Deregulation, forex forces raise price of diesel to all-time high

As Nigerians begin to enjoy the benefits of the partial deregulation of Premium Motor Spirit (PMS), which resulted in availability of the product, the price of Automotive Gas Oil (AGO), otherwise known as diesel, has skyrocketed in the last few weeks.

The Guardian learnt that the shortage of foreign exchange, in addition to failure of Nigeria’s refineries to produce due to pipeline vandalism, have contributed to the high cost of diesel.

It was gathered that marketers now hide under the cover of deregulation to raise the pump price of AGO from around N120 per litre to above N200 per litre.

Having been deregulated, the price of diesel is not under the control of the Federal Government, as marketers sell according to the forces of demand and supply.

Specifically, most filling stations visited yesterday, have all adjusted their pump prices for diesel to N200 per litre. The few filling stations, which were yet to change the price in their dispensing pumps, were selling between N250 and N300 per litre. Quite a number of filling stations were not selling at all, which they attributed to the high cost of importation, occasioned by the fall of the Naira.

The Guardian gathered that the few marketers, who are able to source the product, sell at exorbitant rate to retailers.

A visit to some depots on Thursday in Lagos showed that a litre of diesel was sold between N180 and N195 at Aiteo Depot, Fatgbems, Gulf Treasure, Ibakem, Ibeto, MRS, Obat Petroleum, Sahara Energy and at Rahamaniyya Depot in Apapa.

Sectors such as manufacturing, banking, hospitals, schools, government agencies and small-scale enterprises, which depend on diesel-powered generators, are lamenting the effects on their operations.

Already, the high cost of diesel is having serious effects on small-scale enterprises in the country.

For instance, Dorothy Ademola, Managing Director of Shilo Confectionery, Isolo, Lagos, said the monthly cost of buying diesel for the company’s operations has increased from the usual N30, 000 monthly to over N50, 000.

She explained that the company has decided to bear the increase, as passing it to the consumer will affect their already low purchasing power.

She said: “With the price of diesel now selling above N200 per litre, the company is not making any profit and is absorbing the losses.” She appealed to the Federal Government to wade into the situation and with importation of the product, as the cabal in the diesel business is making a lot of profit.

Tony Ilo, is a commercial bus driver that plies the Ago/Cele axis. He told The Guardian that transportation business has become unprofitable due to the high cost of diesel.

Ilo said he spends N8, 000 on diesel daily, only to discover at the end of the day that there is nothing left to take home.

“Aside buying N8, 000 worth of diesel, touts collect N4, 800 daily. There is also Police settlement and I have to deliver N10, 000 to the owner. What is left is then shared between the conductor and myself. But recently, we are being left with little or nothing after the day’s work,” he explained.

“Drivers cannot boast of saving N2, 000 a day now, as everything is on the high side. Government should please come to our rescue.”

Obafemi Olawore, Executive Secretary of the Major Oil Marketers Association of Nigeria (MOMAN), said the high exchange rate has resulted in the high cost of diesel in the country.

He said but for the support being provided by the international oil companies (IOCs) in the supply of foreign exchange under an arrangement brokered by the Minister of State for Petroleum Resources, Dr. Ibe Kachikwu, the major marketers would have found it very difficult accessing forex at reasonable price.

He urged the Federal Government to build more refineries and ensure that they are working at full capacity to save the country from importation of petroleum product.

On ways to optimise supply chain in the downstream sub-sector, Abayomi Awobokun, Chief Executive Officer, Oando Downstream, said there is need for stakeholders to continuously engage government so as to plan ahead and not be caught off-guard.

He explained that market makers have a responsibility to manage overheads, source cheap working capital and activate dynamic product supply/ pricing systems to ensure optimal stockholding and pricing across the supply chain, whilst ensuring adequate product supply to the market.

Awobokun underscored the need for Petroleum Equalisation Fund (PEF) to be converted to a downstream infrastructure development fund.

He said: “All contributions no longer go to equalization, but upkeep of downstream infrastructure and distribution assets, pipelines, critical storage, jetties co-invest in new distribution assets like gas pipelines and critical roads.”

He described the recent liberalisation of Premium Motor Spirit as a step in the right direction. “We believe a complete deregulation is best for the petroleum downstream and the nation,” he said.

Speaking on the state of the downstream sub-sector, Ayo Teriba, Chief Executive Officer, Economic Associates, said Nigeria needs to take immediate steps to open up to foreign investment.

Teriba stated that aside forex shortage; Nigeria’s number one economic problem remains infrastructural decay.

“Nigeria needs to break all federal government monopoly in network infrastructure. There is need to build new ultramodern nation-wide rail transport system through self-funding mechanisms. Energy (gas, power, petrol) supply systems should be rebuilt by relying on private investment like was done in the telecoms sector, and not debt-financed government contracts,” he explained.