Page 6 - AfrOil Week 39

AfrOil COMMENTARY AfrOil

Investors can access the fund, which has a several companies that have already signed up to
10-year maximum tenor, at interest rates of no the subsidy package. It believes that millions of
WHAT: more than 5% until the end of February next cars in the country could potentially be fuelled
Nigeria’s central bank year. After that point, rates will rise to 9%. using gas. “CNG, unit for unit, costs less than
has unveiled a $648mn The funds for big projects will come from the even the subsidised gasoline,” a Nipco represent-
incentive package to en- Power and Airlines Intervention Fund (PAID), ative was quoted as saying by Bloomberg on Sep-
courage the development while those for small-scale ventures will come tember 19. “We believe that when an alternative
of natural gas vehicle from the NIRSAL Microfinance Bank (NMFB) is given to Nigerians, they will get used to it.”
infrastructure.
and other sources. Another company to apply for support is
WHY: Nigeria has some 188 trillion cubic feet (5.3 Sagas Energy, a gas distributor.
The government has trillion cubic metres) of proven gas, according CNG is already significantly cheaper than
faced tough criticism to its own estimates. But most of the 45bn cubic gasoline and diesel. Speaking on September
for ending subsidies for metres of gas it produces annually is exported 24, Nigerian Vice President Yemi Osinbajo
gasoline and wants to in the form of LNG. However, the government estimated the cost of CNG for cars and buses
develop compressed wants to gas to play a much larger role in the at NGN78-80 ($0.20-0.21) per litre, or half the
natural gas (CNG) as a country’s energy and fuels mix. current cost of gasoline. The challenge is devel-
cheaper alternative. So far, investment in compressed natural oping the necessary infrastructure and manu-
gas (CNG) and liquefied petroleum gas (LPG) facturing capability to make this fuel available at
WHAT NEXT: as alternative fuels has been low. But the central scale nationwide.
The government has bank wants to make CNG the “fuel of choice”
shown no sign of re- for transportation, and LPG the favoured option Risk of reversal
versing its policy on fuel for domestic cooking, captive power and small Plans to ramp up CNG use will likely be upended
subsidies so far, but high industrial complexes. It also wants to scale up if the government caves into mounting pressure
fuel prices will encourage
unrest and CNG will gas-based industries such as petrochemicals. and reverses its decision to end subsidies for
not become as readily This will be achieved by spurring private invest- conventional fuels.
available as gasoline ment in the sector, the bank said. The Nigeria Labour Congress (NLC), the
overnight. Projects eligible for financing include: Trade Union Congress (TUC) and other labour
· Gas processing plants and small-scale pet- unions called on their members to go on strike
rochemical plants on September 28 over the high cost of gasoline
· Gas cylinder manufacturing plants and electricity. But the industrial action was later
· LNG/CNG regasification modular systems called off, after the government agreed to pro-
· Auto gas conversion kits and component vide unspecified support to workers. There have
manufacturing plants also been large-scale protests.
· CNG primary and secondary compression High fuel costs have led to riots breaking out
stations in the impoverished country in the past, and
·LPG retail skid tanks and refilling motorists are even more incensed by the price
equipment increases given the deep recession Nigeria is fac-
· Auto gas transportation systems and con- ing. Despite this pressure, however, the govern-
version and distribution infrastructure ment appears to be staying the course.
· Improvements in cylinder production and Over the past month President Muhammadu
distribution and LPG wholesale outlets Buhari has repeatedly defended the removal of
· Micro distribution outlets and service cen- subsidies, saying Nigeria needs to “stop the mis-
tres for LPG sales, domestic cylinder injection management of taxpayer money” and “eliminate
and exchange. corruption associated with subsidies.”
· Any other mid-to-downstream gas value Minister of Information and Culture Alhaji
chain-related activity recommended by the Lai Mohammed reiterated the government’s
Ministry of Petroleum Resources. position in a speech on September 27, calling on
By expanding the required infrastructure, trade unions to drop their strike plans.
such as pipelines and refuelling stations, Nige- “Revenues and foreign exchange earnings by
ria wants to see thousands of buses and trucks the government have fallen by almost 60% due
on the roads using gas. Boosting the role of CNG to the downturn in the fortunes of the oil sec-
could create 1mn jobs and help Nigeria reduce tor. There is no provision for the subsidy in the
its fuel import bill, authorities say. revised 2020 budget. So where will the subsidy
Despite being Africa’s biggest oil producer, money come from?” he said.
Nigeria relies on imports of gasoline, diesel and The minister estimated that some NGN10.4
other key fuels, as its main refineries are in a state trillion ($3.6bn) had been spent on fuel subsi-
of disrepair and have been closed. The country dies between 2006 and 2019, and the support
is awaiting the launch of the 650,000 barrel per measure only led to fuel shortages.
day (bpd) newbuild Dangote refinery within the Nigeria is currently negotiating financial aid
next year, and is developing a number of small- from the IMF and the World Bank, and these
scale modular refineries. But by expanding CNG lenders will insist on austerity measures in
consumption, Nigeria would utilise more of its return for their support, which could mean the
gas reserves and potentially make more of Dan- fuel subsidy is gone for good. However, there is
gote’s output available for export. still a risk that the government could U-turn if
Fuel retailer Nipco, which has already con- unrest continues to mount. After all, CNG will
verted more than 5,000 vehicles to run on gas in not become as readily available as gasoline over-
and around the southern city of Benin, is among night. ™

P6 www. NEWSBASE .com Week 39 30•September•2020