In 2019, the Federal Government (FG) elected to exempt
imported Liquefied Petroleum Gas (LPG), also known as cooking gas, from Value
Added Tax (VAT) in an effort to encourage domestic gas utilization. However,
three weeks ago, the FG reintroduced the 7.5% VAT on imported LPG in a bid to
boost its revenue sources, following evident pressures through the year.
Although appearing to differ from our survey of Gas prices in recent months,
the National Bureau of Statistics (NBS) showed that the average price for the
refiling of 5kg and 12.5kg cylinder for cooking gas increased by 3.5% m/m (8.6%
y/y) and 3.1% m/m (7.2% y/y) to N2,141.6 and N4,422.3 in Jul-2021. Our market
survey showed that the price to fill a 12.5kg cylinder prints at N6,000 as of
Jul-2021 from N4,500 twelve months ago.
The recent rapid increase in the price of cooking gas has been down to
devaluation of the naira as well as increase in the dollar cost of the
commodity. Noteworthy to mention, Nigeria imports majority of its cooking gas
consumption while the rest are mainly supplied by the Nigeria Liquefied Natural
Gas company (NLNG). Hence, importers have had to pay more for imported cooking
gas and have subsequently passed on the higher cost to consumers. With the
reintroduction of VAT on imported LPG, we expect to see further price pressures
on cooking gas in the nearest future.
That said, we recognize the FG's decision to reintroduce VAT on imported
cooking gas is also a strategic move to encourage local LPG producers. This
comes at a time when NLNG raised its LPG output and appointed three new
off-takers. In addition, domestic producers like ARDOVA have ventured into construction
of new LPG plants and terminals with the aim of boosting domestic LPG
production. Thus, we believe should these various projects materialize and
contribute a significant portion of locally consumed LPG, the FG's move to
protect domestic production may become a masterstroke. That said, in the
interim, the move is expected to further pressure a weak consumer base as well
as exacerbate inflationary pressures.