Outrageous diesel price, petrol scarcity and grid collapse in recent times have stifled life out of businesses in the country
The price of diesel, which is not regulated by the government, has surged by over 113 per cent in the last 14 months, with the further rise in global crude oil prices arising from the Russian-Ukraine war and naira depreciation pushing up the cost of importing fuel into the country.
As of March 5, 2022, Automotive Gas Oil (AGO), popularly known as diesel, was sold at N545 in some fuel stations across Lagos, a rise of over 113 per cent from the N225 it cost in January 2021.
However, as of yesterday, the price of diesel per litre had risen to N700, with fears it could rise further to N900 in the next few days if the crisis continues.
Diesel is mostly used by businesses, especially manufacturers, to power their generators amid a lack of reliable power supply from the national grid. Many heavy-duty vehicles transporting goods and people across the country also use diesel, while it serves as alternative fuel oil in the manufacturing industry.
In the last few weeks, the organised private sector has had to contend with the prohibitive cost of converting existing energy sources in production processes to near non-available alternative energy as the nation’s feeble grid infrastructure suffered a major outage, throwing the nation into darkness.
Small and medium business operators on lower revenue bracket are spending a disproportionate amount of their income on fuel, and following the deregulation of the pricing of diesel, as well as Low Pour Fuel Oil (LPFO) and other ancillary products by the federal government, the prices of these products have continued to rise.
However, petrol now sells for about N180 to N220 in many petrol stations in Nigeria, and much higher at the black market.
A dealer told our correspondent that the ex-depot price of the product was N650, and that if depots retain the current price, retailers would sell at between N700 and N800 a litre going forward.
Earlier, experts have warned that the Russia-Ukraine crises would likely have a ripple effect in Nigeria and, if not addressed, would cause collateral damage to Nigeria’s production industry with widespread anxiety over rising prices of petroleum products.
Economists have expressed concern that if the conflict continues, it would produce profound and multidimensional implications for the Nigerian economy, especially if it gets unnecessarily protracted.
These include the escalation of energy prices like diesel, aviation fuel, kerosene and gas, mounting petrol import costs and subsidy bill and the aggravation of petrol smuggling.
Economists also fear that those factors may lead to prices of locally manufactured products escalating. Already, the country is beginning to see high cost in energy demand as Nigeria largely depends on imported petroleum products.
The president of Lagos Chamber of Commerce & Industry (LCCI), Dr. Michael Olawale-Cole, said the world economy was already feeling the impact of the disruptions caused by the war on global supply chains.
“This is reflected in rising local prices of petrol and diesel, as in the case of Nigeria where we depend on oil imports. Today, it is not just about the skyrocketing price of diesel which has risen above N700.00 per litre, but that the product is now scarce and difficult to get.”
In preparing for the realities of the near future, Olawale-Cole urged the federal government to take seriously the completion of projects like the Trans-Saharan Gas Pipeline, a planned natural gas pipeline from Nigeria to Algeria.
“With this, we can explore the opportunity of exporting gas to Europe. We should also target Trans-Saharan and European markets with the ongoing construction of the Ajaokuta, Kaduna, Kano Gas Pipeline, popularly known as AKK Gas Pipeline. Arising from the calamities of this war, Nigeria can explore emerging opportunities to earn huge foreign exchange inflow in the medium to long-term,” he said, adding that refining of the country’s crude remained the most sustainable option especially considering the huge cost of subsidy on government finances.
“On refurbishing the refineries, government should consider the joint venture model similar to the Nigeria Liquified Natural Gas (NLNG) model,” he added.
The president of Manufacturers Association of Nigeria (MAN), Engr. Mansur Ahmed, lamented that the prevailing energy crisis was limiting the competitiveness of manufacturing in Nigeria.
Dr Timi Olubiyi, an entrepreneurship and business management expert, stated that with the ongoing conflict between Russia and Ukraine, it is really a struggling time for businesses and households who largely depend on these scarce and costly crude oil products for sustainability.
