Home > Electrical/Electronics > Forex, Russia-Ukraine War Behind High Price Of Aviation Fuel, Diesel —Marketers

Forex, Russia-Ukraine War Behind High Price Of Aviation Fuel, Diesel —Marketers

In recent weeks, the prices of petroleum products, like diesel, Petrol and aviation fuel, have been on the increase, which has led to increase in the cost of transportation. The situation is exacerbated by non-functional refineries and the crisis between Russia and Ukraine, as economists predict ripple effects on unemployment and poverty levels.

Fuel marketers have blamed the current increase in aviation fuel and diesel on the crisis between Russia and Ukraine as well as the naira exchange rate to the dollar.

This is even as they say that despite the increase in prices of the petroleum products, they are still cheaper than in any other African country.

Speaking with the Nigerian Tribune at the weekend, the Executive Secretary, Major Oil Marketers Association of Nigeria (MOMAN), Mr Clement Isong, explained that the increase in prices of petroleum products was not peculiar to Nigeria.

In his explanation, he said the products in question are deregulated except for PMS which was still being subsidised.

“Let me start by saying that the three core products you have mentioned are PMS, diesel and aviation fuel. All three of them are all products of crude oil.

“Ever since Russia attacked Ukraine, the price of crude oil has been going up because of all the embargoes in place, so the demand is up, the supply is difficult to find. Crude oil went as high as $133-$135.

“The products we are talking about are made from this product. When it comes to AGO diesel, it is deregulated in Nigeria, the price has gone up,” he said.

In his submissions, he said although prices of these products were high in Nigeria, it is far cheaper than other countries.

“It is high in Nigeria but cheaper than in other African countries around us, the same with aviation fuel. It is also deregulated and cheaper than in other countries. The reason petrol is not high is because of subsidies. What this means is that the government is paying a really large sum of money as subsidy to keep prices where they are,” he stated.

FOREX, contributory factor

Marketers have also identified foreign exchange as a contributory factor to the current situation.

While citing instances, Mr Isong explained that the price of petroleum products in the country is determined by international price of crude oil as well as the exchange rate.

“The official exchange rate is N412/N414 and if you can find it you are very lucky. People can access it at N500 through the banks or N550 or N570 that is why the price is expensive. It is not a Nigerian thing; it is all over the world.

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“Even if we are refining locally, there won’t be any difference. Even if someone is subsidizing, it is extremely expensive and unsustainable,” he said.

On his part, the spokesperson, Independent Petroleum Marketers Association of Nigeria (IPMAN), Mr Chinedu Ukadike, added that the increase in the value of Dollar as against the Naira has contributed to what was being experienced.

“Nigeria’s heavy dependence on petroleum import is a total minus to us and unacceptable to the citizenry.

“The more the Dollar increases, the more petroleum products are being subsidised here in Nigeria,” he stated.

Economists predict high inflation, unemployment, poverty in coming months

In view of the current fuel situation bedevilling the country, economists have predicted that the result of this may pose direct consequences on the country’s economy and to an average Nigerian.

They averred that the implication of this would be high inflation, unemployment and further reduction in the living standards of Nigerians.

Dr Muda Yusuf, the Chief Executive Officer, Centre for the Promotion of Private Enterprise (CPPE), said the high and increasing cost of fuel, especially diesel will put a strain on businesses.

“High and increasing cost of diesel is compounding an already difficult situation for many investors. We would see an escalation in production and operating costs, mounting inflationary pressures, erosion of profit margins and a risk to business continuity, especially for SMEs in the real sector. It has implications for poverty as well.

“Most firms still depend on diesel generators to power their operations in the face of epileptic electricity supply,” he said.

Dr Yusuf, who is a the former Director-General of the Lagos Chamber of Commerce and Industry, reminded that the major driver of inflation in the country was the high transportation costs.

“High diesel costs would trigger higher transportation costs. Most haulage vehicles are powered by diesel. Increase in transport cost typically impacts on general price level,” he noted.

On his part, Paul Alaje, an economist with SPM Professionals warned that if the menace persists for the next six months, “unemployment will be higher and poverty rates will be higher and starvation will in fact be higher if we don’t do the needful.”

He lamented the continued weakness of the Naira against the Dollar, saying, “The real issue here is the cost of Dollars. The Naira has continued to emaciate and this reduction in the value of the Naira now has a tremendous impact on prices and the economy.

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“Number one is high inflation, cost of living will increase which would mean that people will have to pay more even though what they are earning is less. Ordinarily speaking, what they are earning may be the same phenomenally speaking, but what they are earning has reduced significantly. It means that quality of life will reduce, poverty and hunger will reign more.”

Way out

On possible way out, MOMAN Executive Secretary said there was need for government to look into providing mass transportation.

“We cannot run away from what we need to do. We need to provide for mass transportation or BRT buses or we move by ferries in places like Lagos State where this is possible.

“We need to invest significantly in alternative means of transportation and alternative energy,” he said.

On his part, IPMAN’s spokesperson said for the country to get some sort of relief, her refineries must be put to use.

While sharing similar stance, Mr Alaje said, “Nigeria has left the path of production to consumption so it will continue to affect us.

“To maximise crude is to refine locally. If we don’t refine locally, I am afraid we might not be able to maximise the crude that is already above $130 per barrel because most of the gains we are going to lose by importing PMS into the country, because the higher the crude, the higher the cost of PMS.”

He said, no doubt, the Russia-Ukraine crisis, was affecting more countries, especially those that are highly dependent on importation of products.

Alaje however, pointed out that countries with crude and can also refine, might not find the current situation a problem.

“We can produce, yet we cannot refine fuel either for aviation or diesel or anything; we do not have the capacity to refine locally. It is that bad for both aviation and industry in terms of diesel because we fully depend on foreign consumption.

“There is no way the ongoing crisis will not affect us,” he lamented.

However, Dr Yusuf, who shared a different opinion, stressed the need for government to revisit the reforms in the oil and gas sector.

“We need a complete liberalisation of the petroleum downstream sector. NNPC cannot continue to provide the fuel needs of the entire country. It is simply not sustainable. This approach would consume the entire revenue of government,” he stated.

“We need to create a private sector window to complement government efforts in a way that would be worthwhile for private investors,” he stated.

Source: tribune

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