What is a good time to remove fuel subsidies? A pilot operation to make cars run on autogas will tell

NEWS DIGEST – Discussions and policies on how to achieve full deregulation of the downstream petroleum sector dominated headlines last year. Now that hope is quashed by citizens’ rejection of plans to remove subsidies on fuel, the federal government will turn to alternative fuel, autogas, to help its argument for when it tries again in the future.

“We said we must provide alternative fuel and the alternative that we concluded on was the autogas alternative,” said Timipre Sylva, Minister of State for Petroleum Resources.

Nigeria’s vehicles are powered by Premium Motor Spirit (PMS), which is petrol, but a small pilot operation to help 200,000 commercial vehicles run on autogas was discussed between the Ministry of State for Petroleum Resources and industry stakeholders on Monday.

Not only does the designed framework of this project help the country dive into its rich autogas resources, about 206.53 trillion cubic feet, but it could now determine when Abuja will settle to remove the subsidy on fuel.

Policymakers in Abuja reneged on their bid to remove the subsidy on fuel, again, despite a perpetual feeling that it’s the right course to chart for the country’s economic vision. President Buhari announced on Tuesday the government will continue to subsidize petrol until further notice.

But for most of 2021, government officials felt that the country could not continue to subsidize fuel with a vast amount of revenue that should go to the execution of capital projects or the development of critical sectors such as education and health. The federal government says that figure stands at N3 trillion yearly—one of five fractions of the 2021 budget.

“As at last year, NNPC was supposed to contribute N200 billion a month to FAAC for distribution to states,” said Godwin Obaseki, Edo state governor, after an NEC meeting last Thursday. “Because of payment of subsidy, NNPC was unable to put that money into FAAC for distribution, which means less money going to states and the Federal Government.”

The presidency was first forced to reconsider its options on Monday because of staunch opposition from civil groups and the Nigerian community. At the forefront of this opposition is an argument that the economics would put a telling strain on the average Nigerian—since they would need to pay as much as the neighbouring country, Ghana (N495) for each litre of gasoline.

The president, Mr Mohammadu Buhari, agrees with this much. Finance Minister Zainab Ahmed, who announced a provision had to be made for subsidy in the 2022 budget, said, “Mr. President does not want to do that (remove subsidy).”

“We discovered that practically, there is still heightened inflation and that the removal of subsidy would further worsen the situation and impose more difficulties on the citizenry,” said Ahmed Zainab on Monday.

Although the Labour Congress has laid its markers for the removal of subsidy: the overhaul of refineries, establishment of modular refineries and a crackdown on smuggling of petroleum products, the federal government is convinced its “alternative fuel” project would do enough to persuade citizens when it eventually does ask the question again.

The autogas framework will have Nigerian vehicles split between the cheaper compressed natural gas, CNG and premium motor spirit, in line with the National Gas Policy. The use of premium motor spirit to power vehicles accounts for the most use of petrol in Nigeria.

“A lot of work has been going on and we have come to a certain point where we need to take it further,” said Mr Sylva.

“CNG was selected as the fuel of choice because it holds a comparative advantage due to its ease of deployment, its comparatively lower capital requirements, commodity’s supply stability, existing in-country volumes, and local market commercial structure which relies predominantly on the naira,” he added.

In the next 18 months, the federal government hopes the number of cars running on autogas in the country would total 500,000. That blueprint also includes the installation and proliferation of autogas dispensers in stations.

The Ministry of State for Petroleum Resources will begin its pilot operation in Lagos, Abuja, Kaduna, Kano, Kogi, Oyo, Ondo, Kwara, Edo, Delta, Bayelsa, Niger and Rivers.

“A single track CNG deployment is proposed in the initial phase and other alternatives can be considered as the market attains maturity,” added Mr sylva.