“With unstable power in the country and the recent collapse of the national grid, businesses and households will have to live with this situation unless there is intervention.
“Businesses such as restaurants, hotels, banks, manufacturers and a host of others had no clue this will happen. So, the year’s projections and hopes might need some reworking because I see no alternative yet. Diesel cost is key to the cost of doing business in Nigeria, for now. So, the big question is, can we rule out the surge in the prices of goods and services? Because businesses will have to look for succour to stem the tide and the only available option is a hike in price and this may eventually lead to inflation.”
Also, the managing director of Lancelot Ventures Limited, Mr Adebayo Adeleke, said the increase will have a cascading effect on multiple commodities due to a subsequent rise in transportation costs, adding that from food inflation to real estate, many sectors are feeling the heat of rising fuel prices at the moment.
“Higher fuel prices will ultimately take a toll on the country’s citizens, who will have to pay more for almost all commodities and goods that they buy,” he said.
The chief executive officer (CEO) of the Centre for the Promotion of Private Enterprise (CPPE), Muda Yusuf, told LEADERSHIP Weekend that the Ukraine war would produce profound and multidimensional implications for the Nigerian economy, especially if it gets protracted.
These, he said, include the escalation of prices of diesel, aviation fuel, kerosene and gas, mounting petrol import and subsidy bill and the aggravation of petrol smuggling.
As the diesel cost escalates and petrol scarcity persists across the country, the federal government said it will sanction any depot owner caught selling petroleum products beyond the approved ex-depot price in the country.
Minister of State, Petroleum Resources, Chief Timipre Sylva, said the measure became necessary as the government is eager to resolve the issue of fuel scarcity in the country.
Sylva urged the public to report anyone who tried to take advantage of the situation for sanctioning as required by the law.
“We are aware, just like President Muhammadu Buhari said in a statement, that there are some depot owners who are taking advantage of the situation by increasing the ex-depot price.
“I can assure you that there will be sanctions for any of those depots that continues to increase the ex-depot price as approved. We are going to deal decisively with anyone who tries to take advantage of this situation.
“It has been a difficult few weeks; a few weeks ago, we had an issue of petroleum product shortage. I have already addressed that matter which coincided with the geopolitical tension in Ukraine and Russia.
“Prices of crude oil went up exponentially beyond levels expected. As you all know, when crude oil prices rise to that level, they can also affect the derivatives of crude oil,” he stressed.
Speaking on the overall consequences, Yusuf said there are also significant macroeconomic outcomes which include heightened fiscal deficit, growing debt levels, spike in debt service payments, money supply growth, exchange rate depreciation and more intense inflationary pressures.
Yusuf, a renowned economist and former director general of the LCCI, pointed that Russia is the second largest producer of oil globally, even ahead of Saudi Arabia, producing 10 million barrels per day.
According to him, it is expected that the conflict in the region would disrupt oil supplies, reduce output and trigger higher prices.
“Already, oil price is above $100 and the impact on energy prices is already being felt around the world. In Nigeria, the deregulated components of petroleum products would witness sharp increases. These include diesel, aviation fuel and kerosene, and gas would suffer the same fate.
“The escalation of these costs obviously has serious inflationary implications across sectors. The geopolitical tension of the recent weeks had actually bolstered energy price seven before the current onslaught by Russia. The situation may get worse if the conflict escalates. This would affect cost of production, profit margins, purchasing power and may further worsen the poverty situation,” said Yusuf.
Nigeria, he said, would likely see an upsurge in petrol import and subsidy bill in coming months as the landing cost of petrol and diesel increases on the back of the rise in crude oil price.
“Regrettably, we remain a major importer of petroleum products and typically when oil prices increase, petrol import bill and subsidy payment also increase. Only recently the NNPC made a request of N3trillion for petrol subsidy. With the current turn of events, the subsidy bill would even be higher, creating a serious fiscal challenge for the government at all levels. These of course have serious implications for the budget and government finances,” noted Yusuf.
