Cautious optimism among manufacturers as Dangote begins diesel sale

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As diesel from the Dangote Oil Refinery and Petrochemical Plant hit the market, Nigerians have witnessed an appreciable reduction in the price of the petroleum product, which is a major source of energy for several industries, DARE OLAWIN writes

The sale of diesel into the local market by the $20bn Dangote refinery appears to have played a major role in crashing the price of the commodity in Nigeria at the moment. This, it is believed, would help in reducing the cost of production.

The According reports that the pump price of Automotive Gas Oil has dropped from about N1,700/litre which it sold for a few weeks ago, to around N1,350/litre in some locations across the country, following the sale of the commodity by the Dangote refinery.

It was gathered on Tuesday that the $20bn worth refinery started pumping out diesel to the domestic market last week, selling a minimum of 1 million litres to each registered oil marketer that got the product from the plant since it commenced diesel sale.

Officials of the Dangote refinery and some oil dealers confirmed that the product was dispensed to marketers at between N1,225/litre and N1,300/litre depending on the volume of purchase, saying the refinery would start releasing Premium Motor Spirit to the domestic market in May this year.

The National President of the Independent Petroleum Marketers Association of Nigeria, Abubakar Maigandi, said the move by Dangote would lead to a crash in the diesel price, as the commodity rose to a high of about N1,700/litre recently.

“They are selling at N1,225/litre and the minimum volume they are giving is one million litres per marketer. Also, they assured us that they will release more products, but for now, this (diesel) is what they are starting with. So we are expecting them to release PMS anytime from now.”

“The price of diesel is going to fall because of the release of products from Dangote refinery. It is already coming down in Lagos,” Maigandi stated.

A diesel distributor in Ogbomoso, Oyo State, Kayode Lawal, said the pump price of diesel was between N1420 and N1500 as of Tuesday.

Also, an attendant in Badagry Lagos State, Bose Opeyemi, told our correspondent that the product sold at the rate of N1,395 in some parts of Badagry, while some filling stations sold at N1,450. In Abeokuta, the Ogun State capital, Saheed Babalola, who is a quarry agent, said he got a litre of AGO at the rate of N1,45O.

According to data supplied by the Major Energies Marketers Association of Nigeria, the price of diesel rose from around N900 in January to around N1500 in March 2024. Depending on the location, diesel sold for about N1,700 in some areas.

A report by the National Bureau of Statistics revealed that the average retail price of Automotive Gas Oil (Diesel) paid by consumers increased by 50.20 per cent on a year-on-year basis from a lower cost of N836.91 per litre recorded in February 2023 to a higher cost of N1,257.06 per litre in February 2024.

On a month-on-month basis, an increase of 9.02 per cent was said to have been recorded from N1,153.01 in the preceding month of January 2024 to an average of N1,257.06 in February 2024.

Looking at the variations in the states’ prices, it was gathered that the average price of diesel in Akwa Ibom State was N1,525; N1,500 in Gombe State and N1,444 in Kwara as of February.

With the sudden rise in the value of the dollar against the naira between February and March, the price of diesel also surged, mounting more financial pressure on businesses, especially at a time when public supply is at a low ebb.

As businesses depend majorly on diesel to run their plants and trucks, the amount being expended on energy went above the roof, overbloating the cost of production which eventually has its effect on the prices of goods and services. It could be recalled that diesel, which sold below N400 in 2021, has also brought about a huge increase in the cost of transportation, affecting the transportation of finished goods, farm produce,  petroleum products, and others from one location to the other.

The Manufacturers Association of Nigeria told The According on Wednesday that the cost of diesel accounted for about 35 per cent of the total operational cost in many organisations.

Our correspondent gathered that the energy costs for many firms surged by a large percentage in 2023, compared to what was expended in 2022. The BUA Cement factory was said to have witnessed 86.5 per cent in its energy cost, from N91bn in 2022 to N123bn in 2023. Also, Dangote Cement’s cost of energy reportedly rose to N399bn billion from N266bn in the same period, while Lafarge spent N75bn on energy instead of N62bn.

The President of the Consumer Protection Network, Kunle Olubiyo, told our correspondent that many factories like those into plastic production do not rely on public power supply because an outage in the process of production would spell doom for the factory. In those organisations, there is 100 per cent reliance on diesel as the only source of energy.

The head of a media organisation confided in our correspondent that the company spent over N30m on diesel weekly as of January, saying the amount rose as the price increased.

A block maker in Abeokuta, who identified himself as Oladayo, said he had to switch from his diesel-fired power generator to a gasoline engine when the cost of diesel was eating deep into his income.

With the seeming reduction in the price of diesel at the moment, Nigerians are expectant that the prices of products would come down, as this would mean a reduction in the cost of running businesses.

But, the MAN President, Francis Meshioye, said it is too early to decide the impacts of Dangote diesel on the economy.

“It is too early to decide the impact. The manufacturers don’t purchase fuel every day. Anything anybody says now is just an assumption. Have we collated information from other members? Can anybody get credible information in 24 hours? It will be a forecast.

Meshioye said it would be good to wait till manufacturers start replenishing their fuel to know whether or not the reduction in diesel price is having an effect.

While emphasising that the cost of diesel has been affecting business being about 40 per cent of the production cost, Meshioye said manufacturers would appreciate anything that would bring down the cost of diesel, as that would positively affect the bottom line of businesses.

He said, “The high cost of diesel has been affecting us. It takes about 35 to 40 per cent of our production cost. Anything that brings down the price of diesel will be appreciated because that will go down to improve the profitability of the manufacturing business in one way. Reduction of energy costs will be tremendously helpful to the manufacturers in the day-to-day running of their business because they will require less to stock diesel, which means the cost of funds should be lower in terms of what they borrow. So, positively it will affect their bottom line”.

On what the government should do to bring down the cost of diesel, the MAN president requested that all refineries should start working.

On the other hand, he advocated that natural gas should be made available as an alternative fuel for businesses. The gas, he said, should be sold in the local currency instead of dollars. To make gas more accessible to manufacturers, he advised that pipelines be installed across the nation, even as he advocated for renewable energy sources.

The Zeta Power Chief Executive Officer, Operation, Kyriakos Schizas, in a recent interview with The According, advised business owners to reduce their daily running costs with the use of compressed natural gas. According to Schizas, companies would save over 50 per cent of their current cost of generating energy if they convert their diesel engines to CNG. However, the nonavailability of CNG stations and pipelines coupled with the cost of converting engines has been a major setback.

The MAN president reechoed, “Diesel gulp over 35 per cent of our cost. It is huge! Imagine that coming down to 20 per cent, you know what it will be.”

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