Nigerian businesses relying heavily on diesel for their operations are facing higher costs of fuelling their generators as a new tax kicks in amid naira depreciation.
The federal government had recently started the implementation of a 7.5 percent value added tax (VAT) on diesel imports despite opposition from marketers. The recent sharp depreciation of the naira against the dollar has made
BusinessDay observed that filling stations along Katampe Road, Abuja sold at various prices between N700 and N880 per litre on Tuesday. At TotalEnergies, it was sold for N800; Enyo, N850; Mobil, N750; and Fairmout, N700. NNPC at Central Area sold the product for N860 while another in Garki put its price at N740.
In Lagos, TotalEnergies and Conoil along the Lagos-Ibadan Expressway were selling diesel for N872 and N795 respectively on Wednesday, while NNPC at Kingsway Alfred Rewane Road, Ikoyi was dispensing it at N650.
“The importers have been complaining about the exchange rate and if care is not taken it will further increase,” Abdulkadir Mustapha, the spokesperson of the Independent Petroleum Marketers Association of Nigeria in Borno State, told BusinessDay.
Hassan Audu, a commercial diesel supplier in Abuja, said marketers were complaining about the rising cost of purchasing and distributing diesel.
“As at last week, it used to cost between N600 and N670 but now the price has increased and we have no choice but to buy,” he said.
The Federal Government said on June 19, 2022 that it had commenced the implementation of the 7.5 percent VAT on diesel imports into the country by Nigerian Customs Service.
“I don’t know the kind of business that will be done with this diesel price increase. There is no way manufacturers can cope because more businesses will go down or be unsustainable,” Femi Egbesola, national president of the Association of Small Business Owners of Nigeria, said.
He said with the price hike, businesses cannot plan, and that is enough to scare away investors. “That is why you see quite a number of businesses going down.”
Sola Obadimu, director-general of Nigerian Association of Chambers of Commerce, Industry, Mines and Agriculture, said: “If foreign exchange rates change, anything imported may likely experience a price change. And that is what I think is happening with the situation of diesel.
“And it is usually better if prices of inputs are stable because every year, every manufacturers’ concern is to do budgeting of how much they expect to spend in the year for recurrent and capital expenditure, how much they expect to produce at what unit cost, how much they expect to make in income, how much they expect to make in terms of surplus and project what they may likely give out as dividends to shareholders.”
But when prices change too rapidly, it affects all these plans and the businesses have to adjust quickly, Obadimu said.
“Unfortunately, they cannot sell below their production costs and at the same time, they can’t continue to change prices on the assumption that consumers’ capacity can afford to buy at any price,” he added.
An official of the Manufacturers Association of Nigeria, who spoke on condition of anonymity, described the diesel price hike as “a serious problem”.
He said: “It is going to be terrible for manufacturers. I just don’t know how they will cope because every source of energy for their production has increased.
“With all the sources of energy hitting the roof, how much will they sell or produce? A lot of our members have unsold inventory of finished goods. So how will they solve their overhead problem, make profit or buy raw materials. I think the government should declare a state of emergency on the economy now.”
Segun Kuti-George, national vice president of the Nigerian Association of Small Scale Industrialists, said the high cost of diesel has posed a threat to his business.
“It is only those with essential products and services that may survive. A lot of businesses will go under now. And the irony is that whatever goes up in Nigeria never comes down.
Benneth Korie, president of the Natural Oil and Gas Suppliers Association of Nigeria, while addressing journalists in Abuja on Monday, said because of the VAT, diesel price could hit N900-N950 per litre.
“Since the price hit N800, we have reduced our usage of the product,” Jilbrin Akintunde, who runs a print press, said. “Now we only do important and urgent work with diesel; other times, we wait on the electric distribution company to keep the lights on.”