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No sense in subsidising something that is killing people, Adeshina

By Ebele Orakpo
Mr. Dayo Adeshina is the managing director of Strategic Energy Limited (SEL) of Nigeria, one of the world’s fastest growing independent commodities trading companies operating across the complete spectrum of oil products and the first private company registered as a member of the World LP Gas Association from Nigeria.

Mr. Dayo Adeshina

Recently, the graduate of Business and Finance from the University of Wolverhampton, United Kingdom, with over 20 years of experience in various industries including petroleum and telecommunications, spoke to Financial Vanguard on various issues including how many people his company has been able to take out of the unemployment market. Excerpts

Mr Dayo Adeshina who stated that he has always had a dream of owning a fully integrated gas company made a conscious effort to fulfill that dream about eight years ago by actively playing in the Liquified Petroleum Gas (LPG) sector. Speaking on what really stirred him to action, he said:

“The motivation was to try and correct an injustice that I saw which is seeing people being treated for burns from kerosene explosion, seeing people inhaling what I know is a poisonous fuel because kerosene really should be used as aviation fuel and it’s so sad that our so-called technocrats and all the advisers that advise the government would sit back and see government subsidizing kerosene as a cooking fuel when that same fuel they are subsidizing at a heavy cost can be making them more money from aviation fuel in dollars. All you have to do is blend. One is dual purpose but it’s the same basic kerosene.

I mean it makes no sense whatsoever to be subsidising something that is killing people when you can divert the same product, blend it and use it as aviation fuel and make more money in dollars.”

He regretted that Nigeria, the 7th largest exporter of crude oil in the world is still importing petrol. “We should be ashamed. I have been everywhere in this country apart from two states – Sokoto and Cross River – but I see what goes on. The basic cooking fuel for people is kerosene and firewood which shouldn’t be.”

On how he went about realising his dream, Adeshina said:  “I actually commissioned a group of consultants to look at the LPG industry as a whole.

Having seen all the problems that we are facing as a nation, and noticing that kerosene essentially and wood were the main cooking fuel which shouldn’t be, I also knew that we have substantial amount of gas deposits here and we are producing a lot of LPG from NLNG .

So that was where the journey started from and I decided to switch and go into LPG full time. The first thing I did was go for courses at the College of Petroleum, Oxford, all directly on LPG, just to gain a bit more knowledge.”

The SEL boss stated that prior to establishing SEL, he had “been involved in procurement for refineries and petrochemical plants, representing foreign companies then subsequently, I also got involved with the Power sector representing another foreign entity as well.

So actively cumulatively, I would say I’ve been involved in the oil industry for more than 15 years now. And during that time, I was also involved in corrosion control, also representing foreign companies. But I think the turning point came for me in 2003 – 2004 when I decided that full-time LPG (natural gas) would be my mainstay.”

He noted that like every business in Nigeria, SEL faces a number of challenges, given the inclement business environment. “I think the biggest challenge as in any business in Nigeria is finance and operational costs, outside of challenges of trying to convince the government to make the environment conducive for us to do business here.”

He said the company has four 30,000-gallon storage tanks. Those four tanks equal 40 tons, and each of them attracts 20% tariff and each is in the neighbourhood of $135,000 because they are specialised tanks, double skinned. The duty we are being asked to pay now is horrendous. We are yet to clear them but you know what the cost would be. If you are clearing tanks at 20%, you are going to pass that cost on to somebody.”

He also blamed the government for the high cost of cooking gas saying:  “The cooking gas would be very expensive again because of the same government. A perfect example: If I import gas today to sell, same LPG, it’s cheaper for me than if I take from NLNG in Bonny because importing is duty-free, no tax. That was the conscious effort made by the Obasanjo Government to try and stimulate and help suppress demand here when we used to import from Cotonou when the refineries were not working at all. So in doing that, government said ‘ok, the product should be duty-free’ and they kept that policy. Now for the NLNG product, made in Nigeria, we are paying foreign domestic prices, referenced against Mondel International Prices. Not only that, we also pay VAT so the product becomes more expensive. That’s one aspect of the supply side.

