a barrier to the growth of the LPG market.”

On ways to ensure the growth of the market and ensure the critical bottlenecks are resolved, the government according to the draft policy intends to introduce pilot programmes of free initial package of SON approved 3/6 kg—12kg LPG cylinders, stoves and basic supply, with customers expected thereafter to pay themselves for further supplies of the fuel.

The draft said, “ due to a shortage of local cylinder manufacturing capacity, the policy will promote the phased injection of 20 million cylinders over a period of five years (for comparison , the Indonesian Programme comprised the injection of 60 million units. This will cost a minimum N350 billion”.

According to the policy, the consumption of LPG in Nigeria is tiny, even by African standards, yet Nigeria is the dominant LPG producer in the region, with potential for significantly more production.

While listing the problems affecting the Nigerian LPG industry that need to be urgently addressed, it said inadequate infrastructure particularly at import jetties and with cylinders is a major factor militating against the success of the industry.

It said, “insufficient enforcement of regulations, particularly regarding safety, insufficient number of players in the market, which is dominated by PPMC and Hyson and other major problems exist despite the benefits of LPG as a product.”

On the benefits of LPG, it says it can enhance embedded power within electricity distribution zones through its power generation of up to 30 megawatts (MW) and also as a route to natural gas markets in the future adding that a local market can be grown with LPG, when large and concentrated enough, converts to local pipeline LPG, and which can then be converted to pipeline natural gas.

It is estimated that about $10.38 billion could be generated for the economy if 50% of the current kerosene and firewood users switch over to LPG by 2018, creating along with it, over one million skilled jobs in various segments of the LPG supply value chain. In the same vein the utilization of LPG can also generate far reaching positive outcomes for public health and environment as well as saving cost for government at all tiers.

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