• Wednesday, May 22, 2024
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N50bn monthly diesel costs threaten Nigeria’s communication backbone

N50bn monthly diesel costs threaten Nigeria’s communication backbone

Rising diesel prices are threatening Nigeria’s communication backbone, with telecommunication operators’ spending on the fuel rising to N50.28 billion in February.

This was a 50.20 percent increase from the N33.48 billion (at N836.91/litre) they spent in the same period of 2023 and a 9.02 percent increase from the N46.12 billion (at N1,153.01/litre) spent in January. Diesel prices have been soaring since 2022.

Diesel is crucial for powering telecom infrastructure, like base stations, which rely on generators because of unreliable grid electricity. Industry data estimates that operators use an average of 40 million litres of diesel per month to power telecom sites, and the price rose to N1,257.06 per litre in February 2024.

As of the end of 2022, the Nigerian Communications Commission said there were 34,862 towers and 127,294 base stations in the country. Also, the telecoms industry spent N2.09 trillion on operational costs in 2022, according to the commission.

In May 2022, telcos asked for a 40 percent increase in calls, SMS, and data prices because of the rising business costs. At the time, they stated that their energy cost had risen by 35 percent.

In its audited results for the year ended December 31, 2023, MTN Nigeria Communications Plc said: “The combined effects of naira devaluation, higher general inflation and energy costs, and the introduction of the 2023 Finance Act VAT on tower leases resulted in higher operating expenses.”

“The cost of diesel has impacted all sectors. There is no stable electricity supply from the national grid,” an industry source said.

The source said the sector’s inability to raise costs like other sectors also exacerbates these expenses. “It is costing us a lot. It is also part of what contributed to MTN’s first financial loss, for instance.”

Gbenga Adebayo, president of the Association of Licensed Telecommunications Operators of Nigeria (ALTON), confirmed the validity of the 40 million litres of diesel per month. “It will be over that now,” he told BusinessDay.

He stressed that the impact of diesel costs on the operations of telcos has become a threat to the sustainability of the sector.

He explained that infrastructure companies, which sustain the network infrastructure, incur most of these costs. “Those who are feeling the brunt from the diesel issue are the infracos because they are the ones who have to source for diesel. Operators (telcos) cannot pay them the exact cost of providing services. In that regard, the industry’s sustainability is at stake if we do not price right,” he said.

Adebayo noted that telecom services’ current prices are not covering production costs again, and new pricing regimes are needed.

When asked if this provides an opportunity for investments in alternative energy, he highlighted that this form of energy can only provide some intermediary and temporary intervention. “There are limits, and it is not a direct subsidy,” he said.

“Even when you have alternative energy, they do not provide 24-hour backup; you must get other energy sources. Alternative energy is an intervention but doesn’t replace actual energy right now. Alternative energy is a very vulnerable infrastructure. People steal solar cells and batteries, too,” the ALTON boss said.

Recently, MTN transferred ownership of some of its towers to ATC from IHS. The telco said the cost of energy was a key consideration in its decision. “But beyond efficiency, we will also focus on cost optimisation, green energy utilisation, and sustainability,” Karl Toriola, chief executive officer of MTN Nigeria, said.

BusinessDay had previously reported that the rise in the cost of diesel was influenced by rising global crude prices, domestic refining woes, and the naira’s fall.

As diesel cost continues to surge, industry experts believe the cost of services must adjust. Recently, ALTON took its clamour for higher call tariffs and data prices to the House of Representatives.

Adebayo stressed to BusinessDay that “it will be right to raise an alarm that the high cost of energy is a threat to the telecom industry.”