Many businesses are struggling for survival, while some have suspended operations due to surging diesel prices, a survey conducted among Nigerian firms by LEADERSHIP had shown.
The survey also shows that many other companies have pruned down their staff strength to cut labour costs.
Industry stakeholders who bare their minds on the rising energy cost of diesel affirm the findings of the survey.
The president of Association of Micro Entrepreneurs of Nigeria (AMEN), Prince Saviour Iche, who is also the chief executive officer of Bright Future Hope Enterprises, said this is the most distressing time for business owners in Nigeria.
He noted that the nation’s business environment groan is more perceptible under harsher economic conditions, thereby giving vent to the threat of collapse of businesses.
He said power supply has been the bane of businesses in Nigeria, but the problem has taken a dire dimension with the nation’s electricity suffering repeated collapse recently and reduction of power generating, thereby shutting down production activities in the country.
He stated that, before now, he spent N208,000 per month on diesel, “but as of today, I am spending N650,000 every month.” He also stated that a hike on the price of diesel is having a double effect on some businesses. “For example,” he said, “some of the raw materials are produced through the use of diesel.”
He added that, “I got my raw material of plastic per truck for N680,000 before now; however, with the hike in diesel price, right now, I am loading a truck of the same quantity of raw material for N1.480 million, an increment of N800,000.”
Stressing that this is killing the industry, he added that some entrepreneurs have closed down their factory and the few surviving ones are living on ‘life support’.
He noted that there is no alternative to electricity, saying, “we cannot use petroleum generators to power our machines due to the size, and solar or inverter is not an alternative to small enterprises. How many of us can invest in solar? It is very expensive; to get a solar that will power my factory will cost around N15 million.”
He called on the government to help in finding a solution to this, saying, the ripple effect of this will result in job loss and increase the unemployment rate if factories continue to close down operations.
A frozen food business operator and ice block business owner, Mrs. Eben Dotun, said the increase in the price of diesel has not been easy on the business, noting that, before now she spent less than N100,000 on diesel as there is also electricity in the area the business is located.
She lamented that for the month of May, she spent almost N500,000 on diesel, lamenting that the last few weeks had proved much more difficult for her business due to poor power supply and the high cost of diesel.
Also, owner of PP Metal Construction, a wielding factory located in Orozo Abuja, Uma Ogbu said the company was left with no option than to increase the price of its services to augment diesel cost.
When LEADERSHIP visited the company site on Wednesday, patronage was scanty as some customers could be heard lamenting high cost of service.
Speaking to LEADERSHIP, Ogbu said that because there was no substitute to diesel, it was difficult for the company to consider price reduction.
He said, “We are having tough time to cope on our jobs due to low patronage and in addition to the nature of the economy now, so no patronage and customers are complaining of high charges which is not our fault. We are buying diesel at N500 per litre and N600 in black market, so that is why.
Even the price of metals and other materials have gone up significantly because the manufacturer also use diesel to power their heavy duty machines what can we do? you can’t put water or petrol in our engine, so we are asking if federal government can look for ways out of this so that we can have a better condition of our works”.
The managing of the Zone 5 Total filling station in Abuja, who withheld his identity, told LEADERSHIP that before now operating his filling station consumed roughly 200 liters per month. According to him, at the rate of between N156 and N200 per liter he spent between N31,000 and N40,000 per month. Less than a year on, the manager says he spends more than N500,000 fueling the plant of his filling station at the cost of N700 per liter.
He said at a cost of N500,000 a month on diesel, another N150,000 for grid electricity, other overhead costs, and taxes, the business is left with virtually nothing as profit. He added that any business that survives using much electricity cannot stand the test of time because individual businesses have to absorb the costs of operations as the price of fuel is fixed.
Reacting to the development, the president of Lagos Chamber of Commerce and Industry (LCCI), Michael Olawale-Cole called for transition to renewable energy, noting that renewable energy is the most sustainable solution to Nigeria’s power shortage.
According to the LCCI president, on the back of these challenges, businesses have had to deal with the rising cost of manufacturing, exorbitant logistics and constrained production.
“With the cost of diesel at record levels and persisting poor power supply, businesses are running on unsustainable costs and producing at uncompetitive prices.”
Six months ago, the price of one liter of automotive gas oil (diesel) sold for N225. Today, the price of the same volume sells for more than N700, more than 210 percent increase.
The search for alternative and cleaner energy sources is connected to increasing operating cost of manufacturers in the current year, which was mainly driven by astronomical rise in the cost of generating energy for production.
Before now, diesel has been an industrial fuel to generate electricity and power machines for companies, but recent development in the global oil market, which has seen diesel price grow by over 200 per cent this year, is remodeling the thinking of manufacturers and businesses towards alternative energy sources.
While the idea of solar energy and utilisation of gas for energy have been mooted, some companies are indeed working towards transiting from diesel to other cleaner energy.
While small companies are mostly affected by the current diesel price hike, major cement producers, such as; Dangote Cement, Lafarge Africa and BUA are shielded from the impact due to their energy diversification strategies.
The Dangote Group converted more than 5,000 of its trucks for dual fuel usage – diesel and natural gas – between 2013 and 2020 while in 2021, Lafarge Africa took delivery of 52 tricks powered by LNG and compressed natural gas (CNG), while BUA has been replacing diesel generation capacity with LNG.
Coupled with this development, major oil marketing companies are contemplating jettisoning importation of diesel following foreign exchange scarcity and global supply chain disruption amid escalating crude oil prices.
Following the uncertainty in the supply chain, few of the marketers involved in importation of the product have curbed the volume imported into the country, citing lack of access to foreign exchange and escalating crude oil prices.
