Two diesel-powered bread ovens are at the heart of Chinedu Martins’ bakery outfit in Ogba, a Lagos suburb. Last year, the COVID-19 outbreak shook the business to the extent that he barely survived, and now the rising retail cost of diesel threatens to ruin it completely.
“The rising cost of diesel cost is killing me,” Martins told BusinessDay.
The retail cost of diesel at various filling stations jumped by 40 percent to N250 per litre in February from N185 in December 2020. From haulage to consumer goods to retail outlets, small businesses are taking a beating.
“We have been buying diesel at N250 since last week and this has affected the cost of haulage by 6.7 percent, while some others as much as 15 percent in south-south and south-east,” Jahman Bosude, a businessman noted on Twitter.
More than 70 percent of Nigerian firms rely heavily on diesel-powered generators. The machines guzzle cash and spew pollution, but they are reliable in a nation where nearly 85 million people – some 40 percent of the population – have no access to grid power.
While many Nigerian households and small business generators are powered by price-capped petrol, the big generators for larger firms, apartment complexes and more substantial homes can run on diesel.
Government data show some Nigerians pay as high as N268, while a BusinessDay correspondent who monitored the situation on Monday discovered most major oil marketers in Apapa, Fadeyi, Festac, Onipanu, Surulere, Ebute Metta and Yaba areas of Lagos were selling within the range of N238 and N250.
The National Bureau of Statistics (NBS) said the average price paid by consumers for diesel increased by 0.22 percent to N224.86 per litre in January 2021, and N224.37 in December 2020.
It said states with the highest average price of diesel were Adamawa (N268.33), Zamfara (N262.78), and Kebbi (N257.50).
“States with the lowest average price of diesel were Osun (N194.60), Anambra (N195.83), and Enugu (N198.24),” the NBS noted.
While businesses are feeling the pinch, observers say the government is helpless considering the diesel arm of the downstream sector is deregulated.
“Unlike petrol, diesel is deregulated, which means the increase in the international price of crude oil is responsible for what we see across Nigerian filling stations,” Mike Osatuyi, national operations controller of Independent Petroleum Marketers Association of Nigeria (IPMAN), said.
Crude oil price accounts for a large chunk of the final cost of petroleum products such as diesel, kerosene and such associated products.
Removal of subsidy on kerosene and diesel by former President Olusegun Obasanjo means that the pump prices of the products will reflect changes in the international oil market.
On Monday, Brent crude, the benchmark for Nigeria’s crude oil rose back above $65 a barrel, after plunging below $20 last year when demand plummeted due to the coronavirus crisis.
“Most of our members are currently selling old stocks, which they got when the oil price was relatively low,” Osatuyi said, saying, “Nigerians should brace up for higher diesel prices.”
Higher costs for operating generators that power the machinery, computer servers and mobile phone towers that run Nigeria’s economy could impair growth in gross domestic product, already limping along at 0.11 percent at a time inflation is at 16.47 percent.
“Businesses may struggle to survive, or in the best-case scenario, would at least downsize,” said Charles Akinbobola, an analyst at Lagos-based Sofidam Capital. Diesel is the second or third biggest cost for many Nigerian firms, he said.
Reviewing challenges faced by manufacturers at a luncheon held in Lagos, Mansur Ahmed, president of Manufacturers Association of Nigeria (MAN), said high costs of energy, funds and logistics were key issues hurting the growth of manufacturing companies in the country.
“The implication of these challenges highlighted is that it impedes the growth and development of the manufacturing sector, thereby affecting the attainment of the sector’s full potential of massive job and wealth creation,” Ahmed told journalists at the event.
There are also indications Nigerians may soon pay more for petrol as the landing cost of the product rose from N151 to N180 per litre, due mainly to the rising price of crude oil in the international market. Although, the NNPC says it has no plan to increase the ex-depot price in March.
Nigeria, Africa’s largest oil producer, relies largely on importation for petrol and other refined products as its refineries have remained in a state of disrepair for many years.