For consumers optimistic of lower diesel prices or drop in inflation rate anytime soon, they may be disappointed, as oil price outlook remains volatile, alongside challenges of inflation, hiked interest rates, supply constraints and expected cold winter.
With fears of another recession, there are concerns that many developing economies may be unable to bear the shock from rising energy prices, therefore, spiking inflation further. Many analysts have projected a volatile outlook for oil prices.
Locally, businesses are beginning to adjust expectations for the 2022 fiscal year, considering that energy prices will remain elevated alongside higher inflation levels, which are expected to affect consumer spending and production costs. At over N800 per liter, there are concerns that further rise in oil prices will spell doom for those dependent on diesel.
While the cost of PMS is still moderately tolerable because of the subsisting subsidy regime, the Federal Government has denied plans to subsidies the price of diesel, considering the present high fiscal deficit in its account.
Latest statistical review of world energy, by BP, show that global coal-fired electricity generators are producing more power than before in response to booming electricity demand after the pandemic and the surging price of gas following Russia’s invasion of Ukraine. Indeed, the price of gas and diesel is pushing the world to other alternatives.
Already, OPEC’s analysts have kept 2022 oil demand at 100.29 million b/d, up 3.36 million b/d from 2021, according to the cartel’s latest monthly oil market report. The increased supplies have not been enough for a few consuming countries, including the United States, which has repeatedly called on the producer group to supply more crude oil.
According to the International Energy Agency (IEA), refinery activity, despite high utilisation rates in the U.S. and India, will remain constrained by a lack of operable spare capacity as well as capped runs in China.
Reduced refining capacity means that fuel demand, such as for petrol and diesel, cannot be met by refiners regardless of whether crude supplies increase, even as spare capacity is also running low because of a lack of investment in exploration and production.
For Nigeria, which is dependent on importation for refined fuels, the prevailing exchange rate crisis and revenue challenges are putting a strain on fuel prices and operating expenses of many firms. The value of Nigeria’s petroleum imports far outweighs the value of its petroleum exports—to the tune of $43 billion. This has equally affected the country’s ability to benefit from high oil prices.
Members of the Organised Private Sector (OPS) stated that the cost of operation and production have gone up from between 30 to 100 per cent as a result of the exchange rate and energy crisis.
Chief Executive Officer of the Centre for the Promotion of Private Enterprise (CPPE), Dr. Muda Yusuf, stated that high inflation and energy costs continue to take a toll on businesses in the forms of increased production costs, elevated operating costs across sectors, declined profit margins, slump in turnover and sales and risk in business sustainability in many segments of the Nigerian economy.
According to him, the frequent collapse of the national grid makes it even more difficult for many businesses to continue to sustain their operations, creating serious sustainability concerns.
“Many businesses have suffered serious dislocations as a consequence of foreign exchange liquidity challenges, volatility and the depreciation of the currency. Output has declined significantly in many industries because of the challenges of accessing raw materials due to the scarcity of foreign exchange. Many players in the economy now resort to the patronage of the parallel market at very prohibitive cost, as very little access exist on the official window.
“The sharp depreciation of the exchange rate and the parallel market, which is over 300% has worsened the profitability of investments,” he added.
The Manufacturers Association of Nigeria (MAN) noted that the lack of refinery continues to subject the country to vulnerabilities of external supply shock, especially in the energy market, just as the country remains unable to benefit from high oil prices.
The Guardian learnt that telecommunications sector, which boasts of about 48,000 base transceiver stations (BTS) as of 2021, according to statistics from the Nigerian Communications Commission (NCC) and are managed by Tower Companies (Towercos) is spending billions of naira to keep the stations afloat and ensure no service downtime. These base transceiver stations work with about 44,000 generating sets.
Findings further showed that the telecoms operators use an average of 40 million litres of diesel per month to power their sites.
Statistics from the National Bureau of Statistics (NBS) showed that the average price per litre paid by consumers for diesel rose the highest within the second quarter, with the average retail price of diesel increasing from N539.3 in March to N671.1 in May. At many petrol stations in Lagos, the price of diesel ranges between N700 and N815 per litre.
Averagely, as of July 20, the price of diesel, according to findings, was around N750 per litre, while users still pay bribe to get the commodity.
Therefore, it can be deduced that while in March, with the price at N539.3, operators may have spent about N21.5 billion to procure diesel. From April till now with the price oscillating between N700 and N750 per litre, powering the telecoms site could have cost them about N120 billion. As such within the last five months, telcos could have spent about N141.5 billion on diesel.
