• Friday, March 29, 2024
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BusinessDay

Nigeria’s appetite for subsidies shows little sign of waning

Nigeria may be set to throw on a new consumption subsidy despite a long history of the damaging practice that has knocked investor confidence and deterred economic growth.

Minister of State for Petroleum Resources, Timipre Sylva, said last week that plans were ongoing by the Federal Government to expand the use of Compressed Natural Gas (CNG) as an alternative to petrol.

The problem with that plan is not only its lack of viability but also that it may be the starting point for another expensive subsidy.

Sylva said CNG could be made available at a cost of between N95 and N97 for Nigerians who found petrol too expensive.

But that price is an 11-fold discount to the market price of CNG, which is between $2 (N723) and $3 (N1,084.50), according to CNGprices.com.

Despite being a huge premium compared to the subsidy on petrol, Sylva said the switch to CNG will help reduce the burden of petrol subsidy on the finances of the country, adding that the government was working towards encouraging Nigerians to use CNG as fuel for transportation.

“The Minister may have other plans in mind but you can’t help but think here we go again with subsidies,” a fund manager who needed authorisation to speak publicly told BusinessDay on condition of anonymity.

“It’s hard to see how that will work,” the person said, referring to the viability of turning to CNG as an alternative to petrol.

Sylva also said government had over the years done a pilot scheme on CNG in Benin City, and it had proven that it would go a long way in serving as an alternative to fuel if expanded to the entire country.

CNG can be used in place of PMS (petrol), diesel fuel and propane/Liquefied Petroleum Gas (LPG). The CNG industry creates local employment opportunities, spurs economic growth, aids domestic manufacturing with cheaper electricity and reduces strain on foreign exchange reserves for US dollars.

However, for developing a country like Nigeria, creating a natural gas market is not an easy undertaking. Investments in gas projects are inherently capital-intensive, requiring large increments for each expansion. This largely explains the truism implicit in the fact that Nigeria’s natural gas reserves place her 9th in the world, yet she is not among the top 20 gas producers in the world.

Despite the proven viability of the Natural Gas Vehicle (NGV) technology as an alternative to gasoline or diesel-powered vehicles as early as the 1930s, the global penetration rate, an estimated 2 percent of total vehicles, still remains low.

“The approach of subsidy for CNG lacks coordination and is without focus,” Charles Akinbobola, an energy analyst at Lagos-based Sofidam Capital, said.

“We need to fix our gas infrastructure, stimulate private-sector involvement and provide a legal framework not subsidy.”

Rather than being obsessed with providing subsidy, other experts said Nigeria must provide other incentives for private investors such as tax holidays, import duty waivers, and proper legal framework for the successful adoption of CNG.

CNG has been adopted as a transportation fuel in few countries for various reasons of which economic benefits, environmental concern, energy security, and availability of natural gas resources are the major drivers.

For example, the Supreme Court of India in an effort to control vehicular emissions ordered the conversion of the city bus fleet to CNG and the USA is pursuing alternative energy for energy independence and security.

Argentina offered credit lines to vehicle owners and removed restrictions relating to proximity of refuelling stations to encourage investment and competition, as companies could site their stations in locations considered feasible without any restrictions, a development which has increased its natural gas vehicle population to 1.6 million vehicles.

Also, Pakistan offered custom duty and tax exemptions as major incentives to refuelling station operators, however in scenarios where government place so much on subsidy the result has been less desirable while in New Zealand, the over-reliance on government incentives resulted in the collapse of the market.

In India, GAIL (India) Limited was charged with the implementation of the CNG programme; the company and Bharat Petroleum Corporation and the Delhi Government were responsible for developing CNG in Mumbai and Delhi markets.

This move translated into a rise in CNG-powered cabs, a development bound to increase the profits of small and medium-scale businesses as well as individual cab drivers by at least 30 to 40 percent.

China has the world’s largest Natural Gas Vehicles (NGV) fleet at 6 million, which is approximately 3.7 percent of the country’s total vehicles.

The growth of the NGV market has also been indirectly supported by China’s efforts in developing natural gas infrastructure, such as West to East Gas Pipeline Projects. These pipelines have ensured that provinces that lack natural gas resources are able to access it through this network.

In its 13th Five-Year Plan for Natural Gas Development, China set a target of 10 million natural gas vehicles, doubling its 2016 NGV population and 12,000 refuelling stations for vehicles by 2020.

In Italy, the success of NGV programme also owes itself to the already existing gas pipelines infrastructure; Italy has the third largest natural gas transmission system in Europe. Although Italy imports most of the natural gas from Russia and Algeria, CNG prices are still significantly lower than gasoline and diesel prices. The popularity of NGVs in Italy remains strong. By 2017, more than 800,000 NGVs were sold in Italy, which made up 80 percent of total NGV sales in Europe.

Apart from pronouncements by public officials at public functions, Nigeria has not demonstrated any seriousness towards the implementation of CNG in the transportation sector, as there are no standards or regulations.

Conversely, there is no specific agency set up to promote the automotive use of CNG in Nigeria.

The Nigeria Gas Company, established in 1988, has the mandate to efficiently gather, treat, transmit and market the country’s Natural Gas and its by-products to the domestic and regional markets.

“We will start very soon to roll out. Already, there is a pilot programme in Benin, which has worked for a long time,” Minister of State for Petroleum Resources Timpre Sylva told State’s News Agency of Nigeria.

The government-owned Nigerian Gas Company Limited (NGC), which is wholly responsible for gas transmission and sales, and a local company entered into a joint venture agreement in 2007 to establish a chain of CNG refilling stations.

The pilot scheme is in Benin City, within the Niger Delta region, where gas is produced. Targets included the conversion of 50,000 vehicles in the first four years and the construction of between eight and ten CNG stations, 50km of steel pipeline and two conversion workshops in the first two years.

As at the end of 2015, nine years after the commencement of the pilot programme, only the target for conversion workshops had been met.

“We want to expand that CNG programme across the country and we believe it is going to create a lot of opportunities for Nigerians and also give Nigerians a new lease of life because the commodity would be accessible,’’ Sylva boasted.

 

LOLADE AKINMURELE & DIPO OLADEHINDE