Stories by Merit Ibe [email protected]
Despite Federal Government’s approval of a downward review of the electricity tariff hike for Band A customers from N225/Kwh to N206.80/Kwh, manufacturers are still insisting on an outright suspension of the increase, as that alone will suffice.
In April this year, the federal government, through the Nigerian Electricity Regulatory Commission (NERC), announced a significant increase in electricity tariff for customers under the Band A category, from the initial N68 per Kwh (kilowatt hour) to N225 per Kwh. Although, Electricity Distribution Companies (DisCos), backed by NERC, in exchange, dangled a 20-hour minimum daily supply of electricity to Band A customers, the 240 per cent increase was did not go well with manufacturers, the Organised Private Sector (OPS) and Nigerians.
Though after pressure and sustained opposition by manufacturers and aggrieved Nigerians, the government slashed adjusted the tariff downward from N225/Kwh to N206.80/Kwh and also sought to justify itself by citing the reduced electricity subsidy from about N3 trillion to N1 trillion. Even at that, manufacturers still want a suspension of the hike.
However, members of the OPS, particularly manufacturers, have been unequivocal in their demand for the immediate suspension of the implementation of the recent increase in the electricity tariff by NERC for Band A customers.The operators have continued to insist that the over 230 per cent increase in electricity tariffs at this difficult time is not business friendly. According to them, it would exacerbate the already high-cost operating environment, leading to closure of many private businesses, increase the rate of unemployment and insecurity in the country, among other ripple effects. They also pointed out that the tariff increase in the face of inadequate electricity supply is inimical to the competitiveness of Nigerian products and businesses.
In an investigative hearing organised by the Joint Committees on Power, Commerce, National Planning & Economic Development and Delegated Legislations in Abuja, Senator Ahmed Abdulkadir on behalf of the Manufacturers Association of Nigeria (MAN), noted that the association has lamented shutdown of over 300 companies and loss of 380,000 jobs since the hike in power tariff in April 2024.
Abdulkadir stated that manufacturers had observed that electricity related expenses of a manufacturing concern constituted about 40 percent of the production overhead, which has affected the sector’s fortunes.
The senator urged the incumbent administration to address the increasing disengagement of workers due to the high cost of doing business and the hike in electricity tariff, noting that one of the companies which employed about 360,000 workers reduced its workforce to about 5,000 due to economic challenges.
Also, in a petition hearing held by NERC at the instance of MAN, following the organisation’s petition demanding a reversal or indefinite suspension of the implementation of the recent electricity tariff rate, the manufacturers challenged the powers of NERC to review electricity tariff monthly without adequate consultation with consumers and other stakeholders, saying the continued implementation of the order would lead to complete closure of the manufacturing sector.
The Director General of MAN, Segun Ajayi-Kadiri told the four-man panel of the commission to suspend the implementation of the new tariff, explaining that the cost was becoming almost impossible for his members to bear.
“Power to a manufacturer is like blood to a human being. It represents anywhere between 28 per cent to 40 per cent of our cost structure, depending on how power intensive your manufacturing process is. So, you can imagine if there is a 250 per cent increase in that particular cost, it is going to inflict damage.
“We operate in an environment in which this increase is coming on the back of the exchange rate challenge, petrol subsidy removal, increase on import duties, multiple taxation and other challenges.”
The MAN boss submitted that the decision to raise tariff was making the manufacturing sector uncompetitive, stressing that many companies were being disconnected from the grid because of their inability to cope with current prices.
“If you add the cost of electricity to the burden that we already have, we are not going to make a profit. More than 36 companies have been disconnected at this moment.
“If it is possible for them to pay and pass on the cost, we would not bother. We are being bashed from all angles and we need to engage in such a way that we are able to survive. “We know that Distribution Companies (Discos) are business men and we are also businessmen, nobody will go into a business and try to make a loss. But what we are seeing in the increase is that the Discos are going to survive and the manufacturers are going to die. It is not possible for manufacturers to take on this cost,” Ajayi-Kadiri argued.
Based on feedback and numerous complaints from member-companies on the implications of the astronomical increase in electricity tariff by the NERC for Band A customers, MAN said: “This sudden exponential increase in the face of inadequate electricity supply is inimical to the competitiveness of Nigerian products and businesses and will further aggravate the cost of production.”
