Diesel nears N650/litre as firms, residents embrace alternatives

• Scarcity hits local airlines, aviation fuel sells for N605/litre

AS oil prices rally, leading to higher diesel prices locally, local manufacturers, services firms and real estate operators, especially those in the serviced-apartments sector are beginning to explore cheaper alternatives to buffer rising costs, as diesel nears N650 a litre.

With generated power supply insufficient for local demand, many operators have had to explore off-grid options, especially in the form of integrated power projects through gas and diesel plants, and renewable sources in some cases. For others, embracing a higher tariff package from distribution companies in exchange for more hours of power supply is the way to go.

Already, the near-term inflation outlook appears increasingly unpredictable, as the petrol shortage crisis and the rising cost of diesel have added to other challenges driving up prices of essential commodities in the country.

Petroleum marketers are already taking advantage of surge in prices by adjusting pump prices daily even when old stocks are being dispensed.

Yesterday, oil prices traded higher, with Brent Crude closing at $130.7 a barrel, reflecting concerns about higher diesel prices in the days to come. Locally, diesel was dispensed at N625 per litre in many filling stations in Lagos and Abuja.

The January Consumer Price Index (CPI) released by the National Bureau of Statistics (NBS), showed a slight moderation in the headline inflation, from 15.63 per cent in December to 15.6 per cent. But there are fears that the direction of the inflationary trend could change significantly from February.

This is expected to be triggered by the shortage of Premium Motor Spirit (PMS), as the cost of transportation, a key driver of inflation, has doubled or tripled in different cities.

For manufacturers, the impact will be felt in rising production costs with worries about the knock-on effect on sales as consumers’ incomes weaken further.

For the real estate sector, many estates are subscribing to distribution companies’ higher tariff plans in exchange for improved access to electricity, as a way to manage rising costs of operating diesel plants.

According to the Manufacturers Association of Nigeria (MAN), the rising cost of production has made its members consider the renewable energy alternative offered through the Sustainable Use of Natural Resources and Energy Finance (SUNREF), a green financing line for businesses developed by the French Development Agency (AFD).

Already, MAN and AFD have put together an $81m funding scheme for the development of renewable energy and the energy efficiency sector in Nigeria.

Last year, MAN noted that it spent 33 per cent more to generate electricity; a move considered too expensive and responsible for the non-competitiveness of locally produced goods.

For many residents, insufficient power supply has made many Nigerians depend mainly on petrol and diesel for power generation.

The Minister of Power, Abubakar Aliyu, had recently explained the reasons behind the recent poor power supply, citing hydro capacity during dry season and maintenance work at gas plants.

Since February, most parts of the country have been experiencing poor power supply — worse than it used to be. President of the Lagos Chamber of Commerce and Industry (LCCI), Michael Olawale-Cole, said the escalation in the price of diesel would be a double jeopardy for manufacturers and portends a hard time that could even threaten their survival and competitiveness.

Olawale-Cole said that the prevailing prices of diesel, as well as current petrol scarcity “are totally unacceptable,” warning, “if we are not careful the economy and Nigerians will suffer for it.”

He attributed the trend in the domestic price of diesel to the rising price of crude oil in the international market, which is impacting on its landing price in Nigeria.

“The rising price of crude oil is part of it. The current scarcity of petrol is now influencing the diesel market.

“However, the answer to all these problems is to ensure that we are adding value to our crude oil here and stop depending on imported refined products. That is the solution and can be met by the government showing commitment to ensure that our existing refineries are maintained and made to work.

“It is agonising that we are producing crude and exporting them abroad for refining and later importing them at prices that we cannot afford. Naturally, this is going to affect inflation and add to the suffering of the people”, he said.

A former chairman, Nigerian Institution of Estate Surveyor and Valuers, Lagos State, Adedotun Bamigbola said what is prevalent in most of the newly built residential houses is for management to provide inverters with the sales of the properties to reduce dependency on generators as source of power supply.

Bamigbola said the development has also posed the challenge of how to effectively manage such alternative power sources consisting of solar, generator and public power supply for the estates.

The high cost, he explained, has created an increase in default rate of paying service charge or diesel charge, adding that if the occupiers agreed to pay the high charge, they might also have to restructure duration for using generation from 24 hours to 12 hours depending on the terms of agreement.

“In Magodo and other residential estates in Lagos, residents have to subscribe to a premium payment to Ikeja Electricity, so that they can have more power supply and escape the cost of diesel”, he said.

On his part, the Vice President, International Facility Management (IFMA), Nigeria Chapter, Lekan Adewunmi said most estates and facility managers who rely mostly on generators than public power supply are facing difficult times due to the hike in price of diesel, which rose to N500 per litre depending on locations.

He said: “When you do your budget yearly and allocate N1 million for example for diesel and now with a serious hike amounting to about 60 per cent increase. Such a budget will not work and might have serious issues with tenants and occupants. It is either you now reduce the hour of using the generator or the tenants pay more for diesel. If a facility manager is not skillful enough, the situation now can push them into big problems.”

He said residential estates and facilities without a plan for alternative energy sources, are now considering investing in solar and inverters to stave off the problem.

MEANWHILE, local airlines, yesterday, raised another alarm over massive spike in the price of aviation fuel, currently selling at N605/litre at some airports nationwide

The operators said the “unbearable” spike and attendant disruption have made efficient air transport and affordable airfares unsustainable.

Aviation fuel, also known as Jet A1, accounts for between 30 to 40 per cent of operating cost in aviation. As a deregulated arm that is exclusively controlled by suppliers, the price has consistently been fluctuating along with Naira to Dollar exchange rate.

The Guardian learnt that the fuel, which cost about N450/litre last month, has pushed up to N599 in the South and as much as N605/litre in some parts of the North, creating scarcity at the ramp and attendant flight delays.

A local carrier, Ibom Air, yesterday apologised to air travellers for its flight disruptions, blaming the development on fuel scarcity.

“We have encountered a situation today where aviation fuel is scarce and therefore unavailable at almost all our flight destinations. This has significantly impacted our flight schedule today and may do the same tomorrow.

“We sincerely apologise to all our passengers affected by the current situation. At this time, we have no indication when the issue will be resolved, however, we are working with our fellow airlines and fuel suppliers to find a solution,” the management stated.

An industry expert, Lanre Aladeselu, explained that Nigeria is 100 per cent dependent on aviation fuel importation and therefore bound to feel the impact happening in the international community.

“Crude oil is already over $100 in the global community. That means consumers in Nigeria will have to pay more given that the industry is deregulated. That is what is happening right now,” he said.