Diesel hike and its impact on Nigeria’s Telcom Industry

Diesel hike and its impact on Nigeria’s Telcom Industry

By Umar Farouk Ahmad

TECHDIGEST – Nigeria is currently selling diesel at N850/liter ($1.616) which is above the average price of diesel per liter ($1.4) sold across the world.

Despite Nigeria being the 14th country in the world with the highest crude oil production, it’s so unfortunate that the country is 109th in selling diesel at a cheaper price.

This is alarming because if diesel price continues to hike, many businesses in the country will crash and crumble including the telecommunication industry of Nigeria.

An increase in petrol majorly affects the transport commodity only. But in contrast to diesel, the increase affects both the transport and cost of production of commodities. The reason is that most of the trucks used for transporting commodities use diesel vehicles to operate. Likewise, the industries, and companies, among others for the production of the commodity are powered by diesel generators.

Hence, diesel rise can make products increase by triple or quadruple their initial cost.

A study performed among Nigerian firms by Leadership Newspaper a few months back revealed that many businesses in Nigeria are struggling for survival. Concurrently, some have suspended operations as a result of surging diesel prices.

READ ALSO: Partial Grid Collapse and Nigeria’s Worsening Power Crisis

Analysts have attributed the current surge in diesel prices to the rise in the price of crude oil in the international market as a result of the Russia-Ukraine crisis. Russia is an oil-producing country, while refined petroleum products come from Ukraine and other Western European countries.

This has unquestionably impacted the price of petroleum products in Nigeria. The invasion of Ukraine by Russia has distorted global financial and energy markets, causing oil prices to climb above $100 per barrel, the highest since 2014.

Therefore, the Nigerian Government should keep a close eye on the diesel price increase and make sure the price is subsidized to the barest minimum to its citizens for the betterment of the country.

In the telecommunication sector, Telecom sites are being powered by diesel generators 24/7 to maintain a consistent power supply. The absence of power supply even for a second in a telecom site would lead bad network because the antennas used for sending and receiving radio waves use electricity to operate. Also, the antennas can as well not be able to produce the network in our mobile devices which we use to make calls, connect to the internet, and many more.

This is the reason why telecom sites can not depend on grid electricity due to its inconsistency of power supply.

As the diesel price crisis worsens, Nigerian telecom operators’ operational costs may increase further, as the industry reportedly consumes an average of 40 million liters of diesel each month to power and run their telecom sites.

According to the Nigerian Communication Commission (NCC), the operational expenditures of Nigerian telecommunication companies increased by ₦265.25 billion from ₦1.4 trillion in 2020 to ₦1.66 trillion in 2021.

In 2022, the cost of diesel rose from ₦225 in January to over ₦800 in July, sending the yearly cost of powering telecom services to almost ₦400 billion, or ₦33 billion per month.

Based on market analysis, the price might surge in the coming weeks as 1 liter of diesel would cost over ₦1,000.

Gbenga Adebayo, the president of the Association of Licensed Telecoms Operators of Nigeria (ALTON) warned that the price rise and large operational costs, would hurt telecom operators and that ALTON would meet with the government to seek some kind of intervention to ameliorate the effect of these events on the industry.

Punch Newspaper reported that the cost of powering telecommunication services could hit ₦60 billion per month and ₦720 billion in one year if the cost of diesel attains ₦1,500/liter as mentioned by marketers of the product.

Now, the cost of diesel to run network towers, base stations, and offices increased from ₦225 per liter to ₦850 per liter as of July 2022.

With the price of diesel rising to ₦1,000/₦1,500, ALTON may push further for the possible 40 percent increase in tariffs or even go higher to 50 percent.

This implies that call rates may drift between ₦6 to ₦9, while the SMS price cap may drift between ₦5 and ₦7; or more.

Also, with an inflation rate of 18.6 percent in July, and a decreasing purchasing power, customers are in for an addition to their current troubles.

According to the writer’s thoughts, the best solution to curb this issue of diesel rise and national grid failure on telecom sites is for the telecom industry to embrace solar power energy. As was written in my previous article that was published in Vanguard Newspaper, titled ‘Solar power: The portent solution to Nigeria’s energy  crisis .

I explained judiciously how solar power is the best and the cheapest source of generating electricity, especially in a country like Nigeria which has a huge amount of sunlight.

Farouk, a graduate of Electrical Engineering, wrote from Wuye, Abuja, via: [email protected]