Inflation to ease, firms operating cost to drop on declining diesel price

The Nigerian National Petroleum Corporation (NNPC) claims of a reduction in diesel price by 42 per cent could positively ease the nation’s level of inflation, reduce firms operating costs and boost growth in Africa’s biggest economy, analysts have said.

The crash in diesel price is seen to ease the cost of production for many manufacturing companies and the telecommunications industry, which rely on diesel for electricity.

A report by McKinsey and Company in 2015 indicated that major Africa mobile phone operators spend about 60 percent of their operating cost to power their towers and other telecommunication equipment while using diesel.

“Most causes of inflation in Nigeria are not as a result of effective demand or excess demand, but due mainly to rising cost of production. So, a lowering of the cost of production could translate to lower inflation figures,” an analyst told Businessamlive.

Diesel apart from fuelling production plants in the absence of grid power is also the backbone of logistics and transportation, which have raised prices of goods.

Analyst equally say manufacturing concerns as well as service companies expend more than 35 percent of operating cost on generating electricity with the cost eventually passed on to the consumer in form of higher prices.

Ndu Ughamadu, the group general manager, Public Affairs Division of the NNPC, Sunday said the corporation had crashed the price of diesel by 42 percent.

He said diesel, also known as Automotive Gas Oil (AGO), had had a huge downslide over the last six months, following key strategic interventions by the NNPC.

“In the first quarter of 2017, retail prices of AGO, which is one of the deregulated products, shot to an all-time high of N300 per litre in major demand centres across the country,” he said, adding that such unpleasant situation placed a huge burden on truck drivers, who need the product for transport; and the nation’s manufacturing sector, which requires it to run its operations, as well as the masses, who need it for household power generation.

“However, following strategic intervention efforts by the NNPC toward sustained improvement in the supply of diesel, the product’s retail prices as at the end of May ranged from N175 to N200 across the country (a significant price drop of about 42%).
“Ex-depot prices also dropped to between N135 and N155,” Ughamadu said.

He explained that the corporation’s strategic interventions include improving the supply of AGO and remodeling of the product distribution to address sufficiency issues across the country.

“Since January this year, we have worked very hard with relevant stakeholders to improve distribution from refinery depots, by implementing a robust loading programme. The Corporation was able to resuscitate its critical pipelines and depots in places such as Atlas Cove-Mosimi, Port-Harcourt Refinery-Aba and Kaduna Refinery – Kano,” he stated.