DLPG SCHEME: THE JOURNEY SO FAR! Presentation By Mr. Norbert Shialsuk to the 1st Nigerian LPG Summit Organized by The Department of Petroleum Resources on the 12th & 13th October 2009 @ ICC Abuja

CONTENT

 OBJECTIVE AT BEGINNING OF SCHEME  Achievements  Challenges  Solution: LPG Almighty Formula  Role of NLPGA  Way Forward

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OBJECTIVES OF THE DLPG SCHEME

 Supply LPG From Nigerian Production in Bonny   Which was impossible prior to now   Bridge Supply Logistic Gap btw Bonny & Lagos

 Eradicate Scarcity of LPG  Reduce Hiked Prices; Make More Affordable   Improve Infrastructural Imbalance  Reintroduce LPG and Create Awareness

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BRIDGING THE LOGISTIC GASP… Bonny River Terminal

BW Saga in STS with LPG/C Blue Gas

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 Objective at beginning of Scheme  ACHIEVEMENTS  Challenges  Solution: LPG Almighty Formula  Role of NLPGA  Way Forward

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ACHIEVEMENTS

 Retail Price Dip – from N10,000 > 2200 per 12.5kg

 Market Stability  Sustained Supplies; cutting scarcity  Restored Confidence attracting New Investments

in LPG   New Filling Plants Springing Up   Old Plants Revived   Customers more sensitized; Expectant

 Fruitful Partnership between NLNG and the 6 Off-takers

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 Objective at beginning of Scheme  Achievements  CHALLENGES  Solution: LPG Almighty Formula  Role of NLPGA  Way Forward

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CHALLENGES: BERTHING DELAYS

STS OPS

VESSEL LOAD DATE

DISCHARGE DATE

TIME INV. DATE

20 Blue Gas 03-10-08 17-10-08 14 Days 02-11-09

21 Blue Gas 18-10-08 29-10-08 11 Days 17-11-09

22 Blue Gas 29-10-08 14-11-08 14 Days 28-11-09

23 Blue Gas 18-11-08 25-11-08 8 Days 17-12-09

27 Mayfair 20-03-09 08-04-09 20 Days 19-04-09

28 Mayfair 21-04-09 14-05-09 24 Days 20-05-09

29 Super League

08-05-09 11-06-09 34 Days 07-06-09

30 Mayfair 27-05-09 29-06-09 33 Days 26-06-09

31 Super League

20-06-09 20-08-09 61 Days 19-07-09

36 Mayfair 29-07-09 31-08-09 33 Days 28-08-09

40 Mayfair 03-09-09 17-09-09 15 Days 02-10-09

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CHALLENGES: MARKET INSENSITIVITY

 OPIS Mont Belvieu Upward Trend  Local Ex-Depot Prices Remain Constant  Retail Prices on an Upward Trend due to

speculation by Rogue Traders/Distributors  Off-takers taking all the RISKS; Rogue Street

Traders Taking all the PROFIT (See next Slide,..)

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LAST MILE BOTTLENECK = CYLINDERS  However, bottleneck is

no in cylinders:   Even though Offtakers

sell ex-Apapa depot at N1,200 and ex-plant at N1,500 – N1,750, road side retailers still sell at approx. N2,500 – N3,500 per cylinder!

 Roadside and Retail Gross Margins are 70–100% Today!!

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Cylinder Price Ex Plant

SHIFT IN VALUE CHAIN FROM 2008 TO 2009

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CHALLENGES: CYLINDERS > DEPTH   Nigeria’s Population: 140 million   Nigeria’s Cylinder Population

  All sizes: Less than 1 million (Approx. 500,000)   Capacity 500,000cylinders x 12.5kg = 6,250,000kg

  6,250,000kg = 6,250tons   Annual Capacity = 6,250t * 12months = 75,000tons

(Assuming Users fill once a month)

  Shallow Market   Focus Investments on Cylinders; Distribution

 To ACHHIEVE 1MTPA? NIGERIA REQUIRES 40M CYLINDERS!

 Equivalent to N200bn

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MARKET DEPTH: SA

 S. African Population: 25 million  S. Africa cylinder population

  Large Cylinders (9kg & above): 5.5 million   Small Cylinders (below 6kg): 7 million   TOTAL 12,5M CYLINDERS   Local Refinery Supply 370,000tons in 2007

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CHALLENGES: ROGUE TRADERS

 Short Filling  Rusty Cylinders

 Price Hiking  Shoddy Practices: HSE Concerns  Regulatory Oversight Not Adequate at this level

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CHALLENGES: ILIQUIDITY

 Constrained Cash Flows Due to Huge Logistic Costs

 Limited Cash Available for Investment in Infrastructure

 No Bank Funding

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CHALLENGES: OTHER

 Disincentive to Investment   Dual licensing/Regulatory Agencies – DPR/SON   SON Certification Hurdles

