The high cost of diesel is crippling businesses and making living a nightmare, writes Charles Joseph
As the excruciating pains of higher Automotive Gas Oil (Diesel) prices bite harder on Nigerians, it has been a tale of lamentation from business owners. Diesel prices skyrocketed from about N260 per litre in 2021 to over N850 in some parts of Nigeria.
Analysts have attributed the current surge in diesel prices to the rise in the price of crude oil in the international market due to the Russia-Ukraine crisis. Russia is an oil-producing country, while refined petroleum products come from Ukraine and other Western European countries. This has undoubtedly impacted the price of petroleum products in Nigeria. The invasion of Ukraine by Russia has distorted global financial and energy markets, causing oil prices to soar above $100 per barrel, the highest since 2014.
While these factors are not particular to Nigeria, other factors like a reduction in diesel supply by global refiners to Nigeria, inflation and limited access to FX by diesel marketers work together to make the situation particularly dire for the average Nigerian.
The situation has been exacerbated by the epileptic power supply, which has increased the demand for the product as industries, businesses, and households would need to power their generators. Unfortunately, given the epileptic nature of the national grid, Nigerians have a hard choice of reducing our diesel demand or keeping demand and paying the high price in the face of supply shortages. The commodity has become gold because virtually all the big generators that can take estates, factories, companies, etc., are powered by diesel.
A survey conducted among Nigerian firms by Leadership Newspaper last month revealed that many businesses in Nigeria are struggling for survival. At the same time, some have suspended operations due to surging diesel prices.
Following epileptic power supply in the country, most businesses, including large ones and MSMEs, resort to generators, especially diesel-type, to run their operations. For example, some Lagos-based have switched to using fuel-powered generators during the daytime to reduce the cost of operations. Others stuck with diesel generators have increased their service charges to stay afloat.
In the transportation sector, transport companies are converting diesel engine buses to gas as a way out of the exponential increase in diesel prices. Just recently, the Lagos State Governor, Babajide Sanwo-Olu, authorised the Lagos Metropolitan Area Transport Authority (LAMATA) to convert the current diesel buses in operation in the state’s mass transportation schemes to those of Compressed Natural Gas (CNG).
By the same token, radio stations that used to broadcast for 24 hours have had to reduce the hours they operate.
Governments are not immune from the impact of the high cost of diesel. Recently, the Lagos State Government approved the increase in fares for all Bus Rapid Transit (BRT) and standard routes. Kolawole Ojelabi, Assistant Director, Corporate Communication, Lagos Metropolitan Area Transport Authority (LAMATA), attributed the development to the rising cost of diesel.
“The exponential increase in the pump price of diesel from N187 to N830/litre between August 2020 and June 2022 had greatly affected the optimal performance of the bus operating companies leading to the withdrawal of buses from operation and longer waiting time at bus stations,” he had said.
The development has undoubtedly put unprecedented stress on the economy, threatening its ability to produce goods and services. Painting a grim picture of what businesses are going through due to a hike in diesel prices, Bright Echefu, Managing Director, TStv Africa PayTV, said its operations were hampered by the unavailability of power and the high cost of running on generators to serve its customers. According to him, there were months that the organisation relied solely on generators to run its operations.
Hear him: “At TStv headquarters in Idu, Abuja, we consume 45,000 litres of diesel every month… For most of 2021, we spent between N12m and N14m monthly on diesel. Last December 2021, it rose to N14.8m. Abuja Electricity Distribution Company (AEDC) takes an average of N3m to N4m monthly. So in a month, we incur between N15m to N17m on power. This is outside generator servicing.
“In January 2022, the N17m monthly rose to N24m. I cried. This March 2022, I am pained that diesel for TSTV headquarters has climbed to N36m for the same 45,000 litres we bought in October 2021. From January 2021 to December 2021, TSTV spent N232m on diesel purchases alone.
If you are looking for why Nigeria is ranked 131 among 190 economies in the latest World Bank Ease of Doing Business annual ratings, look no further.
As producers and consumers bear the brunt of the astronomical diesel increase, local manufacturers, the hospitality industry, service firms and real estate operators, especially those in the serviced-apartments sector, are at the receiving end as the situation is causing friction between facility managers and residents. The recent protest by occupants of Ocean Bay Estate, Lekki Lagos, where the Residents Association accused the developer of abandoning them and being ‘insensitive’ by increasing service charges, readily comes to mind.
Some companies are already seeking alternatives to diesel. One of such innovative ways is the gas-powered Independent Power Project (IPP) by Octo5 Holdings Limited at its Ocean Bay Estate in Lagos.
According to its CEO, Mr Jide Odusolu, it is a 1MW gas-powered IPP capable of supplying electricity 24 hours a day. The project, worth around N1 billion, was designed in collaboration with a technical partner. “We had to think outside the box to address the power supply issues in our estates. The rising cost of doing business in Nigeria has threatened our relationship with clients; therefore, we have chosen to invest in public infrastructure to ensure people enjoy the benefits of living in our estates,” he added.
In addition to the gas-powered IPP that gives developers the leverage of saving costs in the long run, some of the benefits those living in service estates enjoy include better security, serenity, privacy, and a conducive environment to raise families and better public infrastructure provided by developers.
In the light of the prevailing economic reality, service providers cannot offer quality service without an upward review of service charges and tariffs. Doing otherwise would see them running out of business sooner than later. Currently, some firms are either suspending operations or winding up across the country.
By coincidence, service providers and customers are at the mercy of public service providers, who are usually incapable of providing their needs. If the government lived up to its responsibilities by repairing the nation’s refineries to meet local demand, addressing general infrastructure decay and neglect, and creating a conducive environment for businesses to thrive, these challenges faced by service providers and consumers would have been resolved. In the absence of that, a compelling need for increased understanding, cooperation and synergy between both parties to arrive at a win-win situation.
Joseph writes from Lagos
