Fuel scarcity grounds businesses, Nigerians pay more
Businesses, from small to big, are groaning as the rising prices of diesel and aviation fuel in Nigeria are taking a heavy toll on their operations.
The scarcity of petrol and the surge in diesel price, buoyed by the fallout of the Russia-Ukraine crisis, have increased the costs incurred by many businesses on self-generation of electricity, which they rely heavily on as power from the national grid remain unreliable.
The price of diesel, has soared by almost 170 percent in one year to N620-650 per litre from N220-N240 in March last year.
The price of aviation fuel has doubled and is affecting airlines and businesses that rely on the sector to move goods and deliver services. Passengers have suffered a rash of flight delays and cancellations as a result of the inability of airlines to get fuel.
Usman Imanah, managing director/CEO of Friska Farms Limited, whose factory is powered by a diesel generator, said, “We used to buy diesel for N340 per litre; suddenly, it increased to N651 and it did not stop there. Now, allocation to energy cost will automatically increase and this will hurt our production activity.”
He said logistics services had also been affected, adding, “As much as we don’t want to, we will have to increase the prices of our goods because that is the only option we have as we do not want to compromise the quality of our products.”
The rising diesel price has driven up the cost of transportation, and the prices of goods and services are expected to also increase.
“Diesel prices are surging and with this, we are going to see another fresh spike in food prices,” said Victor Iyama, national president of the Federation of Agricultural Commodity Association of Nigeria (FACAN).
“Just last two weeks, we paid N350,000 to transport our commodities from Kano to Lagos, and yesterday (Thursday) we had to pay N550,000 for the same truck and distance because of the surge in diesel price,” he said. “We have no choice but to transfer the extra cost to the consumers.”
Tola Faseru, a former national president of Cashew Association of Nigeria, said the cost of food transportation had doubled and this had already started affecting commodity prices.
“A ton of cashew sold for N440,000 when the season started in February is now being sold for N600,000 and this is because of logistics,” he said.
Prices of food items, from rice to tomatoes, vegetable oil and others have increased within a week, a situation that traders attribute to rising logistics costs due to diesel price hike.
BusinessDay survey at Mile 12 Market shows that 50kg of local parboiled rice, which was sold 24,000 early this month, now sells for N27,000, while a 50kg of foreign parboiled rice now goes for N33,000 from 28,000 sold to weeks ago.
A big basket of fresh tomatoes now sells for N16,000 as against N12,000 sold two weeks ago, while a small basket sells for N8,000 as against N4,500 sold two weeks ago.
A 25 litres of vegetable oil sold N27,500 last week now sells for N33,500, while a 25 litre of palm oil is sold for N19,000.
“The recent increase in diesel prices is responsible for the current spike in food prices. The cost of transporting the food items from where they are produced to the markets have almost doubled,” Muhammed Abdul, general secretary of Arewa Perishable Food Stuff Market Association, Mile 12, said in a telephone response to questions.
“Last two weeks we transported a bag of potatoes from Jos to Lagos for N2,500; now it is N5,000. The truck drivers are saying it’s because of the high cost of diesel,” he added.
Titi Olatunde, a manager at Lagos Fries restaurant said they now buy 50 litres of diesel for N32,000, which is about 121 percent higher than N14,500 two weeks ago.
“We are not coping at all. We hardly have light here so we try to manage by switching off the generator for a while. If the diesel price continues to go up, we will have no choice but to include it in our food cost,” Olatunde said.
Whoever starves and gets sick, would also be facing higher hospital bills, as operators in the health sector also consider raising costs of their services to make up for what they spend in running their facilities.
The scarcity of petrol and abrupt rise in diesel cost has doubled the cost of energy consumption by more than 100 percent for most hospitals, diagnostics centres and ambulance services, paralysing operations in some cases, operators told BusinessDay.
Raymond Kuti, national president of Guild of Medical Directors, said spreading the cost implied an increase in the cost of consultations, drugs, treatment and medical investigations. Daily spending on diesel at his diagnostic centre, for instance, has moved from about N30,000 to N80,000 in the past few days, running on a 60KV electricity generating set.
“The cost of running services has skyrocketed and it will definitely be transferred to patients sooner or later,” Kuti said.
Furthermore, businesses that rely on air for the movement of goods and service delivery have expressed concerns over the effects of rising aviation fuel prices on their operations. It has led to flight delays and cancellations, leaving several passengers stranded and businesses unable to meet commitments.
Seyi Adewale, chief executive officer of Mainstream Cargo Limited, a company focused on freight forwarding, customs import/export clearance, and logistics, told BusinessDay that aviation fuel scarcity affects his business directly because the airfreight rates are increasing daily.
According to Adewale, his company has had to change invoices three times higher for pickup and door-to-door obligations coming from China to Lagos, for example.
“This makes us look ‘bad’ in the eyes of our clients and there is no guarantee that we will still not issue additional requests for more money. For clients we have locked-in airfreight prices, we have to find a way to declare ‘force majeure’ so that we don’t make significant losses,” he explained.