Manufacturing and intractable power challenge

The intractable power supply situation in the country has forced manufacturers to devise alternative means of providing electricity to industrial clusters even as the price of natural gas has hit the rooftop. The high cost of power has forced scores of industrial manufacturing plants across the country to close shop leading to mass retrenchment of workers.

As a result this intractable challenge, many multinational firms have relocated to neighbouring countries where better prospects exist for manufacturing. The few remaining firms are finding it extremely difficult to remain in business. The industrial sector remains among the hardest hit and this is not good for the economy, the authorities should note. 

At $1.80, the price of natural gas at the international market remained cheaper than $7.99 per standard cubic meter (scm) charged locally over last weekend. 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 owing 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. To address their electricity challenges, local manufacturers had unveiled a special purpose vehicle called, MAN Power Development Company, to provide electricity to industrial clusters. Self-generated electricity reportedly hit N119b in 2019.

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 have expressed eagerness 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.

According to reports, 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 minuscule 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.

Whereas, Nigeria has the largest gas reserves in Africa and the ninth largest in the world, only about 25 per cent of the reserves are 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 “dollarising” payment of the energy source and selling to them at $7.99 per Standard Cubic Meter (SCM), which is above the international price. The situation, they say, is compounding their energy woes and raising production costs while lowering their competitive capacity. They say 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 categorisation of manufacturers’ gas intake as commercial users in the natural gas pricing gazette, instead of Strategic Industrial Sector. Chairman of Manufacturers Association of Nigeria (MAN) Gas Group, Dr. Michael Adebayo explained 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 per cent 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).

In the main, there is need to bring sanity to the Domestic Gas Pricing Framework so that the country would get it right to allow more Investors come to Nigeria.  Besides, this framework can prevent existing investors from moving out of Nigeria to other ECOWAS countries that are wooing them with attractive incentives. The same goes for a realistic electricity tariff.

Most worrisome is the fact that private sector operators, especially the manufacturing sector bear the burden of commercial and technical losses through very high monthly electricity bill that is largely estimated. Despite numerous increases in electricity tariff, poor generation and transmission continue to plague the sector.

Available statistics show that while Nigeria is demanding N28.28 per kWh as minimum unit charge, other African and industrialised countries such as China, India, Russia, USA, Canada and Angola, demand as low as N21 per kWh as their minimum price. The differential price among competing countries places the Nigerian manufacturers at a disadvantaged position. It is noteworthy that low energy output is just one of the factors hampering industrial production in Nigeria.

Therefore, there should be no more debate: Government should refocus to redress the factors hampering industrial production in the country as a way of enhancing economic growth.