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Nigerians spend about N1.5 trillion on liquefied petroleum gas (LPG) yearly, an amount that may be exceeded next year on account of rising prices of the commodities and put more pressure on the incomes of households.
Coming as millions of Nigerians are returning to charcoal, casting doubts on the country’s cleaner fuel initiative amidst the rising prices of kerosene, the waivers of custom duty and value-added tax (VAT) on LPG may not have significant impacts on the consumption of the household product.
Nigerian Midstream Downstream Petroleum Regulatory Authority (NMDPRA) has said that the country consumes 1.4 million metric tonnes of LPG yearly. This translates to 1.4 billion kilogrammes. At the current average price of N1,100 per kilogramme, consumers will spend N1.5 trillion yearly in the face of rising poverty and unemployment.
By waiving VAT of N7.5, the government could forfeit about N10.5 billion of revenue. However the rising foreign exchange crisis as well as the logistics challenge, given the high cost of diesel, cast a shadow on the benefits of the waivers to the consumers.
According to the National Bureau of Statistics (NBS) as of 2018, the average cost of refilling a five kilogramme (kg) cylinder of LPG stands at N2,084.74 whereas a kilogramme in 2018 was N416.
In 2019, the price per one kilogramme came down to N334.08; it was N389.4 in 2020 and N353.76 in 2021 only to skyrocket to N843.6 last year. This December, the average price is N1,100 for one kilogramme.
Most marketers have blamed the foreign exchange crisis, high inflation, supply infrastructure and high diesel prices amidst other factors for the spike in the cost of LPG. The country relies more on importation to meet local demand.
While the United Nations has said Nigeria has the highest deforestation rate in the world, with an estimated 3.7 per cent of its forest lost every year, cooking gas prices witnessed an increase of over 160 per cent in a space of five years.
While Nigeria consumed 1.4 million tonnes of LPG last year, according to NMDPRA, 800 million tonnes or 57 per cent of the consumption volume was imported.
The local producers are Nigeria LNG with 350 tonnes. Kwale Hydrocarbon Nigeria Limited, KHNL, a subsidiary of Sterling Oil Exploration & Energy Production Co. Ltd produced 150,000 tonnes. The rest came from NNPC E& P Ltd (Intermittent production from the Oredo field integrated gas plant), Platform Petroleum and others.
The Ministry of Finance in a letter dated November 28, 2023 said the President Bola Tinubu-led government, to bring down the cost of cooking gas across the country, removed VAT and customs duty on the product.
“In line with His Excellency, President Bola Tinubu’s commitment to improving the investment climate in Nigeria, increasing the supply of LPG to meet local demand, reducing market prices and promoting clean cooking practices, I hereby affirm Presidential directive dated July 29, 2022, with reference number PRES/88/MPR/99.
“Accordingly, the importation of LPG utilizing HS Codes 2711.12.00.00, 2711.13.00.00 and 2711.19.00.00 is exempt from Import Duty and Value-Added Tax. Consequently, the Importation of LPG shall incur a 0 per cent duty rate and 0 per cent VAT rate, effective immediately,” the letter read in part.
Although most stakeholders told The Guardian it would have a level of impact on the retail prices of LPG, they were concerned about the need to boost the local processing of gas otherwise the increase in prices would not abate.
Experts are not impressed by the decision as they do not believe it could move a needle in the context of the current reality.
Former President of the Chartered Institute of Bankers of Nigeria (CIBN) and professor of Economics at Babcock University, Prof. Segun Ajibola insisted that while the plan is good, “producing LPG locally is preferable”.
Ajibola said the removal of VAT and custom duty on imported gas would temporarily tackle the rising prices of the popular cooking product used in the homes.
He said: “The current inflationary pressure and skyrocketing prices of imported consumables have exacerbated by the Naira exchange rate to the dollar, making some of these imported items unaffordable by the masses.
“Government is, I believe, targeting some of those basic items for such policies to reduce the landing cost and the eventual prices payable by the ultimate consumers. It is therefore a public welfare-laden move.
“Alternative sources of energy for cooking such as coal, firewood, etc have dire consequences on the environment. Even kerosene prices have skyrocketed as well.”
Ajibola said returning from a global Climate Management Event in UAE, the Government should be committed towards promoting clean environment and buy totally into Environmental Sustainability Governance (ESG) Agenda.
Renowned professor of energy economics, Wunmi Iledare, said reactive policy pronouncements are not necessarily effective enough to address the complex petroleum policy issues delimiting the multiplier effects of petroleum on the economy.
Although he admitted that an executive order is useful for addressing such shortages in an emerging economy, Iledare said reactionary policies would not effectively solve most of the prevailing petroleum policy issues and problems in the country.
Iledare noted that as long as the waiver is not perpetual or open-ended, the ongoing domestication of gas would not necessarily be compromised, stressing however that it leaves much to be desired that Nigeria is still in the stop -gas approach to solving minute problems like LPG.
“Some of us still believe passionately too, that the presidency is not suitably equipped to discharge the numerous PIA petroleum policy functions required to maximise the Nigeria petroleum value chain. The industry needs tested policy hawks to rekindle the optimal petroleum value chain optimisation path not surrogates,” he said.
Energy expert, Henry Adigun lauded the attempt to waive VAT and duty on LPG, noting that would temporarily reduce the price.
He however admitted that the price of LPG remained very high in the country, stressing: “I don’t know why the price of LPG locally is so high.”
The President of the Nigerian Economic Society (NSC), Prof Adeola Adenikinju said the price of LPG is very high in Nigeria and that the move by the government to reduce it is positive.
This is partly due to the dependence on foreign supply. The removal of VAT and customs duty will hopefully reduce the market price. This will be a relief to local consumers. It will help improve local penetration and promote the shift to LPG as the fuel of choice for residential households. It will also exert downward effects on energy prices and inflation,” Adenikinju said.
He however decried that supply infrastructure remained dismal, especially in the rural and peri-urban areas.
Adenikinju asked the government to also extend similar waivers to other end users’ equipment like burners and cylinders to facilitate the transition to LPG.
“But, the overall objective should be to promote self-sufficiency in LPG consumption and even for exports. The current situation in the energy sector where we are net importers of refined products should not be normalised. Once we can meet local demand, the government can reinstate the VAT and customs duty on imported LPG,” he noted.
THEGUARDIAN