Similarly, chairman of Heirs Holdings and the founder of Tony Elumelu Foundation (TEF), Tony Elumelu said the situation in Nigeria was getting ‘worse and worse’ as biting fuel scarcity and worsening electricity supply, hikes in the price of diesel, frightening food inflation continue to pile pressure on the people.
Elumelu noted that the price of diesel had gone up with many Nigerian businesses mulling the idea of closing up shop temporarily due to the spiking costs of fuelling power generators.
“I have often said that access to electricity is critical for our development, alleviation of poverty and hardship. And speaking of security, our people are afraid! Businesses are suffering. How can we be losing over 95 percent of oil production to thieves?
Elumelu, who is also the chairman of Heirs Oil and Gas, blamed the shortfall in Nigeria’s daily oil production quota on the inability of the security agencies to protect oil installations in the Niger Delta.
“Look at the Bonny Terminal that should be receiving over 200,000 barrels of crude oil daily, instead it receives less than 3,000 barrels, leading the operator Shell to declare force majeure.”
“Why are we paying taxes if our security agencies can’t stop this? It is clear that the reason Nigeria is unable to meet its OPEC production quota is not because of low investment but because of theft, pure and simple!” Elumelu said.
Manufacturing Association of Nigeria (MAN), a trade group, stated that it was getting extremely difficult to produce and wondered how businesses are going to cope “because 70 per cent of industries are running on diesel.”
For Lagos baker, Julius Adewale, the crisis is a perfect storm. Nigeria’s fragile power grid had recently been supplying just a few hours of electricity per day, forcing Adewale to turn to diesel-fueled generators for power, the cost of which has now soared.
“There is no light (electricity) since yesterday and we have been running on generator since yesterday. The cost of production has increased immensely,” Adewale said this week, as workers stacked piles of loaves in his bakery.
Nigeria is Africa’s largest oil producer and biggest economy, but it has little refining capacity. The government subsidises the cost of petrol, but diesel and aviation fuel are sold at market price.
Several local airlines warned this month they were forced to cancel flights due to aviation fuel scarcity.
“If the crisis is sustained, African countries which are big importers of fuel and grain will rank among the losers, although exporters of those commodities may be among the winners,” said Eurasia Group analyst, Amaka Anku.
Trucks that bring food stuff from the north to the south are running on diesel. Even trains run on diesel.
The operators, at the different levels of the supply chain, therefore pass the costs on to consumers. It is the case for instance, for sachet water. The Nigerian Association of Table Water Producers increased prices last year because of the prices of production components. This time the war in Ukraine is to blame.
As the energy crisis continues, MAN is also calling on the federal and state governments to rescue industries from the current unstable power supply and hikes in the price of diesel across the country.
Chairman, Kwara/Kogi states branch of MAN, Pharmacist Bioku Rahmon, said there was the need to urgently rescue players and investors from the imminent orgy of unemployment and mass closure of companies currently looming in the country.
Rahmon said while the manufacturing industry was yet to fully recover from the monumental strangulations it suffered from the COVID-19 pandemic, the ongoing energy crisis is the exact antithesis of what the industry can’t contain at this time.
The association explained that the National Grid-Supplied Electricity had recorded no improvement which is greatly affecting the activities of MAN.
To this extent, the association called on the state and federal government to bail it out and save the manufacturing sector from imminent collapse.
It also asked that the interest rates on industrial loans be reduced by commercial banks, and that the government should widen the window of Foreign Exchange (FX) to industries as well as a drastic reduction of interest rates as done with the COVID-19 palliatives.
“An executive task force should urgently be constituted with the mandate and power of state machinery to deploy aggressive measures of manhunt against saboteurs in the oil and gas industry and halt the spate of indiscriminate hiking of AGO (diesel) price and mindless extortion of end-users of the product. Others already constituted and mandated should be so empowered for action,’ Rahmon said.