Rising diesel, jet fuel costs spell trouble for Nigerian industries and airlines

Nigeria’s industrial and aviation sectors are grappling with a looming crisis as the costs of diesel and aviation fuel continue to rise.

In various regions of the country, including Kano, Ogun, Edo, Delta, Kogi, Lagos, and Kwara states, manufacturing factories are beginning to shut their doors due to the multifold increase in diesel prices.

The Manufacturers’ Association of Nigeria has sounded the alarm, asserting that more factories will follow suit if diesel prices climb beyond the current N1,000 per liter. The critical concern revolves around the potential collapse of these industries, which play a vital role in the country’s economic landscape.

Over the period from June to October this year, the prices of diesel and aviation fuel have risen by over 50 percent. These price hikes have alarmed industry operators, who identify several factors driving this worrisome trend.

Among these challenges are the scarcity of foreign exchange required for diesel imports and the surge in global crude oil prices.

According to Ukadike Chinedu, the National Public Relations Officer of the Independent Petroleum Marketers Association of Nigeria, who spoke to PUNCH newspaper, the diesel price currently exceeds N1,000, and there are no signs of it decreasing.

Chinedu stated, “Diesel is over N1,000 currently, the price is not going down at all, whether VAT (the Value-Added Tax) has been removed or not.

“The reason for this is simple: It’s basically because of forex and the rising cost of crude in the international market. So forex, particularly, is a big challenge.”

The situation is largely attributed to forex challenges and the escalating cost of crude oil on the international market, with forex being the predominant concern.

One potential solution to tackle the increasing diesel costs is repairing and revitalising the nation’s refineries. Oil marketers have been consistent in their calls for the government to address this matter, emphasising the importance of having these refineries back in operation.

In August, oil marketers disclosed that the foreign exchange crisis, coupled with the introduction of a 7.5 percent VAT on diesel, pushed up the cost of the commodity, which was priced between N900 and N950 per liter in several states.

Read also:Kano, Anambra, Niger spend most on diesel in September

The repercussions extended beyond higher prices, with local manufacturers expressing their fears that this situation could lead to the closure of some factories and subsequent job losses.

These concerns prompted action, leading to the withdrawal of VAT on diesel after a meeting between the Federal Government and labour leaders in early October.

However, the relief was short-lived, as the price of diesel has continued to climb. Manufacturers now warn that even a modest increase in diesel costs could have catastrophic consequences, resulting in more factory closures.

The Manufacturers’ Association of Nigeria is not just sounding alarms but actively exploring alternative energy sources to mitigate the impact of the diesel crisis. For instance, they have engaged with Huawei to develop alternative power solutions. They believe that relying on the national grid and diesel alone is unsustainable.

The situation is dire, with the Vice-President of the Network Operations at Airtel Nigeria, Adedoyin Adeola, highlighting that the telecoms industry consumes nearly 40 million liters of diesel every month to power telecoms towers. Nigeria stands out as one of the few countries globally that factor two power generators into their business plans in the telecoms industry.

The crisis in diesel costs is beginning to have a ripple effect on various industries. Small-scale factories and industries in different states have been seriously impacted. The situation is worst in places like Kano, where approximately 90 of small-scale industries have shuttered due to the prohibitive production costs linked to high diesel prices and unreliable electricity supply.

It’s a complex issue, made even more challenging by the adverse effect of the high cost of diesel on the prices of goods, making them less affordable for consumers. In addition, companies face a dilemma in deciding whether to shut down production or continue with significant production costs due to high diesel prices.

High operational costs also affect other industries, such as the Chamber of Commerce and Industry in Warri, where the high cost of diesel significantly impacts operations. Over 80 percent of its members have been hit hard by the situation, and the likelihood of factory closures and job losses is a grim reality.
Industries in other states, including Anambra, face similar challenges.

Barnabas Okey, the Group Chairman of Ayanle Plastic and Nylon Manufacturing Company, notes that high diesel prices are stifling production and services, resulting in thousands of daily job losses. He emphasises that many companies have either folded or relocated due to the prohibitive daily diesel expenses.

The challenges faced by Nigerian industries and businesses stem from a combination of factors, including forex constraints, the rising global crude oil prices, and the lack of consistent power supply. A resolution to this crisis calls for immediate attention and intervention from both the federal and state governments.

One of the potential solutions proposed by economic analysts is to restore and operate local refineries while fixing prices for crude oil to encourage local refining.

While the withdrawal of VAT on diesel was a positive step, its impact has been undermined by the ongoing surge in diesel prices. A reduction in the diesel tax is another avenue that could alleviate the cost of diesel and have a ripple effect on production costs and ultimately the prices of goods.

Read also:Dangote refinery to displace fuel imports by 2024; EIU

The rising diesel prices are also affecting the telecommunications industry, where operators use vast quantities of diesel to power base stations. The industry’s substantial diesel consumption is causing the cost of providing services to rise. This, in turn, threatens the industry’s ability to offer affordable services to the public.

The consequences of this crisis extend to other sectors as well, potentially leading to higher operational costs for businesses across various industries. It’s a situation that, if not resolved promptly, could prompt a rethink of operating hours and contribute to increased costs for customers.

Nigeria’s reliance on diesel and the mounting challenges surrounding its supply and cost are taking a toll on the nation’s economy. The rising prices of diesel are impacting various industries, potentially leading to further factory closures and job losses, which the country cannot afford.

The need for sustainable and affordable energy solutions is evident, with the demand for intervention from governments at both the federal and state levels growing louder by the day.