In its recent bi-annual presentation of Q1 2024 MAN CEO’s Confidence Index (MCCI) report, Ajaiyi-Kadir said, that as an immediate impact of the outrageous increase in electricity tariff, a medium-sized company using 700Kw will need to pay about N1.4 billion per annum for electricity.
He, however, lamented that in China, a similar medium-sized company will pay a little over N725.8 million.
“Obviously, the new electricity tariff is inconsiderably very high when compared with the going rates in countries with significant manufacturing performance,” pointing out that “In the US, UK, Germany, France, China, India, South Africa and Ghana, prevailing electricity cost per kilowatt hour are $0.1545, $0.3063, $0.53, $0.089, $0.068, $0.0999 and $0.123 respectively. The conversion values of the afore-mentioned electricity cost in naira are N205.49, N407.38, N704.90, N76.21, N188.37, N90.44, N132.87 and N163.59 respectively.”
From the above comparative analysis, the MAN DG said: “Clearly, with the new tariff of N225/Kwh (i.e. before the slight reduction to N206.80/Kwh), Nigeria now ranks third after Germany and UK on the list of selected countries with high electricity cost. What is most worrisome with the Nigerian case is the fact that the electricity supplied is inadequate, in the face of macroeconomic instability, infrastructure deficit, as well as other supply side constraints limiting the productive sector’s performance.”
Ajaiyi-Kadir expressed sadness that Nigeria currently ranks among countries with the lowest access to electricity as only 59.5 per cent of its population has access to highly unstable electricity, far below the 100 per cent access in African countries like Egypt and Morocco. “Therefore, frankly speaking, over 65 per cent of private businesses, especially manufacturing concerns and Small and Medium Enterprises (SMEs) are closing down due to the high electricity tariff.”
Though the Federal Government, through the NERC, may have justified the tariff hike to address mounting debt and ensure the continued functioning of the power sector, many Nigerians who weighed in on the matter expressed fears that SMIs and MSMEs will hold the short end of the stick under the current high tariff regime.
For the operators, many of the small businesses are being forced out of business due to higher utility bills resulting from the tariff hike.
President of MAN, Francis Meshioye pointed out that it is therefore imperative that the sector’s performance is enhanced through a pro-manufacturing policy that will encourage scale and lower unit cost of production rather that throwing fiery darts that will worsen its performance.
He said top on the list of challenges confronting the sector is the issue of inadequate electricity supply and this has been largely responsible for the sector’s lacklustre performance for some decades now.
Meshioye said in fact, electricity related expenses of a manufacturing concern constitute about 40 per cent of the production overhead in some sub-sectors. “This is not growth friendly and is antithetical to competitiveness,” he charged, adding that the astronomical tariff increase itself was against the Multi-Year Tariff (MYTO) Order referenced NERC/2023/05, which, according to him, valued the cost-reflective tariff at N114.8/Kwh (determined using exchange rate of N919.39/$1.
He also viewed that “the recent hike failed to comply with the customer consultation requirements. Ideally, electricity consumers should be given notice of intention to carry out a tariff review. NERC should publish a consultation paper, which can be downloaded from its website for review by stakeholders and all electricity consumers to a public consultation among others,” the MAN president added.
Furthermore, he accused the NERC and DisCos of failing to explain and justify how increase in tariff for Band A customers will lead to substantial increase in electricity generation and supply when the installed capacity hasn’t been fully utilized due to the limited capacity of Electricity Generating Companies (GenCos) and DisCos to generate and distribute adequate electricity supply nationwide.
Ajaiyi-Kadir, while pointing out that about 30, 000 MW of electricity is required to sufficiently meet the growing electricity demands by businesses and households in the country, said the Transmission Company of Nigeria (TCN) data show peak power generation of slightly over 4, 600 MW between March 6 to 13, 2024, which is far below all known benchmark for national industrial or socio-economic development.
The MAN DG insisted that the explanation by DisCos supported by NERC that consumers on Band A enjoy 20 hours minimum daily supply of electricity needs to be clarified and verified. “In addition, it is of essence to consider the number of outages due to in sufficient and inefficient infrastructure of electricity transmission and distribution as frequent outages/interruptions wreaks havoc in terms of production losses for manufacturers,” he said.