On the storage side, thank God at least there’s another terminal that is about to open. It’s 8,000 tons. Sometime last year, NIPCO opened a terminal about 4,500 or 5,000 tons.

So in Lagos alone we have about 18,000 tons but is Lagos Nigeria? It is not. Where are the other terminal storages in-country? So today, if somebody calls from Maiduguri that he wants gas, that gas would leave Lagos by road, turn around time for that truck may be a week and half with the kind of roads we have. LPG today is not being transported by pipeline nor by rail as it is in other countries.

The only other place you have storage is the 1000-ton storage in Calabar which Sahara bought. It was one of the nine storages owned by the Pipelines and Products Marketing Company Limited, PPMC, which includes the 4,000-ton capacity in Lagos, but the Obasanjo government just before they left, decided that they needed to sell all the tanks and the only one they didn’t sell was the one in Lagos.

We spent over $120million on all those depots.Of all the nine depots apart from the one that Sahara bought and the one in Lagos that is functional, not a single one of the others was used for one day,” he said. Continuing, he said: “Now, you go to cylinders where the end user, the common man would benefit from. The government cut down the tariff (during the Obasanjo administration) to 5%. Today, that tariff has gone up to 20%, cooking stove has gone up to 20 – 35%. This is outside of VAT. Storage tanks attract 20% so how is it going to be cheaper?” he asked.

He noted that although Nigeria boasts of two plants that produce cylinders but the two have been rendered  dormant due to incessant power outage and moribund equipment. “We have to import flat steel so they are half dead. Everything has a multiplier effect, everything is interrelated. Price of cooking gas can only come down if all these factors together are taken care of,” he stated.

Regretting that banks have not been supportive of the LPG industry, he stated:  “It’s a shame that a lot of the banks have not been supportive of this industry as they should be. And to a certain extent, because they don’t understand the dynamics of the industry and what needs to be done. LPG is a business that you need to be in for a certain period, investing in it heavily and then reaping your returns much longer than the investment. You won’t reap the benefits of your investment in five years because of the infrastructure problems but if you make that investment continuously and sustain it over a period of time, it gets to a stage where everything evens out and then starts to come back but it is a business you have to invest in heavily,” he said.

Mr. Adeshina noted that SEL as a company, has roughly 35 employees, “but of course, we do have subcontractors as well – clearing agents, people who work for us in the warehouse, people who supply things and those who do the civil works, we give them the engineering drawings and they construct.”

Also speaking on partnership, Adeshina said : “We have financial advisory people who are actively seeking partners for us because it’s a business that is energy-sapping and government policy does not also help especially if that policy is directed at promoting kerosene but I think also that a natural thing would happen now which would be in our favour if this deregulation takes place because deregulation would make sure that kerosene becomes more expensive.

Already, it is getting more expensive but with deregulation, it is going to become even more expensive since government would remove subsidy. Once it becomes too expensive, naturally, people would go for what is cheaper. LPG is already deregulated so the price cannot go higher.”
On their plans for the next 5 – 10 years, he said: “ I’m hoping that Strategic Energy Limited would be a fully integrated gas company involved in many aspects of the economy. LPG, strangely enough, can also be a solution to some of our power problems because we have LPG turbines to produce electricity.

There are also LPG generators which are slightly more expensive than the conventional generators but you’ll enjoy cleaner air, they last longer and maintenance period is a lot longer than diesel-powered generators, pollution is decreased and lower greenhouse gas emissions which could lead to carbon credits that can be sold on the international market.

Also there is autogas which government should look at to encourage people to stop using petrol. We have vehicles that are dual-powered so they can use both, countries like  India, Pakistan, Turkey, China, and the US are doing that,” he stated.


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