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Gas price may skyrocket as government hits importers with N27b tax

By  Sulaimon Salau (Lagos) and  Kingsley Jeremiah (Abuja)
12 December 2021   |   4:30 am
The current energy crisis in the country could worsen in the coming weeks, as the Federal Government returned taxes on imported Liquefied Petroleum Gas (LPG) amid soaring pump price, as well....

Cooking gas. Cylinders PHOTO: iStock

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The current energy crisis in the country could worsen in the coming weeks, as the Federal Government returned taxes on imported Liquefied Petroleum Gas (LPG) amid soaring pump price, as well as the projected removal of subsidy on Premium Motor Spirit (PMS) early next year.

Although the Minister of State for Petroleum Resources, Timipre Sylva had said that the country’s natural gas deposit is set to hit 600 trillion standard cubic feet (SCF), from the existing 206 trillion SCF, the absence of refineries and gas processing plants means that the country is importing over 90 per cent of its energy needs.

Given the rising prices of crude oil and natural gas at the international market and other economic indexes, the price of cooking gas has within the year increased by over 100 per cent alongside the price of petrol and diesel.

Even though the Federal Government had exempted cooking gas from import duties, The Guardian can confirm that taxes being returned to the product will see the four major importers of the product into the country pay about N27b to Nigerian Customs Service (NCS) in the coming weeks.

The Guardian reliably gathered that the affected companies have already commenced factoring the new tax into the market cost of the product, a clear indication that consumers would have to up their cooking gas budget as demand peaks ahead of the Yuletide.

Stakeholders, who spoke to The Guardian, yesterday, said the development was not only an indication of the insensitive disposition of the current administration towards the plight of the masses, as well as one that would increase the rate of deforestation, poverty, worsen biodiversity and cripple the global COVID-19 recovery plan.

With the country’s yearly deforestation rate already standing at about four per cent, as about 350 billion hectares of land is being lost yearly, the high price of cooking gas has so far returned many Nigerians to the era of firewood and charcoal usage. All these at a time that the President Muhammadu Buhari-led administration pledged to commit to the Paris climate change agreement, as well as the net-zero plan.

Despite the National Gas Expansion Programme (NGEP), where the Central Bank of Nigeria (CBN) is sinking in about N250b intervention fund, Nigeria still imports about 60 per cent of LPG for the domestic market, while a paltry 40 per cent is sourced locally.

With the petrol price set to rise N340 per litre next year, and diesel already selling for about N350, the international gas price soared from $380 per metric ton to about $750 per metric ton.

The Guardian investigation revealed that the four major firms that import gas to supplement domestic supply, are currently struggling for survival under the new tax regime.

They were issued a debit note by the NCS for products imported since 2019, without prior tax notice, a move, which has weighed on their financial base and threatened their existence.

On the debit note, sources told The Guardian ordered Matrix to pay about N11b, Providence N2.9b, NIPCO N4.9b, and Algasco about N9b. These amounts were described as the cost of the tax on gas imported into the country between 2020 and 2021.

Sources in the affected companies said the import tax was strange to their businesses as there was no prior notice to that effect.

A top manager at one of the firms said that the sudden imposition of import tax on the companies without prior notice has placed an immense burden on the companies’ balance sheets while opposing the decade of gas agenda of the Federal Government.

The source explained: “There was no import tax on LPG before now to encourage Nigerians to use gas. Just about three months ago, the Nigeria Customs Service (NCS) raised a memo to some gas marketers such as Matrix, NIPCO, Prudence and Algasco with a debit note indicating that tax on products imported from 2020 running into billions of naira should be remitted,”

The source continued: “It is rather unfortunate that over the years that we have been importing gas, the NCS has been clearing the cargo without any notification of payment. How can it come now and ask us to pay for accumulated duty?”

The marketer lamented that the money, which was not factored into the product’s pricing over the period has now become a financial burden on affected companies and may lead to their sudden collapse.

The Guardian however gathered that the marketing firms, which have issued a joint memo to the Presidency to review the tax policy are yet to get any response. They have also met with the NCS, and the minister of finance on the matter, but no positive response yet.

However, they have commenced importation of the product, while now factoring in the Value Added Tax (VAT) and import duty in the cost. This has also contributed to the high cost of products in the local market.

The Executive Secretary, Nigerian Association of Liquefied Petroleum Gas Marketers (NALPGAM), Bassey Essien, told The Guardian in an exclusive interview that the new prices are yet to be reflected in retail sales because the dealers were still selling old stocks.

