FG’s kerosene substitution policy, lessons from Indonesia
Last week, Maikanti Baru, NNPC’s group managing director received Harry Purwanto, the Indonesian Ambassador to Nigeria in his office in Abuja who was on a courtesy visit.
On the occasion, Baru said the NNPC was interested in working with Indonesia on its initiative to replace firewood and kerosene with Liquefied Petroleum Gas (LPG) as primary domestic fuel for cooking. While this is a laudable initiative, there are valuable lessons Nigeria can learn from the Indonesian model.
Prior to the launch of the programme in 2007, kerosene was the main fuel for households and fisheries. To change that, the government launched the new programme aimed at converting over 58 million users of kerosene to LP Gas.
Like Nigeria, Indonesia had subsidized kerosene for decades but as population continues to rise and oil prices surged higher, the subsidy became a huge burden for the country. The subsidy for kerosene was the largest in Indonesia accounting for 57% of the state’s total petroleum product subsidy.
According to a study on Kerosene to LP Gas Conversion Programme in Indonesia jointly written by PT Pertamina (Persero), Indonesia & the WLPGA, France, between 2001 and 2008 the cost of subsidies ranged from 9% to 18% of total state expenditures peaking in 2005.
The initial program goal was to convert 42 million households and micro businesses nationally. This was later increased to 54-58 million units. All citizens meeting the program requirements would have the right to receive the free “Initial Package”, consisting of a 3 kg LP Gas cylinder, a first gas-fill, and a one-burner stove, hose, and regulator. Kerosene with Liquefied Petroleum Gas (LPG) as primary domestic fuel for cooking.
The program execution was based on certain priorities: including areas with LP Gas infrastructure readiness, and areas with high consumption of kerosene. The program was launched in Jakarta. A major effort would be required to plan an infrastructure that could be built within the first three years, starting immediately, and followed shortly afterwards by distribution.
Based on end-use “energy equivalent” calculations, one litre of kerosene equates to 0.57 kg of LP Gas. However, local research indicated that usage of one litre of kerosene equates to 0.39kg LP Gas. This value was used in the subsidy calculations showing savings of 2.17 billion USD, a significant fraction of the state budget, would be achieved in 2006.
Distribution of initial conversion packages started in May 2007. By the end of 2008, 19 million conversion packages had been distributed. By 2009, Pertamina had distributed 24 million packages. In 2010-2011, 10 million packages were distributed. At the end of the program LP Gas volume is predicted to increase 4 to 5 times that compared to the preprogram Pertamina sales volume.
An analysis of Indonesia’s model revealed some factors that were critical for their success. A key factor was planning. The country set a five year plan in motion and faithfully followed the timelines and met delivery milestones.
The country also tasked specific organisations and gave them specific roles including its Ministry of Energy and Mineral Resources (MEMR): Coordinator of program implementation. Pertamina (national oil company): Procurement of 3 kg LP Gas cylinders and supply of LP Gas. Ministry of Industry: Procurement of gas stoves, hoses, and regulators. Ministry of Women’s Empowerment: Socialization of the Conversion Program. Ministry of Small and Medium Enterprises: Distributor of LP Gas packages.
Indonesia also provided full and complete information to all the stakeholders and granted them incentives to abandon kerosene and other unhealthy cooking materials. In less than 6 years, Peramina has distributed initial packages to almost 54 million households and small-medium enterprises (93% of their target), cut kerosene imports by 8.2m litres and replaced it with 3.2 million MT of LP Gas, saving the country $6.9 billion.
ISAAC ANYAOGU