Why Nigeria’s LPG off take policy has to stay

BY KENNETH EZE

It does not require expertise in economics or indeed any field to understand that the Nigerian economy is breathing hard.

All the data and perspectives from the global media and rating agencies painting Nigeria as the poverty capital of the world can be set aside as adversarial thoughts. However, with the November 2022 report of the National Bureau of Statistics (NBS) affirming that 133 million Nigerians were living beneath the poverty lines got me thinking.

Why not? The report simply says that 63 percent of Nigeria’s 200 million population are contending with abject poverty. The implication is that the other 37 percent are at the danger of being overwhelmed by the majority.

How can this problem be solved? Or what’s the government doing to change the situation?

Recall that experts have been warning against knee-jerk approach of resorting to taxes and levies as against strategic retooling of the economy to boost local production.

The pull between the domestic and global economy, which experts have described as exosmotic from the raw materials perception, should be properly weighed to avoid strangling one for the other.

An oil and gas expert, Norbert Shialsuk, sounded this note of warning at a media roundtable to ignite my thoughts. He noted that arising from COP 26, Nigeria declared a “decade of gas”, for obvious reasons.

He highlighted that Nigeria’s declaration had two targets of transforming the country into a leading producer and consumer of gas.

It is noteworthy that Nigeria has over 206 trillion cubic feet (TCF) of gas and another 600 TCF in probable reserves, which classify her as a major gas producer.

As part of efforts to achieve these objectives, the country came up with the 70/30 gas policy. The interpretation is that Nigeria would chase the lure of foreign currency with 70 percent of her gas production, while seeking to satisfy domestic consumption with the remaining 30 percent.

The statistics and policy are important now, because the global market can easily absorb 100 percent of Nigeria’s Liquefied Petroleum Gas (LPG) production in exchange for dollars but the opportunity cost would be dire.

To tackle this, the Nigerian government put in place a domestic LPG off-take police that to ensure steady supplies to the home market. However, this policy has come under attack recently with the annual contracts of the local players being set aside in favour of quarterly contracts, with no hope of renewal.

Some of the major consequences would be environmental impact and economic impoverishment.

The environment would come under more threat, as several energy needs already being met with the LPG would fall on woods and lead to deforestation and pollution. This negates all the policies initiated by the government as well as treaties endorsed to tackle global warming.

In addition, the entire investment already made by several players in the oil and gas sector are now at the danger of going down the drain.

The inflation rate would be strategically stimulated as the LPG market has already witnessed an astronomical rise in prices with a 12.5-kilogram cylinder moving from N4,000.00 to N10,000.00 within the last 18 months.

Interestingly, a study by African Clean Cooking Alliance between 2020 – 2021 which assessed Nigerian homes came up with an estimated average spend of between N2,000.00 and N3,000.00 per month on LPG.

A similar study by KPMG in 2015 showed that Nigerians who were using LPG were willing to spend N2,000.00 per month. If 2010 – 2015, the average price has been between N2,000.00 – N3,000.00 per cylinder. Now, LPG is at N10,000 which is over 100 percent increase, what we can drive the growth of the market.

Affordability is a major factor. Government has to invest to make conversion kits affordable. If conversion kits are made available, over time consumption will help grow the market and aid cost recovery.

This becomes important because at the moment, the 12.5kg cylinder is between N20,000.00 – N30,000.00. In a country where the minimum wage is N30,000.00, how many can afford to buy the cylinders?

Experts are of the opinion that the infrastructure needed to achieve this would require an investment in the region of $1 billion to $2 billion, which over years could be recovered from the consumption levy. So, this mechanism needs to be used to provide conversion kits and cylinders for Nigerians because over the years through the consumption levy, it will be paid for by Nigerians because huge demand will be created. You must first create the market.
I also like to point out that LPG’s industrial applications make it clear that it is an enabler of economic growth and which means that it generates employment. Its economic catalyst roles are seen the areas of agriculture and manufacturing.

If the present off take policy, which partly guarantees local supplies and meets energy demands of homes, businesses and industries is tampered with, as some forces in the top hierarchy of the Nigerian oil and gas industry are threatening, the likely crises are better imagined.

Part of the scary factors would be more heat on the unstable forex market. Experience has shown that the Nigerian forex earnings are never enough to meet the demands of the domestic economy. Stifling the local supplies of LPG for more forex would just make bad situation worse.

The results, I dare say, are in bare eyes, given the way the economy has travelled in recent years.

Most importantly, there’s no point fixing what is not broken. This present policy has served the economy well, seen continuous growth in uptake of LPG, while creating employment.

Eze, a consultant, wrote from Yaba, Lagos.