He is, however, optimistic that the price would crash further in the international market while urging the Federal Government to urgently do away with the new tax to further crash the domestic price and make cooking gas affordable for Nigerians.

He said: “People are crying; the marketers are groaning; the consumers are crying, but the government, which brought the issue of VAT and customs duties is keeping mute. It should come and tell us categorically its decision on the whole matter.

“Let them make a categorical statement. Even though some marketers have started importing gas, we don’t know the arrangement because nobody has come out to tell us what the government has done.

“What they are saying is that LPG is deregulated. Yes, it is deregulated, but the government’s policy is affecting the market. In 2021 you just introduced VAT and said that we should have paid it since 2019. But you never issued any circular in 2019; you never told anybody, only to just backdate the tax and ask us to pay. We are not in an animal farm,” he said.

The Chief Executive Officer, Unigas Global Energy Limited, Anthony Agbo, said the imposition of VAT on cooking gas not only depicts the government as insensitive to the sufferings of the masses, but it also undermines the National Gas Expansion Programme, which has been applauded by many.

“So, if this Buhari-led government wants us to believe that it is a government of the poor masses as it claims, then it must reverse VAT on cooking gas import now,” he said.

Agbo said: “A lot needs to be done over time to stabilise the naira and close huge infrastructural gaps, among other solutions, but the low-hanging fruits for the government include removing the 7.5 per cent VAT on imported cooking gas. This will no doubt reduce the pressure on the product’s price. Cooking gas is a grassroots commodity that affects Nigerian daily, and a government that means well for its people shouldn’t be thinking of adding such a burden to an overburdened population.

“Consequently, many are now going back to firewood and charcoal, which they consider cheaper alternatives. As affordable as these alternatives may seem, the impact on people’s health and the consequent health costs, the degrading impact on our environment, and general quality of life are some of the reasons that the world is moving away from them,” he stated.

When contacted, the Special Adviser to the Minister of State for Petroleum Resources on Gas Business Development, Brenda Ataga, said the request for clarification on the matter by The Guardian came at the wrong time, stressing that she had closed for the week.

“Why are you calling me by this time? I have shut down for the week,” Ataga, who earlier in the year said the product price might sustain its rising outlook depending on prevailing micro-economic indices said.

The Executive Director, International Support Network for Africa Development (ISNAD-Africa), Adedoyin Adeleke said even though imposing taxes to ensure local production would be a commendable effort, it doesn’t appear the country has sufficient local capacity for gas production.

“My view is that while it is good that the government increases tax on the importation of gas, there should be complementary support to boost local production of gas. An increase in the tax on importation without increasing local production to crash the price will force many to return to cooking with fuelwood, which will negatively impact nature, biodiversity, and sustainable development in the country. The resulting environmental challenges will negatively impact the gains of socioeconomic development,” he said.

Renowned energy scholar, Wumi Iledare, said the decision to return taxes is coming at the wrong time. “However, if the levy is to discourage import, then it is a different matter entirely. I would rather discourage the government from additional tax at times like this in whatever form. It is as bad for the economy as subsidy payments,” he stated.

The Director at the Centre for Democracy and Development (CDD), Idayat Hassan, stated that already marginalised women would adversely be affected by the looming price, describing the move as at the height of insensitivity to the plight of Nigerians.

“It is sad that even though wages are not increasing, the government continues to increase the burden on Nigerians. We are expecting subsidy to be removed from petrol, and now we have to face another increase in the price of gas. This will badly affect the already distressed masses.

Nigerians are increasingly becoming much more vulnerable due to government policies that do not take cognisance of them, and this is aside from the insecurity that is making the country difficult to live in. It is increasingly becoming difficult to live as a Nigerian,” Hassan said.

According to her, the government may have to consider increasing workers salaries if it wants to continue with the prevailing policies.

An energy expert with PwC, Habeeb Jaiyeola, said that the government may face a serious backlash over the issue, adding that the continuous increase in the price of the products has been creating an uproar within the society.

“We will see a further increase in the price of gas, previous price increases have impacted a lot of items in the market, and the additional taxes will bring further increase. It won’t be something good for the masses as gas is now a major energy source,” he said.

Jaiyeola noted that the current development also indicated what may come for gas to power, which may lead to a high cost of power generation.

Going forward, planning and consultation are highly required, Jaiyeola said, adding that business owners need to be properly considered and carried along as the prevailing development may erode investors’ confidence.