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BusinessDay

Fresh pain for manufacturers as diesel tankers face supply hitches

Diesel prices rise 28.69% in one year—NBS

Some manufacturing companies have shut down their factories on account of acute shortage of diesel as tankers struggle to get the product in Apapa, BusinessDay has learnt.

Findings show that importation of diesel into Nigeria has reduced owing to the foreign exchange crisis facing the country, a development that has re-ignited long queues of diesel tankers struggling to gain access to the private fuel tank farms in Apapa.

“Many factories have not been able to get diesel to operate, and many of them will shut down if something is not done soon,” Frank Onyebu, chairman of the Manufacturers Association of Nigeria, Apapa branch, told BusinessDay.

Power normally accounts for as much as 40 percent of factories’ costs in Nigeria, according to the association. Fuel prices have soared since Russia invaded Ukraine last February, raising costs for manufacturers in Nigeria, where many businesses rely on diesel-fired generators for power in the absence of reliable grid electricity.

Chris Iyasere, one of the unit executives of the Nigeria Union of Petroleum and Natural Gas Workers (NUPENG) at Ibeto Tank Farm, said the tankers were not loading enough diesel from the tank farms.

“This is why there are a lot of tankers in the queues leading to the various petroleum jetties in Apapa,” he told BusinessDay on the phone. “AGO [automotive gas oil] is a deregulated petroleum product and the oil marketers have to source for foreign exchange to import, and this is presently difficult due to the high exchange rate of naira to dollar.”

The naira, which averaged N381 per US dollar in the parallel market in 2016, has lost over 53 percent of its value against the greenback as it traded around 746/$ on Tuesday.

Iyasere also attributed the shortfall in the supply of diesel to the drop in the volume of the products being imported into the country by oil marketers.

He said most oil marketers are skeptical about investing heavily in importation as the country is approaching the 2023 general election.

According to him, oil marketers are usually sceptical about putting in their money to import products for fear of changes in policies and other political uncertainty that comes with elections and changes in government.

Tokunbo Korodo, a former South-West chairman of NUPENG, told BusinessDay on Tuesday that tankers were loading diesel from the tank farms in Apapa but at very ridiculous prices because the product has since been deregulated.

According to him, if the present economic situation does not improve in earnest, the landing cost of diesel would continue to go up and would likely push the retail price to above N1,000 per litre.

“The scarcity and high prices of diesel are killing all businesses because everyone depends on it to power their generators since electricity is far above our reach. It’s not only affecting factories because the haulage business is also dying gradually due to the high cost of diesel, and even the government-owned BRT buses are not spared. Yet, the freight cost to bring in the product has remained stagnant,” Korodo said.

The price of diesel has soared from N288 in January by almost 178 percent to an average of N790-N800 per litre, forcing some firms to restructure their production hours, while others completely shut down operations.

Read also: Distribution expenses of consumer goods firms rise 35% on diesel cost

Usman Imanah, chief executive officer of Friska Farms Limited, said his company narrowly escaped the recent scarcity, especially as his company was closing for the year.

“From 2023, we are putting efforts to improve our energy efficiency by connecting to a better line from the power distribution company; although it may come at a higher cost, it will reduce our reliance on diesel,” he said.

BusinessDay analysis of the top listed firms by market capitalisation across industries on the Nigerian Exchange Limited showed energy costs rose by 33.16 percent in the first half of 2022 to N207.54 billion from N155.86 billion in the same period last year.

The firms are Dangote Sugar Refinery, BUA Foods, Nascon Allied Industries, Fidson Healthcare Plc, GlaxoSmithKline Consumer Nigeria Plc, Dangote Cement, Lafarge Cement, BUA Cement, Guaranty Trust Holding Company, and Zenith Bank.

“Rising energy costs for consumer goods firms as observed have an impact on the cost of input, and selling and distribution expenses,” Ayodeji Ajilore, an investment research analyst at ARM Securities, said.

“To manage the after-effect on margin, different price adjustments have become the order of the day, a development which has begun to slow output in the segment as evidenced by the second quarter of 2022 GDP figures,” he added.