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Aklin, M., Bayer, P., Harish, S. P., and Urpelainen, J., 2014, “Information and Energy Policy Preferences: A Survey Experiment on Public Opinion about Electricity Pricing Reform in Rural India”. Econ. Govern. 15 (4), 305–327.
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Bashir, D., 2013, “The Economic Implication of Fuel Subsidy Removal in Nigeria”. International Journal of Business and Administrative Studies 2 (4), 103–107.
Beaton, C., Gerasimchuk, I., Laan, T., Lang, K., Vis-Dunbar, D., and Peter, W., 2013, “A Guidebook to Fossil Fuel Subsidy Reform”. International Institute for Sustainable Development.
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Appendix I. The Petroleum Industry Act 2021
On 16 August 2021, the Petroleum Industry Act (PIA) was enacted into law, which contains the following 5 chapters, 319 sections and 8 schedules.
Ch.1. Governance and Institutions
The objective is to ensure good governance and accountability, and create a commercially oriented national petroleum company, and foster a good business environment on petroleum sector.
Dual regulatory agencies are created: the Nigerian Upstream Regulatory Commission (the “Commission”) and the Midstream and Downstream Petroleum Regulatory Authority (the “Authority”).
“NNPC Limited” is to be incorporated within 6 months and replace the NNPC entirely within 18 months. NNPC Limited is operated on a commercial basis without government funding and must publish annual reports and audited accounts. Government owns all shares in NNPC Limited through the Ministry of Finance & Ministry of Petroleum as shareholders while also controlling the selection of its management team. This structure is expected to pave the way for an invitation to the Nigerian public to own shares in the company in the future.
The objective is to promote exploitation of petroleum resources for the benefit of Nigerian people and for sustainable development of the industry and to ensure transparency in the administration.
Avoid economic distortions and ensure a competitive market for the sale and distribution of petroleum products and natural gas in Nigeria and avoid cross-subsidies among different categories of consumers (market-based pricing principle for petroleum products).
Pricing principle of petrol products: When the authority regulates the tariffs and prices of a licensee, the authority shall allow the seller to recover reasonably and prudently incurred costs, including a reasonable return on the capital invested in the business.
Ch.3. Host community development
The aim is to foster sustainable prosperity within host communities and harmonious co-existence.
A company that has been issued with an oil prospecting license or mining lease or an operating company is required to set up a host community development trust fund to support sustainable development within host communities. The company will contribute 3% of its actual operating expenditure in the preceding calendar year in the upstream petroleum operations to the trust fund.
Ch.4. Fiscal framework
The objective is to establish an adaptable fiscal framework to promote investment in the petroleum industry, given the changing global outlook for the sector.
The new fiscal terms will provide greater incentives to invest in the oil and gas industry but could reduce the government take from new and converted fields, with the short-term revenue impact dependent on the pace of conversion of existing fields to the new terms (text chart).
A new royalty combines a base rate with a variable rate linked to oil prices. The Petroleum Profits Tax (PPT) is replaced by the regular CIT at 30% and a new Hydrocarbon tax at rates from nil for offshore production to 15% or 30% for onshore production. This reduces the average effective tax rate for companies in the upstream sector to around 60~70% as opposed to the previous 85% rate.
The Commission will collect rents, royalties, and production shares as applicable while the Authority will collect the gas flare penalty from midstream operations.
A Frontier Exploration Fund will be financed through a 30% deduction of profit oil and gas in the production sharing, profit sharing and risk service contracts, which will be administered by NNPC.
Gas flaring penalties will no longer be transferred to the Federation Account and will instead be used for gas infrastructure development or environmental remediation in the host communities.
Ch.5. Miscellaneous provisions
The PIA repeals about 10 laws including the Associated Gas Reinjection Act; Hydrocarbon Oil Refineries Act; Motor Spirits (Returns) Act; NNPC (Projects) Act; NNPC Act; and PPPRA Act.
Appendix II. Cross-Country Experiences of Conversion to NGVs1
1. India’s “Delhi Pollution Control Program” and “Subsidy Swap”
In 1999, the Supreme Court of India made its landmark decision to adopt “Delhi’s pollution control program”, which included converting Delhi’s bus fleet to CNG, defining CNG as an approved type of clean fuel, and providing financial incentives to replace existing autorickshaws and taxis with those operating on CNG. This program became the basis for other cities to adopt similar efforts. Also, India has mitigated the large fiscal burden for the conversion by gradually removing the existing fuel subsidies at the same time (“subsidy swap”), which created fiscal space to transfer to clean energy including natural gas and resulted in a shift in public financial resources from petrol to natural gas. As a result, during 2014–2017, India’s support to petrol fell by almost three quarters—reflecting a combination of policy reform and lower world oil price—while support for clean energy including natural gas has increased almost six times (IISD, 2019). As the Indian government continues to promote a gas-based economy, highlighted with the “Gas4India” campaign launched by the Ministry of Petroleum and Natural Gas in 2016, its NGV market is continuously growing.
