Subsidy: FG Plans Deployment of Gas-powered Vehicles in March

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•Targets conversion of 5m vehicles, refuelling centres nationwide

•50% financing to come from govt

•Abuja, Kaduna, Kano, Lagos, others billed for phase 1

The federal government will from March this year commence the deployment of Compressed Natural Gas (CNG)-enabled vehicles as the country prepares to fully remove petrol subsidy.

The government noted that with abundant gas reserves of over 206.53 TCF, a population of about 200 million people and the enactment of the Petroleum Industry Act (PIA), the continuous absorption of an under-recovery deficit would be eliminated when the alternative fuel comes on-stream. Although the programme was launched last year, not much had been heard of it since then, prompting widespread belief that the initiative had been abandoned by the authorities.

But speaking in Abuja yesterday, when he met with stakeholders in the sector, the Minister of State, Petroleum, Mr. Timipre Sylva, along with his team in the ministry, noted that the government envisages to convert about five million cars at the end of the programme.

A presentation made during the event showed that the government, working with Original Equipment Manufacturers (OEM) and oil and gas marketers plan to convert one million public transport vehicles and install 1,000 refuelling centres within 36 months.

A breakdown indicated that from zero to 18 months, 500,000 conversions would take place and 580 refuelling centres would be supplied by five OEMs; while from 18- 36 months another 500,000 conversions and 420 refuelling centres supplied by six OEMs would materialise.“Target is to reach 5,000,000 conversions by achieving a 20 per cent y-o-y increment (from year 3) which could be accelerated as the market matures,” the federal government stated.

To ensure rapid conversion of vehicles, it promised to provide 50 per cent equity participation as well as encourage credit scheme investments with partner nations and OEMS.

In addition, the ministry pledged to make available a centralised management portal to maintain standards, evaluate utilisation and impact of government equity and overall project as well as select competent retail networks to catalyse the CNG sector.“A priority for the FGN is the rapid and strategic introduction of Natural Gas Vehicles (NGVs) as an alternative fuel for transportation in Nigeria in line with the approved National Gas Policy.

“This will pave the pathway for full deregulation of the downstream petroleum sector in Nigeria, whilst reducing the effect of deregulation on transportation costs,” it stressed. Furthermore, the government stated that the 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.

Sylva, speaking earlier, underscored the need to provide an alternative fuel for Nigerians, but noted that it wasn’t possible to move further without ensuring that the marketers were fully on board the agreement around auto gas.

“If not, you will have a situation where converted vehicles do not have places to refuel,” he argued.“So, to do this, we all agreed as part of our engagement with labour to have at least 1 million cars converted in the first instance,” he added.He noted that very soon, the OEMs would be in Nigeria and they would need partnerships with local marketers to put their systems in place in Nigeria, especially in the installation of the dispensing stations and also the conversion kits.

According to him, while N250 billion was recently made available in the Central Bank of Nigeria (CBN) for the marketers to access, a further incentive would be the downstream and midstream gas infrastructure development fund which would also be deployed for the purpose.“As desirable as the issue of deregulation is for the economy, you all will agree that these structures need to be put in place so that the impact it will have when ultimately subsidy is removed, maybe at some future time, will need to make sure that everything is in place for the suffering masses of Nigeria.

This is so as not to have the full weight of whatever is going to come with full deregulation. So, a lot of discussions are going on, but I thought that I should invite you to discuss these details with you,” he said.Before the clarification made by the minister and his team, the marketers including the Chairman of the Major Oil Marketers Association of Nigeria (MOMAN) and Chief Executive, Ardova, Olumide Adeosun, erstwhile MOMAN chair, Tunji Oyebanji as well as representative of the Depot and Petroleum Products Marketers Association (DAPMAN), Christian Igwe, had raised some pertinent issues.

Adeosun, for instance, noted that there was uncertainty as to the increase in Value Added Tax (VAT) on gas as well as problem with shortage of supply of gas in the country.He explained that building a strong investment case for CNG with financiers was difficult.“So, I mean, in in a nutshell, where we are really is that the investment cases have been made across the board, but we need a few more definite things that feed the assumptions that will go into the financials, which is really what happens with investors.

And I think where we are today is that the investment case has not been made strongly enough,” he said.Oyebanji on his part, argued that for example NIPCO already has an ongoing CNG operation in Benin City, which was to be replicated across the length and breadth of Nigeria.“But the bottom line of it if we are being very frank with ourselves is that as of now, it hasn’t proved to be a profitable venture,” he maintained.

But Sylva who made some further clarifications, stated that the burden would not to be on the marketers, adding that the downstream/midstream infrastructure fund would be made available to those who are screened to partake in the programme.“The burden is not to be on you. Already, the funding is in place. We are looking at our own side by providing 50 per cent of the funding and OEMs are providing the other 50 per cent and you are coming in at this point.

So, I think it’s a different scenario. When NIPCO started, they were on their own, they had to set up everything. They had to get the funding themselves, but of course, we also recognised that it is not going to be easy,” he noted.In her comments, Technical Adviser to the minister on Gas Business, Brenda Ataga, clarified that no one was going to get cash, but equipment delivered to their stations for conversion.

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