GOVT POLICIES CRIPPLING INVESTMENTS IN GAS SECTOR - ILU
Some policies executed by the Federal Government in the gas sector are not in any way helping in deepening investments, especially in the Liquefied Petroleum Gas (LPG) business.
President of the Nigerian LPG Association, Alhaji Auwalu Ilu, who bemoaned the fate of investors in the industry, listed some of the policies to include the deregulation of the LPG (popularly known as cooking gas), faulty pricing mechanism, the import duty and Value Added Tax (VAT) charged on the gas, as well as the verification policy of regulator, the Standards Organisation of Nigeria (SON) on importers.
Nigeria is the second largest producer of cooking gas, also known as Liquefied Petroleum Gas (LPG) in Africa, with an annual production capacity of four million metric tonnes, the bulk though being exported. In the last three months, the price of a 12.5kg cylinder of the gas has soared to over N3,000, from a previous average of N2,000 and N2,400 per cylinder.
At over N3,000 per 12.5kg cylinder, the price of cooking gas in Nigeria is the highest in the world.
Ilu said in India, an Asian country not endowed with cooking gas, the commodity was sold for N600 per 12.5kg cylinder. He linked the crisis in the supply of the gas and its exorbitant cost to the prevailing policies, and said there was no way the industry would grow under the existing regulatory regime. The LPG Association boss also proposed measures to get out of the crisis.
The root of the crisis
The dearth of Nigeria's four refineries has marred efforts to produce the gas domestically, thus forcing the country to be a net importer of the product. There has also been the absence of incentives to encourage investments in key infrastructure that will boost local production and sales of the product to consumers. The absence of a waiver of import duty and VAT on locally sourced LPG is crippling the business. The Federal Government has refused to be very categorical that the LPG is 'non-VATABLE' whether the gas is imported or is sourced locally.
All accessories needed to grow the domestic consumption of LPG such as raw materials for the production of cylinders, valves, regulators, hoses, trucks, pumps, filling heads should have been made tariff-free for the next 10 years, with effect from 2011. But this has not been so. According to him, the tariff had shot up from five per cent to 25 per cent…and 35 per cent in some cases. And the fact that the bulk of the product was sourced from abroad at international price meant consumers would have to pay higher, despite the nation being a top gas producer.
LPG supplied for domestic consumption is imported, and the logistics makes prices go up. We are paying international price in the domestic market, and this keeps product price high and discourages local users. Operators had approached the government to provide tax rebates and VAT exemption on locally sourced cooking gas, believing such measures would bring down the price of the commodity, but till date the policy is yet to be implemented.
Nigeria is the second largest producer of LPG in Africa, and the sixth in the world but, ironically, the price in Nigeria is the highest in the world. LPG is a key resource when discussing climate change. Several meetings have been held with government officials, particularly the Ministry of Petroleum, parliamentarians in the Senate, and several government agencies on how to resolve the problems in the industry, but all these meetings and deliberations have not yielded the desired results.
Faulty SON verification policy
We have faulted the verification policy of regulator, the Standard Organisation of Nigeria (SON) on importers of LPG as the policy was one of the remote causes of the scarcity and high cost of the product in the country. According to Ilu, SON had made it mandatory for importers of cooking gas to sponsor its officials to countries where the products are imported on a verification exercise which he noted often takes more than two weeks, thus shooting up cost for importers and also scaring potential investors away from the business.
Ilu who decried the policy said in contemporary times there were various technical mechanisms of verifying the authenticity of the quality of cooking gas imported into the country, than having to pass the bulk of the travel and accommodation expenses of SON officials on importers, not minding the cost implications to end-users.
'Operators have to sponsor two officials of SON for two weeks to inspect the facilities and the cooking gas at the country that you which to import from into Nigeria. This is not helpful considering the cost implications; in fact some people see it as a form of extortion that should be stopped.' Ilu said.
The effect on the people
LPG is a very cheap and environment friendly source of fuel that should be used by all Nigerians. But sadly, the Nigerian population has been deprived of a product which is abundantly and locally produced at the expense of a product that is not only imported and subsidized but also not helpful to the people. People are using kerosene stoves more and studies have shown from the World Health Organisation (WHO) that smoke from indoor cooking fires kill a minimum of 1.6 million people every year, which is even more than the number of deaths from malaria.
There is the problem of deforestation as more people fell trees for firewood in areas where kerosene is not utilised. So the environment is at serious threat. Ilu said the current import regime offered no hope of a crash in cooking gas price because of the added overhead due to logistics and other monies spent on regulatory agencies to facilitate the import of the product into the country.
The way forward
Tax incentives should be widened in the LP Gas sector. The Federal Government should as a matter of urgency extend the implementation of the existing waiver of VAT and import duty on domestic LPG as it is done for the imported ones. LPG should be included among the non-VATABLE items. LPG is fully deregulated but kerosene is highly subsidized and this is counter-productive and is a hindrance to the wide spread usage of LPG which is cleaner, healthier, safer and a more efficient fuel for cooking. Subsidy on kerosene should therefore be removed.
LPG supplied for the domestic consumption is priced using international pricing and this keeps product price high and discourage local users. The Federal Government through the NNPC should develop a separate pricing model for domestic consumption. This will create a level playing field for these competing types of fuel. The government should invest in a gas cylinder scheme to encourage Nigerians switch from the use of kerosene and firewood to LPG through easy access to cylinders.
This is one method that was deployed in such countries like Indonesia, Brazil, India and Malaysia to encourage more citizens to use LPG. SON should desist from repetition of traveling to home countries of manufacturers for inspection of production process instead they should liaise with other regulatory agencies in countries where they require inspections so they have a uniform front. This embarrasses Nigeria as it increases cost unduly and it is not in line with international standards.
SON was even short of the requisite technical manpower to cover existing and intending importers. They should acknowledge international certifications as a strong basis to allow importers bring in the gas into the country.
SON also needs to step up its local monitoring activities in the cooking gas sector especially in the area of distribution of sub-standard equipments.
Need for awareness
There is the need to raise awareness on the benefits of utilizing cooking gas rather than other fuels like firewood and charcoals which adds to the problem of deforestation which is inimical to the environment. Our grandmothers and grandfathers cannot continue to be felling trees for fuel, a trend they have maintained for ages, and then we don't do something to change that trend.
I know those who have never tried using cooking gas do have this fear about its ability to ignite and engulf a place easily. But again, there is no one who has ever switched from firewood, kerosene etc to cooking gas that wants to go back. So this means there is need for awareness to encourage more people to utilise cooking gas.
The following ministries should therefore be at the forefront of the awareness campaign: Federal Ministry of Petroleum Resources and the NNPC, Ministry of Environment, Federal Ministry of Women Affairs, Ministry of Health, and the Ministry of Information.
State governments especially those that have deforestation problems should also contribute to the awareness campaign.
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