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High electricity tariff as threat to manufacturing


Electric Pole

Electric Pole

THE threat by the Steel Manufacturing Group of the Manufacturers Association of Nigeria (MAN) to shut down over high electricity tariff underscores the frustration of many Nigerians over the outrageous electricity tariff being paid by consumers amid paralysing epileptic power supply in the country.

There is palpable discontent among the citizenry over the unwarranted exploitation by the electricity distribution companies (DISCOs), who routinely charge Nigerians for services not rendered. This is totally unacceptable.

Although reports say the Goodluck Jonathan administration has slashed the tariff by as much as 50 per cent, it is not clear how sustainable this would be. That action would seem politically motivated to entice the electorate on the eve of an election. This notwithstanding, Nigerians expect improved power supply following the privatization of electricity generation and distribution companies, but this has not been so. Something needs to be done to reduce the high cost of energy to boost the economy.

While the ordinary citizens are, therefore, bearing the blatant affront with equanimity, the few remaining manufacturing firms are finding it extremely unbearable, a situation that does not augur well for the economy. The industrial sector is perhaps the hardest hit in the electricity quagmire. It is common knowledge that hundreds of manufacturing firms have closed shop and relocated to neighbouring countries where better prospects exist for cheaper energy. That the situation has not improved this while, despite all the promises made by the government to that effect, is worrisome.

Citing lopsidedness, the MAN group warned that the new Multi Year Tariff Order (MYTO 2.1), which became effective January 1, 2015, was paralysing most companies in the country. It is on that basis that they threatened to shut down if the situation continued. MAN made the disclosure at a recent Nigeria Electricity Regulatory Commission (NERC) stakeholders’ meeting in Abuja.

NERC had announced plans to engage what it calls industrial clusters to form Special Purpose Vehicles (SPV) that can procure additional power dedicated to their industrial clusters. Chairman of the MAN Steel Manufacturing Group, Sunil Goel, who made the presentation on behalf of his members, tasked NERC to go back to the old MYTO, which was initially scheduled to run till 2017.

According to him, steel manufacturers and other consumers on tariff D3 are DISCOs’ most prominent consumers/customers. Noting that electricity is the most critical input to their production process, he reiterated that the new tariff was having adverse effects on their planned long-term projections, which were based on MYTO 2012 – 2017 tariff order. He then lamented that the sudden increase has disrupted their members’ long-term plan.

From January this year, NERC approved a new tariff order for industrial/commercial consumers, while freezing increase for residential consumers for six months. Industrial/commercial consumers had an increase of between 44 and 45 per cent, which they considered to be astronomical.

Besides, the differential price from one DISCO to another is another cause of concern. The MAN group sees the development as constituting a disadvantage to market players in terms of competitive sales.

For instance, available statistics showed that while Nigeria is demanding N28.28 per kwh as minimum unit charge, other African and industrialised countries charge as low as N21 per kwh. The countries include China, India, Russia, U.S., Canada and Angola, among others. The result is that with a very low profit margin of less than one naira per kg, Nigerian companies could hardly sustain seven to eight digit differential prices among competing companies.

Obviously, therefore, the Nigerian steel manufacturers are highly disadvantaged. It is needless to state, at this juncture, that steel is crucial to industrial development and no nation can make it to industrial development without a robust steel manufacturing base.

Given the energy situation that has engendered high cost of production, many companies that flourished in the 70s and 80s in different parts of the country have either gone into extinction or about to do so. The present regime of GENCOs and DISCOs, many thought would bring respite, has so far been a disappointment.

While the GENCOs are unable to generate enough power owing to several factors, including inadequate gas supply, the DISCOs are not able to effectively distribute what is available. The existing infrastructure is decrepit to a large extent.  As it were, only the high profile companies can afford the high cost of energy and manufacturing. R

ather than concentrate on the primary objective, many companies spend millions yearly to generate their own electricity, thereby leading to high overhead cost. With NIPPs contributing a meagre 2,500 megawatts of power as at February 2015, Nigeria can’t have enough energy because not enough is generated. Low investment over the years coupled with the near total dependence on gas, constitutes serious obstacles.

One way out is to seek alternative energy sources for a proper energy supply to distribute mix. Only then can enough be generated and distributed at affordable prices. And only then can the process of achieving the dream of industrialisation begin.

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1 Comment

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