• Friday, June 14, 2024
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BusinessDay

Businesses suffer as diesel price surges 160%

Diesel above N1,000/litre worsens businesses’ woes

Like many business owners across Nigeria, Joseph Martins, who plies his trade in the country’s commercial capital, Lagos, depends largely on diesel. But buying the diesel he needs to power his generator has been giving him a big headache in recent weeks because of the skyrocketing cost of the fuel.

Unable to depend on the national grid for stable power supply and finding it hard to push the cost down to the final consumers, he is forced to buy a litre of diesel for over N500 per litre and that squeezes his tiny profit margin even further.

The price of Automotive Gas Oil, popularly known as diesel, has soared by almost 160 per cent in one year to N540-570 per litre from N220-N240 in March last year.

“At the current pace, any business using diesel will be forced to increase its price which will have an effect on inflation rate,” Martins told BusinessDay.

The surge in the price of diesel, which has been deregulated, followed the rally in global oil prices, buoyed by the Russia-Ukraine conflict. Brent, the global oil benchmark, jumped a 13-year high of $139 per barrel on Monday.

“The marketers are selling at a price that covers their cost price, import cost and exchange rate price,” said Mike Osatuyi, national operations controller of Independent Petroleum Marketers Association of Nigeria.

“Our selling price is based on the crude price and the cost of dollars in the black market which is N575 because marketers source dollars from the black market.”

In Africa’s biggest oil-producing country, most small businesses, manufacturers or retailers are now facing intense pressure from rising energy costs as they have to spend more on diesel to power their generators.

Total power generation in the country stood at 4,033.7MW as 6am on Tuesday, according to data from the Nigerian Electricity System Operator.

Business experts have expressed fear that the spike in diesel price might force more businesses to sack employees amid rising energy costs.

The immediate past director-general of Nigeria’s largest business think-tank, the Lagos Chamber of Commerce and Industry, Muda Yusuf, said high and increasing cost of diesel was compounding an already difficult situation for many investors.

“We would see an escalation in production and operating costs; mounting inflationary pressures, erosion of profit margins, and a risk to business continuity, especially for SMEs in the real sector,” Yusuf, CEO of Centre for the Promotion of Private Enterprise, added.

Diesel is mostly used by businesses, especially manufacturers, to power their generators amid a lack of reliable power supply from the national grid. Many vehicles transporting goods and people across the country also use diesel.

“High diesel cost would trigger higher transportation costs. Most haulage vehicles are powered by diesel. Increase in transport costs typically impacts on general price level,” Yusuf said. “A major driver of inflation is high transportation costs.”

Read also: Nigeria diesel generator market to hit $806.8m by 2030-report

Michael Adebayo, chairman of Gas Users Group at Manufacturers Association of Nigeria, said manufacturers “are currently in a fix as they have to deal with rising production cost, reduced demand and their inability to increase the prices of goods.”

Adebayo, a director at Haffar Industrial Company Limited, a textile production company, described the spike in diesel price in the first quarter of the year as a bad omen for the 2022 business year.

“Currently this is a time of confusion for us because we do not even know the best way to address this, especially as the price increase is continuous,” he said.

Nigeria ranked 169 in the getting electricity metric, scoring 47.4 points on the World Bank’s ease of doing business 2020 report and a zero in the reliability of power supply. Local manufacturers are left to self-generate more than 8,000 megawatts through alternative sources of energy in order to stay afloat, which sees them spending so much on petrol and diesel.

“It is only a matter of time before the prices of other goods and services go up,” Adebayo told BusinessDay.

Data from the National Bureau of Statistics (NBS) indicate that the average diesel price in Lagos was N303 in January 2022, a 24 percent rise when compared to the price of N243 in December.

The NBS data also showed that diesel price was N131.47 in June 2015 when the President Muhammadu Buhari-led administration came into power.

The NBS, in a power sector data review, revealed that generators (diesel, petrol and gas) provide 48.6 percent of the electricity consumed by both households and businesses across the country.

“This means that the country’s electricity sector is fast becoming degenerate as 12 in every 25 Nigerians make use of generators, spending about $16 million to fuel only 14 million of these generators annually,” Financial Derivatives Company Limited said in a new report.