Diesel Heads for N200 Per Litre – This Day

No Comments » July 8th, 2008 posted by // Categories: Energy Development Project


Diesel Heads for N200 Per Litre

This Day (Lagos)

8 July 2008
Posted to the web 8 July 2008

By Crusoe Osagie

Nigeria’s energy crisis may further worsen as indications have emerged that the price of diesel – on which the economy is heavily dependent – may soon hit N200 per litre.

The pump price currently hovers around N150 and N160 in Lagos, while it is selling higher in other major towns and cities.


The upward swing in price, THISDAY learnt, partly owes to the rising price of crude oil in the international market and the failure of local refineries to meet their production target.

There are fears that many companies may be forced to shut down operations owing to huge operating cost.

Sectors such as manufacturing, finance, services, hospitals, schools, government agencies as well as homes depend on diesel-powered generators as the power crisis bites harder.

THISDAY findings showed that between January and July 2008, the price of diesel has moved from $786 per MT to $1275 per MT, a rise of $489 dollars, which translates to an increase of N49.57 per litre.

THISDAY checks revealed that importers have also had to contend with higher freight cost which has increased significantly in the past few months.

From an average of $30 per MT in March 2008, it is now in the region of $50 per MT, representing a $20 per MT increase which translates to approximately N2 per litre for the Nigerian consumer.

Local interest rates by Nigerian banks are also being blamed for the increasing cost of the product.

The lending rate for import financing has moved from about 14 per cent in January to 18 per cent today.

But considered more worrisome is the fact that the local refinery production is not helping the situation.

While the Kaduna Refinery is still grappling with start-up problems, Port Harcourt and Warri produce a combined volume of about 6,114 MT per day, when the Crude Distillation Unit (CDU) is running at 60 per cent capacity, which is quite ambitious because of sundry problems.

Competent sources at refinery informed THISDAY that 6114 MT production per day “is not guaranteed 30 days a month”.

Investigations also revealed that the Vacuum Distillation Unit (VDU) and Fluid Catalytic Cracking Unit (FCCU) responsible for producing huge volumes of diesel are at zero capacity.

The refineries do not produce on a daily basis for a country whose diesel demand is put at 240, 000 MT per month, a figure that is still rising, leading to a total reliance on import.

With the international flat price at $1275 MT today, delivered price C+F (cost and freight) offshore Lagos is $1320 per MT which translates to N133.82.

Cost of lighters (due to jetty draft constraints), cost of a shuttle vessel, Nigerian Maritime Authority (NMA), Nigerian Ports Authority (NPA) berthing fees and cost of finance all add up another N8 per litre to N133.82 which pushes cost of putting the product into storage tanks at N141.82 per MT.

THISDAY also learnt that to move the product to the end users, marketers would incur additional transportation charge of N2.63k per litre, consequently pushing the delivered price at retail outlets to N144.45 per litre – without the marketers’ margins.

According to THISDAY investigations, marketers’ margins are meant to cost a fraction of N4.15 per litre as profit, which is required for maintenance of operating infrastructure, employee emoluments and wages, among others.

The diesel end of the petroleum market is fully deregulated, as no subsidy is paid on imported diesel, but marketers are pushing for a change, urging government to intervene decisively and place diesel import on Petroleum Support Fund (PSF). Through, the product is expected to enjoy from government subsidy.

Meanwhile, Mr. Femi Otedola, President/CEO of Zenon Petroleum and Gas, Nigeria’s biggest diesel importer, has appealed to the Federal Government to subsidise diesel import to force down the price “at least temporarily”.

The President of the Manufacturers Association of Nigeria (MAN), Alhaji Bashir Borodo, has also decried the virtual non-existent power supply and the current high cost of diesel in the country.

He said only two months ago when diesel was N105 per litre, manufacturers were spending an average of N1.8 billion a week to fuel their generators.

“You can imagine how much manufacturing companies spend on diesel now that it is N160 per litre. In an economy where 80 per cent of the power need is self-generated from diesel, many companies, small and medium scale have either collapsed owing to the high cost of diesel, or are on the verge of shutting down. Recently, hoteliers and even service companies called to inform me that they could not continue because of the power problem and high cost of powering generators.

“When the Federal Government declared that it would take up to a year to generate up to 6, 000 mega watts of electricity, we approached the Vice-President, Jonathan Goodluck, with a proposal to the government to find a special palliative for the manufacturing sector until such a time the country can generate 6, 000 megawatts, since the manufacturing sector depends on power to be in business. We are in a very difficult situation and use this opportunity once again to call for urgent government intervention by way of subsidy on diesel, to reduce the high cost of production which is always transferred to the consumer at the end of the day,” he said.

Borodo however said the situation was not peculiar to Nigeria, as it was a global issue. “You can see protests around the world, in Europe and different parts of the world. The oil price is high, so it is not a domestic problem per se. The only domestic angle to it is that the Power Holding Company of Nigeria (PHCN) is unable to generate much electricity so companies have to rely on diesel which increases their cost of production.”


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