2. Argentina’s “Liquid Fuel Substitution Program”
In 1984, Argentina launched the “Liquid Fuels Substitution Program”, which aimed to replace diesel with natural gas in public transportation through vehicle conversions to run on the CNG. The program focused on maintaining favorable CNG prices through establishing standards for CNG equipment, filling stations and support for vehicle conversion. Credit lines were also extended for the conversion of the taxi fleet in Buenos Aires, and the funding of three fueling stations in key parts of the capital mitigated the fears of the public about the use of natural gas as a transportation fuel. In Argentina, the price advantage of CNG over diesel or gasoline was the strongest driver for the increase in conversion rate. Argentina’s NGV growth spiked in the early 2000s when Argentina faced an economic crisis. However, the price factor was impacted by the country’s natural gas supply shortage thus leading to a stagnation in its fleet from 2004. Despite these challenges, Argentina continues to support CNG vehicles, and eventually Argentina tripled its NGV to 1.6 million vehicles during the past 20 years.
3. Iran’s Plan to promote NGV by “Iranian Fuel Conservation Organization (IFCO)”
Although Iran is rich in crude oil, the lack of oil refineries forces Iran to refine part of its own crude oil in Europe. When international sanctions banned gasoline sales to Iran, it had to look for alternative sources to meet growing fuel demands. Natural gas provided an easy option as Iran holds one of the world’s largest gas reserves. The government first introduced its plan to promote NGVs by establishing the “Iranian Fuel Conservation Organization (IFCO)” in 2000. The IFCO focused on retrofitting existing vehicles for CNG use and constructing CNG refueling stations. In 2006, the Iranian parliament voted to pay the equipment expenditure costs for all CNG stations, triggering a rapid growth in NGVs. Iran’s NGV policies were a success; the number of NGVs grew from almost zero to 3.5 million in just over a decade, making Iran a global leader of NGVs. Despite the shortage of refueling stations, NGVs are likely to remain popular in Iran as CNG is significantly cheaper than gasoline. Moreover, Iran’s “Sixth Country Development Plan” mandates domestic manufacturers to have 50 percent of their annual vehicles produced be CNG compatible, ensuring the availability of NGVs for willing consumers.
4. China’s “Clean Vehicle Action”/ “Five-year Plan for Natural Gas Development”
With the world’s largest NGV fleet at 6 million NGVs—approximately 3.7 percent of the country’s total vehicles—China has supported natural gas in transportation to curb air pollution. In 1999, China introduced the “Clean Vehicles Action” for 12 demonstration cities, which established the percentage targets for alternative fuels including CNG in bus and taxi fleets and provided R&D funding for industry and financial subsidies for buyers. Until 2015, the government had regulated the CNG prices to be lower than gasoline. Central and local governments have established development plans to promote NGVs in public transportation, supported refueling infrastructure construction, provided financial support through subsidies and tax exemptions, and relaxed restrictions on CNG conversions. The growth of the NGV market has also been indirectly supported by China’s efforts in developing natural gas infrastructure, such as “West to East Gas Pipeline Projects”. These pipelines have ensured that provinces that lack natural gas resources are able to have access to it. However, remote areas are still far from this gas grid, and there are safety concerns with CNG vehicles in dense cities (some cities have strict mandates against CNG conversions). Also, to tackle pollution from diesel, LNG was introduced for heavy-duty vehicles in 2012. In its 13th “Five-Year Plan for Natural Gas Development”, China set a target of 10 million natural gas vehicles, doubling its 2016 NGV population, and 12,000 refueling stations for vehicles by 2020.
Prepared by Il Jung (FAD).
Premium Motor Spirit (PMS) subsidy has reemerged since November 2020, and the aggregated subsidy (PMS and fuel oil) has reemerged since January 2021.
This section is based on the analysis of IMF (2019) “Nigeria: Selected Issues, Fuel Subsidies–Latest Increase and Implications of a Change in the Regulated Gasoline Price”.
See Arze del Granado, Coady and Gillingham (2012), “The Unequal Benefits of Fuel Subsidies: A Review of Evidence for Developing Countries”. They estimated the welfare impact for 20 countries in Africa, Asia, the Middle East, and Latin America.
See IMF (2019), which assess the impact of a 40 percent increase in fuel price (recovery of costs) on households’ budgets, based on the Nigeria’s General Household Survey data and, etc. It calculated both the direct effects (for consumers of fuel) and the indirect effects (for consumers of goods and services that use fuel as an input).
In 2016, Nigeria, even if it was the Africa’s biggest oil producer, was unable to fully meet demand due to several factors, such as the attacks on oil pipelines in the Niger Delta and the shutdown of some facilities (Gaffey, 2016).
Paying more than NGN 86.5 per liter has been a reality for most Nigerians as the subsidized price has rarely been enforced outside Abuja and Lagos at that time, and except unions, some Nigerians were willing to accept a price increase if the subsidy removal was a necessary step towards relieving the fuel shortage (Gaffey, 2016).
Source: Reuters (December 2, 2020), “Nigeria launched ambitious plan to convert car fleet to gas”.
National Gas Expansion Program (NGEP) manager said the cost was between N190,000 and N250,000, depending on the vehicle (source: Punch (2020.10.16) “Auto-gas: Nigeria moves to tap environmental and cost benefits”.