Petrol Subsidy Removal and the LPG Industry in Nigeria

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  • Author: Muyiwa Ige(LPG Stakeholder and Consultant)

The increase in the pump price of Premium Motor Spirit (popularly known as petrol in Nigeria), as a result of the recent removal of government subsidy on the product, has been widely perceived by some stakeholders as a good development that portends well for the LPG (Cooking Gas) industry in Nigeria.

With the price of a liter of now LPG comparatively lower than that of petrol in some locations in the country, the straight-forward expectation of some is that LPG will now easily displace petro/diesel as the preferred fuel for vehicles, power generators and other equipment.

But Niglpgas.com can confidently disclose that unless some stumbling blocks on the path of the wide adoption of autogas (LPG) for vehicles and power generators, are removed, the removal of subsidy on petrol may not have any significant positive impact on the LPG industry.

These are some of the measures that need to be put in place for the LPG (Cooking Gas) industry to witness a positive transformation, in the aftermath of the removal of petrol subsidy:

1.      Subsidized Petrol-to-LPG Conversion Kits

The cost of converting a petrol/diesel powered vehicle to LPG, which is as high as N400,000 or more, is prohibitive, for most Nigerians.

Therefore, the government needs to subsidize these conversion kits for a large percentage of the population to be able to afford the cost of converting their vehicles’ fuel system from petrol/diesel to LPG.

 

2.      Subsidized LPG Cylinders

The prices of Cooking Gas(LPG) cylinders are currently very high and beyond the reach of most average Nigerians. Since almost all the cylinders available in the country are imported, high forex rates and import duties, and a host of other factors, have combined to trigger an increase in the prices of LPG cylinders, appliances and other cooking gas components in the country.

To increase the adoption of LPG by Nigerians, the government needs to subsidize LPG Cylinders and other related components to make them more affordable.

For example, a family that has just one gas cylinder reserved for cooking will need to purchase another gas cylinder, if they want to convert their power generator from petrol/diesel to LPG.

3.      Removal of Import Duty on LPG Appliances and Components

This is a delicate issue that must be properly handled to protect the interest of local LPG cylinder/appliance manufacturers.

If the government is unable to subsidize LPG cylinders/appliances, it can at least remove import duties and related charges, to bring down their prices and make them affordable for Nigerians.

The privilege of import duty waiver should only be extended to companies with proven LPG Cylinder/Accessories production capacities in the country.

The import duty waiver will be for a limited period of time. This will encourage more companies to establish LPG cylinder manufacturing firms in the country, which will result in the flooding of the market with locally produced LPG cylinders at affordable rates.

Ultimately, this will have desirable multiplier effects in the LPG industry and the country’s economy as a whole.

4.      Incentive for LPG Producers

The government needs to explore all possible means to stimulate massive investment in LPG Production infrastructure in the country.

Existing LPG Production companies should be given tax holidays and other mouth-watering incentives to reduce their operating costs and increase their profitability, to encourage them to increase their production capacities and expand their operations.

The government needs to take proactive steps to remove the hindrances on the path of new companies to venture into the production of LPG in the country.

5.      LPG Transport Infrastructure Upgrade

The government needs to upgrade the LPG transport infrastructure in the country to reduce the landing costs of cooking gas in all locations nationwide.

Rail transport, which is the cheapest mode of transportation, needs to be enhanced and expanded, with the addition of rail cars, for the cost-effective transportation of LPG across the length and breadth of the country.

The roads also need to be properly maintained to prevent frequent road accidents to LPG trucks and reduce the logistical burden/cost of transporting LPG within the country.

6.      Elimination of Middlemen in the LPG Supply Chain

Middlemen who do not have investments in the upstream, Midstream and Downstream investments in the nation’s LPG industry need to be removed from the LPG Off-take Scheme.

This is because the presence and activities of these middlemen in the LPG value-chain invariably causes an increase in the price of the product; which is a disincentive to the adoption of LPG by Nigerians.

7.      Safety Enlightenment on LPG as Autogas

Many people, most especially the uneducated, which dominate the transport sector in the country have a phobia for gas(LPG).

The government and relevant stakeholders need to carry out proper LPG Safety Enlightenment campaigns in the media, transport parts and other strategic places, to promote LPG as a safe automobile fuel.

All the necessary safety precautions and measures associated with autogas (LPG) should be communicated to the drivers and all the stakeholders in the transport sector during these campaigns.