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Manufacturers resort to self-help as gas prices soar

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• Self-generated electricity hits N119b in 2019
• Grid supply inadequate to meet local demand

Local manufacturers have devised alternative means of providing electricity to industrial clusters as local prices of natural gas hit rooftops.

At $1.80, the price of natural gas at the international market remained cheaper than $7.99 per standard cubic meter (scm) charged locally, at the weekend.

To address their electricity challenges, local manufacturers had unveiled a special purpose vehicle called, MAN Power Development Company, to provide electricity to industrial clusters.

Despite opportunities that Liquefied Natural Gas (LNG) offer to Nigeria in terms of reserves, pricing and utilisation for gas-to-power, access to the commodity has remained a challenge.

LNG and Compressed Natural Gas (CNG) form sources of alternative power to local producers due to failure of the national grid to meet their demands. But the switch to LNG and CNG has remained a mirage due to high cost, infrastructure and policy framework.

While the 614-kilometre Ajaokuta-Kaduna-Kano (AKK) gas pipeline project, flagged off recently by President Muhammadu Buhari, was expected to address the challenges of ailing industries, local manufacturers are eager to see that gas-to-power becomes a reality.

The operators stated that while electricity outages spanned about 10 hours per day, electricity expenses constituted about 40 per cent of the total cost of production and the average cost of self-generated electricity hit an average of N119 billion in 2019.

Years after, the Vehicle has continued to experience challenges from distribution companies that have continued to block adoption, citing clauses in the eligible customer scheme, while some have successfully migrated to the scheme.

In 2019, MAN generated no less than 13,000MW of electricity under its Independent Power Projects (IPPs) and micro grid platforms to meet their operational needs as generated power from the national grid remained insufficient to meet their demands.

“The idea is to be able to put manufacturers in clusters and arrange for power, which can be supplied through hydro, solar, gas and will remove the cost of manufacturers getting involved in producing their own power, “ said Reginald Odia, chairman of Economic Policy Committee of MAN and director of the MAN Power Development Company.

Nigeria has the largest gas reserves in Africa and the ninth largest in the world but only about 25 per cent of the reserves is being produced. The country’s total gas reserves stood at 203.16 trillion cubic feet as of January 1, 2020, up from 202Tcf in 2019, according to the Department of Petroleum Resources.

Although gas providers hinge costs on infrastructure, production costs among others, Nigerian manufacturers say they are unhappy that franchisers of natural gas are “dollarizing” payment of the energy source and selling to them at $7.99 per Standard Cubic Meter (SCM), which is above the international price.

They say the situation is compounding their energy woes and raises production costs while lowering their competitive capacity.

According to them, there is need for diligent application of the pricing mechanism under the new gas regulation to bring down the price of gas drastically, given the current low price of crude oil at the international market.

They equally argued that the government addresses the categorization of manufacturers’ gas intake as commercial users in the natural gas pricing gazette, instead of Strategic Industrial Sector.

Indeed, the pricing mechanism to both sectors in the new Regulation is expected to be based on the export parity of oil, which is the price paid to the upstream producers by Nigeria Liquefied Natural Gas Company (NLNG) and is market driven as it reflects the movement in the price of oil in the international market.

They stressed the need to structure the Natural Gas Pricing Act to allow for “free buyer and free seller” to avoid monopoly in areas of supply coverage.

Chairman of Manufacturers Association of Nigeria (MAN) Gas Group, Dr. Michael Adebayo told The Guardian that many operators continue to contend with high prices, very low level of gas pressure and outages from distribution companies, as many of them combine gas and grid supply to check costs and availability.

According to him, about 40 percent of major manufacturing firms switched to gas even though the 2020 price of $7.99 for domestic gas remains extremely high and uncompetitive (despite CBN Act against Pricing of made in Nigeria Products in Foreign Currency).

“The price is compared to the cheapest Global Pricing of Gas, not to even talk of 48 percent reduction in price during COVID-19 pandemic. About 60 percent still have to cope with the regular grid power outages.

“I commend President Muhammadu Buhari’s Government and the Minister of State for Petroleum Resources, Chief Timipreye Silva for their efforts to bring sanity to the Domestic Gas Pricing Framework and pray that the Country would get it right this time to allow more Investors to come to Nigeria as well as to prevent existing Investors/Industries moving out of Nigeria to other ECOWAS Countries that are wooing them with attractive incentives”, he added.

Arguing for a realistic electricity tariff, members of the Organised Private Sector in Nigeria (OPSN), comprising MAN, Nigerian Association of Chambers of Commerce, Industry, Mines and Agriculture (NACCIMA), Nigeria Employers Consultative Association (NECA), Nigerian Association of Small and Medium Enterprises and the Nigerian Association of Small Scale Industries (NASSI), stated that the unfriendly operating environment is responsible for the oscillatory performance of the real sector in the past few years.

They said: “For the records, private business operators in Nigeria, especially the manufacturing sector are already plagued by high cost operating environment arising from poor regulatory environment, macroeconomic asymmetries and high cost of energy.

“Most worrisome is the fact that operators in the Private Sector, especially the manufacturing sector bear the burden of commercial and technical losses through very high monthly electricity bill that is largely estimated.

“The OPSN has observed that despite numerous increases in electricity tariff, poor generation and transmission plague the sector. Likewise, inefficient distribution and inadequate supply remain crucial challenges facing private sector operators, particularly those in manufacturing. It is therefore important that any upward electricity tariff that will add up to the already bloated cost of production in the sector should be avoided.

“One would believe that before embarking on this outrageous increase in electricity tariff, its impact on the manufacturing sector and the economy at large would have been properly evaluated to mitigate a crowding out effect on the economy”.

The operators then urged the Federal Government to unveil a more realistic tariff structure that would support the growth of the sector and to review the privatisation/unbundling of the electricity industry in the best interest of Nigerians.

Hitherto, the former Senior Technical Adviser to the immediate past Minister of State for Petroleum, Timothy Okon, had stated that a new regulation would be unveiled in June this year to address issues bordering on gas pricing, monopoly and licensing.

Okon at a gas interactive session with the Manufacturers Association of Nigeria (MAN) Gas Group in Lagos, recently, said the bill would also address structural issues in the industry.

Okon said: “In the lobby contemplated that will be passed in June, monopolies will not be allowed because a new regulator not DPR, but a new entity will regulate and license the activities of distribution companies and once that law comes into effect, it would address the structural issues in the industry, such as price fixing. All these things are in the proposed regulation just that it has not been promulgated. What this would do is to take us back to willing-buyer-willing seller arrangement.

“We do not anticipate the government fixing the price of gas. It is not the role of the state, but what we expect is that commercially-derived pricing arrangement such as the Export Parity Price (EPP), which is not set by government will form the basis for the pricing while the pricing formula will now be in the regulation.”

According to him, when formulated, the gas pricing regulation would be one of the first to come out of the regulation.


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