Painfully, a 2021 data from the NCC showed that MTN, Glo, and Airtel only spent N24.3 billion on diesel to power their base stations. But as of July 2022, the operators have spent almost six times what was spent last year.
Already, the operators under the aegis of the Association of Licensed Telecoms Operators of Nigeria (ALTON) said the cost of diesel, which is required to power network towers, base stations, and offices, rose from N225 per litre in January 2022 to over N750 per litre in March 2022. They stated this in a letter written to the NCC.
The letter reads in part: “The telecommunication industry has been heavily financially impacted following Nigeria’s economic recession in 2020 and the effect of the ongoing Ukraine/Russia crisis. This has resulted in an increase in energy costs (which constitute an appreciable 35 per cent of ALTON’s members’ operating expenses).
“Consequently, the cost of diesel required to power operators’ towers, base stations, and offices rose by a staggering 233 per cent from N225 per litre in January 2022 to over N750 per litre in March 2022.”
MEANWHILE, the NCC has called on mobile network operators (MNOs), Internet Service Providers (ISPs), Towercos, among others to switch to alternative power supply in the meantime.
The Executive Vice Chairman of NCC, Prof. Umar Danbatta, said renewable energy, including solar have been recommended to MNOs, ISPs, among others, to deploy pending when diesel cost comes down.
“They need to come up with new business cases. You cannot rely on the same business case and expect a different result. We need to be innovative, collaborative, engage each other and find how we can solve the challenges before us so that the growth of the sector is not stalled. I am for alternative energy supply so that we can ensure that the sector remains vibrant and continues to provide services for Nigerians at affordable cost,” he said.
Similarly, the Food, Beverage and Tobacco Senior Staff Association (FOBTOB) said costly diesel is forcing most companies in the sector to review their workforce strength.
The union’s National President, Jimoh Oyibo, told The Guardian that due to the increased energy cost, most member companies are struggling to survive. According to him, not all are able to power their plants for the full day.
“As some will run theirs for some time and stop and by the time you are not running your plant optimally, the tendency is either you are heading to a closure or it also will amount that you cannot meet with your overhead. Ultimately, you have to review your workforce. That is the challenge the industry is facing,” he said.
Lamenting that government was insensitive to their plight in making available infrastructure and easing business hiccups, he said: “For that reason, most of our companies in the industry are struggling and each time they said they want to do restructuring, we always find it difficult to align with them, because we will not open our eyes and allow our members to be sacked.”
Similarly, the Nigeria Employers’ Consultative Association (NECA) said the impact of the increase in the price of diesel on cost of operation was due to the country’s poor power situation and the reliance on the importation of diesel.
President of NECA, Taiwo Adeniyi, said the cost of diesel has increased costs of businesses and puts them at risk. He said in the short run, the government could support businesses by providing financial support to Small Medium Enterprises (SMEs) to survive the current high operating cost induced by high diesel prices. In the medium and long term, he said the government needed to focus on power and refinery production capacity.
He maintained that improvement in the power situation and an increase in domestic diesel production would reduce expenditure on diesel and reduce their overall cost of operation.
“As an association, we are committed to the economic and social renaissance of our country, Nigeria. It is, however, hoped that the government will, more than before, play a crucial role of facilitating growth of businesses through the creation of a favourable environment,” he said.
Also on the diesel hike, the Institute of Directors Nigeria (IoD) said it would come up with a position paper on the matter. According to its Director-General and Chief Executive Officer, Dele Alimi, “We are coming up with a comprehensive position paper this week.”
IN a related development, Head of Equity Trading, Planet Capital, Paul Uzum, said the impact of fuel crises on stock brokering firms and quoted companies are quite tremendous as many stockbroking firms now conduct part of their businesses remotely while some open their offices three days a week.
Uzum underscored the need for government to fully deregulate the downstream sector and let Nigerians get used to paying the fair price for fuel.
He said: “For listed firms, we will see the impact by next week when the half year financials are published. However, it is natural that it will have tremendous impact on many firms.
“Consumer goods firms reaction would naturally be to increase sales price, which is manifest in the rising inflation levels. But many service firms, especially banks, will struggle with it. Oil and gas firms would benefit significantly from the rising energy cost.”
President of Ibadan zone of Shareholders Association, Eric Akinduro, said fuel crisis has impacted negatively the operations of listed companies and dampened their stock prices on the exchange.
He argued that one of the major reasons most listed firms turned moribund in the past was due to high cost of production, occasioned by high cost of diesel and fuel, stating that this has continued to deter investment growth and profitability.
Source: Guardianng
