Fueling Concern: How Rising Diesel Prices Are Threatening Nigerian Industries and Airlines

Fuel Price Crisis Sparks Economic Turbulence: Industries and Airlines Brace for Impact

by BurrowBoss October 27, 2023, 3:28 pm 1.7k Views

Diesel, jet fuel rising prices threaten industries, airlines

Rising Diesel Prices

Fueling Concern: How Rising Diesel Prices Are Threatening Nigerian Industries and Airlines

Rising diesel prices are sending shockwaves through Nigeria's industries and airlines, threatening their very survival.

Rising Diesel Prices: A Looming Crisis for Nigerian Industries and Airlines

In a nation where economic stability often teeters on a tightrope, the recent surge in diesel and aviation fuel prices has cast a long shadow over Nigeria's manufacturing and aviation sectors. The consequences of these rising costs are far-reaching, and the implications could potentially be devastating for various industries and airlines operating in the country.

Economic Tremors in the Manufacturing Sector

Manufacturers in Kano, Ogun, Edo, Delta, Kogi, Lagos, and Kwara states have sounded the alarm bells. The Manufacturers' Association of Nigeria (MAN) has revealed that an increasing number of factories are closing their doors due to the exorbitant price of diesel. If the diesel price continues to escalate to the projected N1,500 per liter from the current N1,000, more factories are expected to follow suit.

From June to October this year, diesel and aviation fuel prices skyrocketed by over 50 percent, triggering concerns among industry players. The surge in prices is largely attributed to issues plaguing the downstream oil sector, such as the scarcity of foreign exchange needed for diesel imports and the relentless rise in global crude oil prices.

Chief Ukadike Chinedu, the National Public Relations Officer of the Independent Petroleum Marketers Association of Nigeria, stressed that the situation is unlikely to improve any time soon. He attributed the unrelenting diesel price hike to foreign exchange constraints and the surging global crude oil costs.

One proposed solution, advocated by oil marketers, is for the government to expedite the repair and revitalization of the nation's refineries. In August, the situation was compounded when the Federal Government imposed a 7.5 percent Value-Added Tax (VAT) on diesel. Although the VAT on diesel was eventually removed in response to industry concerns, the prices have continued their upward trajectory.

MAN warns of a looming catastrophe. Mr. John Aluya, a member of the National Council of MAN, expressed his apprehension that further price increases could force many companies out of business. The situation is exacerbated by the national power grid's inability to provide consistent electricity supply.

Exploring Alternative Energy Sources

In response to this crisis, MAN has started exploring alternative sources of energy. Huawei has been engaged to investigate these alternatives. This move signals a realization that dependence on the national grid and diesel is no longer sustainable. Manufacturers are searching for ways to reduce their energy costs and maintain production levels.

George Onafowokan, Chairman of MAN in Ogun State, highlights the direct impact on operational and production costs for manufacturers, which, in turn, leads to price hikes for goods. This current scenario is causing growing concern among members of the association.

In Edo and Delta states, Okwara Udendi, Chairman of MAN, stated that the surge in diesel prices, coupled with erratic power supply, has led to a partial shutdown of operations for many members of the association. The use of generators for running businesses has become financially unsustainable, as customers are unwilling to bear the brunt of higher prices for goods.

These challenges are even more pronounced in Kano State, where approximately 90 percent of small-scale industries have ceased operations due to the prohibitive production costs caused by high diesel prices and unreliable electricity supply. The state Chairman of MAN, Alhaji Sani Sale, underscores the dire situation, as industries have resorted to relying on the inconsistent power supply from the Kano Electricity Distribution Company.

Telecom Sector and Rising Diesel Costs

In a surprising twist, the telecom sector is emerging as one of the sectors most affected by the diesel price surge. Telecom operators rely heavily on diesel to power their extensive network of base stations. These stations play a pivotal role in Nigeria's communication infrastructure, requiring an estimated 40 million liters of diesel every month.

Gbolahan Awonuga, Head of Operations at the Association of Licensed Telecommunications Operators of Nigeria, points out that their sector is currently the largest consumer of diesel in Nigeria. The impact on the telecom industry is noteworthy as increased diesel prices translate to higher operational costs. These costs, in turn, affect the overall cost of doing business in the country, underscoring the interconnectedness of the sectors in the Nigerian economy.

Aviation Sector Grapples with Soaring Fuel Costs

The aviation sector is not spared from the ramifications of rising fuel prices. Experts are predicting a significant increase in local airfare due to the surge in the cost of aviation fuel, also known as Jet A1. With a review of local airlines' websites, it's evident that one-way ticket prices range from N95,000 to N110,000, while round-trip tickets can cost between N150,000 and N220,000.

Capt. Roland Iyayi, speaking on behalf of the Airline Operators of Nigeria, highlights that Jet A1 is the single most significant cost factor in airline operations. The repercussions of these escalating costs will likely be shifted to passengers in the form of increased airfare, which may threaten the survival of local airlines.

Daisi Olotu, a former national financial secretary of the National Association of Nigerian Travel Agency, points out that some local airlines are using the Jet A1 crisis as an opportunity to indiscriminately increase the prices of air tickets.

The Ongoing Crisis and Possible Solutions

As the nation grapples with these economic tremors, urgent government intervention is called for. The issues at hand encompass a weakening naira, energy expenses that manufacturers and industries grapple with, and the heavy cost of maintaining the Nigerian economy.

An economic analyst, Rotimi Fakayejo, emphasizes the need for local refineries to operate at full capacity and for the government to establish a fixed price for crude oil supplied to local refiners. This would serve as a stabilizing factor for diesel prices and help industries regain their footing.

Furthermore, the government needs to prioritize consistent electricity supply to reduce the dependency on diesel generators. Local businesses are already exploring alternative energy sources, such as solar and wind power, to mitigate the impact of rising diesel costs. These efforts align with global trends in sustainable and green energy solutions.

The Wider Economic Impact

The rising diesel prices are not merely an isolated issue; they have the potential to shake the very foundations of Nigeria's economic landscape. The impact is felt across multiple sectors, from manufacturing and telecom to aviation. The interconnectedness of these industries highlights the need for comprehensive solutions and intervention from the government.

Inflation, a weakening naira, and the rising cost of production further compound the challenges faced by businesses. It is evident that a multi-pronged approach, involving both public and private sectors, is needed to address these issues and prevent further economic disruption.

Join the Conversation

The ramifications of rising diesel and aviation fuel prices are far-reaching, and their impact extends beyond the sectors discussed in this article. We encourage you to join the conversation by sharing your thoughts and experiences in the comments section below. How have these price hikes affected you? What solutions do you believe could help alleviate this crisis? Your insights and opinions are valuable in shaping the discourse around these critical issues.

In conclusion, the surge in diesel prices and aviation fuel costs is more than just a financial concern; it is a crisis that could reshape Nigeria's economic landscape. As industries and airlines navigate these turbulent times, collaboration and innovative solutions are key to securing a more stable and prosperous future for the nation. Stay informed, stay engaged, and let your voice be heard as we confront these challenges together.

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