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 Objective at beginning of Scheme  Achievements  Challenges  SOLUTION: LPG ALMIGHTY FORMULA  Role of NLPGA  Way Forward

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LPG ALMIGHTY FORMULA…,

C A R X2

Where: C = Cylinders A = Awareness R = Regulation X2 = Exponential Growth in LPG

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 Massive Injection of Cylinders   40 Million Cylinders Required to reach 1MTPA   Private Investment or   Government Funding

  IF Private Investment   Then Specialization of Cylinder Valves   Protection of Investment; Guaranteed ROI

  IF GOVT. FUNDING   Then Standard Valves Remain   NLPGA Recoups Cylinder Charge From Members   Remittance to Government per cylinder sold

C 10/10/09

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ASIAN EXPERIENCE: “C”

  CYLINDER EXCHANGE PROGRAM   INDONESIA; kerosene-LPG-conversion program

  3kg Introduced since 2007 = 37.44million Units   Govt. Aim = To Reduce Large Kerosene Subsidy   Target = Household Consumers and Small-and-Medium

Businesses (UKM).   Equivalent Kerosene Withdrawn = 3.26m kilolitres   Target Distribution exceeded by 10%

  PHILIPINES;   6million defective Cylinders Confiscated and Replaced at

Subsidized Rate to Rural Poor   Exclusive filling of Cylinders owned, marked/branded

permanently by Marketer   Cylinders funded through LPG revenue generated from VAT

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 Massive Awareness Campaign: TV; Radio; Print!  Campaign must be nationwide  Costly Advertising; Huge Budget  Promoting LPG as SAFE; AFFORDABLE;

ENVIRONMENTALLY FRIENDLY  Public Education on S.A.F.E. USAGE   Individual Company’s efforts are limited and

focused on target markets where interest lies  Govt. has General Public Interest  Public ‘trusts’ the Government; so Govt. Leads

Education in LPG

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LPG INDUSTRY

DPR

• Single Regulator to Supervise Sector; Drive Policy; Enforce SAFE Standards; license

• NLPGA To Develop Standards in line with WLPGA Codes; Train; Certify Specialists; Certify S.A.F.E Appliances & Distributors; Advise DPR

• NLPGA:DPR Must Work Hand in Hand

• Regulation is KEY to Growth

NLPGA

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AND ALL OTHER THINGS SHALL BE ADDED,…

  If Our C+A+R goes well then, Investments Will flow into;   Haulage Trucks (No Roads)   Filling Plants   Appliances and accesories   Terminals; etc..

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 Objective at beginning of Scheme  Achievements  Challenges  Solution: LPG Almighty Formula  ROLE OF NLPGA  Way Forward

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ROLE OF THE NLPGA: SA EXPERIENCE

 Develop Standards and Codes that are consistent & Evolve with Technology

 Establish Training Institutes and Certifying All Trained LPG Specialists for the Industry

 Certify LPG Distributors  Certify SAFE Cylinders & Appliances

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SA LPGA EXPERIENCE: CERTIFICATION & TRAINING

CERTIFICATE of COMPLIANCE

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SA EXPERIENCE: DEALER CERT 10/10/09

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SA EXPERIENCE – ROLE IN PUBLIC AWARENESS

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SA EXPERIENCE: LPG EDUCATION 10/10/09

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 Objective at beginning of Scheme  Achievements  Challenges  Solution: LPG Almighty Formula  Role of NLPGA  WAY FORWARD

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WAY FORWARD… 10/10/09

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CHINESE EXPERIENCE  Guangdong undertook significant private

investment in LPG Investment

 Government funded 35m Cylinder Exchange  Population: 120m  LPG Imports / Consumption Guangdong

imports/consumes as

much LPG in a month as Africa does in a Year!!

Type of Investment Number off Capacity Primary Terminals 7 487,000 tonnes

Secondary Terminals 35 98,000 tonnes Bottling Plants 690 140,000 tonnes

1991 2007 413,000 tonnes 6 million tonnes

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WHAT THE OFFTAKERS ARE DOING?

 Le Global C-Gas   Cylinders; Distribution

 Chimons Gas   Trucks; Cylinders; Terminal

 Harig - Gas Club   Cylinders; New Filling Plants; Distribution; LPG

Terminal

 Linetrale – Gas Terminalling   New FILLING Plants; LPG Terminal

 Hyson – Algasco/Navgas   New 8,000Ton Terminal ETC Q1 2010

 All are individually designing Awareness Campaigns

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WHAT THE GOVT. SHOULD BE DOING?

 New Fiscal Regime  Cylinders (Exchange) Fund Program  Mass Awareness Campaign (NOA)  Outlaw Firewood  Unification of Regulation Codes; One Supervisor

as against 2  NLNG Local Pricing of LPG  Avoid subsidies to competing Fuels  Removal of 5% VAT on Domestic LPG (Imported

LPG is not taxed!)  Removal of 30-40% Duty on Steel Plate for

Cylinders

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END…, 10/10/09

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