LEADERSHIP’s findings show a marginal import from marketers.
Checks by our correspondent across major depots in Lagos show limited volumes as landing cost hovers around N650 a liter.
A major marketer confided in our correspondent that the country may likely face scarcity. “No marketer is willing to tie funds down by importing a product whose price is out of reach of consumers. The manufacturers who ideally need the products are complaining and considering other sources of energy supply. So, in this case, who will buy when we import? I heard manufacturers asking the government to intervene, but I wonder what intervention they want since the product is already deregulated” our source said.
According to him, “we are moving into a scarcity situation. It is not price escalation but we are talking about availability in this case. But in other words, if forex is well supplied and the government reviews port charges, then supply will improve and price will likely also drop. “
According to the director-general of the Manufacturers Association of Nigeria (MAN), Segun Ajayi-Kadir, the cost of the fuel has more than doubled to as much as N800 ($1.92) per liter in the current year.
That is a huge jump when compared with an average of N312 in February and N288 in January, according to the National Bureau of Statistics (NBS) data.
The doubling of diesel prices in Nigeria this year leaves the country’s manufacturing base fighting for survival.
While petrol prices in Nigeria are subsidised, diesel prices are unregulated, so the impact of higher crude is immediate and unavoidable.
Meanwhile, access to renewable energy is becoming a more important factor in manufacturing plant construction and expansion, a trend economic development experts say has impacts.
In the face of this challenge, manufacturers are reviewing earlier agreements its MAN Power Development Company had with a number of firms, including Tower Energy Solution & Systems Limited, and Negris Group, among others, for the supply of power to various industrial clusters.
This was the initial consideration of the association when supply by power distribution companies (DisCos), was becoming epileptic.
Although there were no assurances from such an agreement because the cost of providing energy by these private firms is still considered high and energy provided by these private firms is still from the failing DisCos, manufacturers are now considering renewable energy support in other parts of the country where there is no gas.
Nevertheless, the fact is that renewable energy is becoming a reliable alternative energy solution for manufacturers across the world.
The manufacturing sector’s expenditure on alternative energy sources for the production of electricity for its operations hit N45.036 billion in the second half of 2021. This represents an increase of 12.86 per cent from the N32.18 billion recorded in the first half of the year according to MAN half-year review of the economy from July to December 2021.
Analysts foresee that manufacturers’ alternative power generation cost will more than double in the current year due the rise in price of crude oil on the international market and attendant scarcity of diesel.
Manufacturers have come under intense pressure in recent months as a result of rising crude oil prices which resulted in the astronomical increase in the price of diesel.
The doubling of diesel prices in Nigeria leaves the country’s manufacturing base fighting for survival.
Most companies depend on Diesel Generators for their power requirements and this comes at a very high cost coupled with its impact on environment and public health.
At the moment, Compressed Natural Gas and Liquefied Natural Gas (CNG/LNG) remain one of the most reliable sources of fuel for power generation for industries that require constant power for their production & processes, and in addition, to eradicate the above negative impacts of Diesel on Environment & Public Health, it is also cost effective and ‘Pilferage-Proof”.
“Many companies have shut down because of expensive energy cost, but when a company adopts CNG, they save money, cost becomes low, they make more profit, pay more tax, employ more people and pay their salaries promptly,” said the company.
Industry players have now realised that renewable energy sources for manufacturers enhances reliability, security, and reduces resilience of the nation’s power grid.
Apart from job creation throughout renewable energy industries, it will help in reducing carbon emissions and air pollution from energy production as well as expand clean energy access for non-grid-connected or remote, coastal, or islanded communities.
Experts argued that diesel prices have a wider inflationary impact and that food inflation in Nigeria has a correlation of 50.9 per cent with diesel costs, while transport inflation has a correlation of 20.8 per cent.
Lagos State Commissioner for Health, Prof. Akin Abayomi, in his presentation titled ‘Global Energy and Environmental Crisis’ at a one-day conference organised by the Ecology Work Group of the catholic Archdiocese of Lagos, said the energy crisis around the world has led to a concern that the world’s demands on the limited natural resources that are used to power industrial society are diminishing as the demand rises.
He said, the rising cost of energy is driving the use of alternative energy and that Africa is in a terrible situation as 90 per cent of the West Africa forest cover has been lost in the last 100 years and Nigeria alone loses 350,000 hectares to destruction yearly.
Speaking recently, the president of Lagos Chamber of Commerce & Industry (LCCI), Dr. Michael Olawale-Cole, said it is becoming clearer that the national grid cannot supply sufficient power to meet the electricity demand, saying that “We have had issues with a disrupted gas supply, distribution companies lacking the capacity to take up power generated by the power generating companies, and the challenges of achieving 100 per cent metering for power consumers.
The gas-to-power infrastructure, he said, requires an overhaul to resolve the persisting gas shortage. However, the most sustainable solution to Nigeria’s power shortages is the transition to renewable energy, he added.
On his part, chief executive officer of Centre for the Promotion of Private Enterprise (CPPE), Dr. Muda Yusuf said, the power sector is critical to the economic development of the country.
He called for rapid promotion of renewable energy solutions through the enactment of policies that will make it more affordable, pointing out that, the current high cost of acquiring renewable energy installation has been a major impediment to the access of this energy solution.
He noted that “For instance, the cost of solar panels and batteries are very prohibitive. We submit that import duty and taxes on solar equipment, solar batteries and inverters should be scrapped to improve access to renewable energy solutions. The implementation of the energy mix programme of the government needs to be accelerated.
He believes the government still needs to provide generous fiscal incentives for investors in the sector because of the economic development and social impact of an improved power sector performance.
