Worsening electricity supply, particularly to industrial zones, is taking its toll on manufacturers, many of which spend between 30 and 40 per cent of production cost on power. They have either shut down or sacked workers. Some have turned to the Independent Power Project (IPP), which they abandoned few years ago, for succour. Assistant Editor OKWY IROEGBU-CHIKEZIE reports.
Worried by the epileptic power supply that has rendered the real sector prostrate, the Manufacturers Association of Nigeria (MAN) has taken its fate in its hands. It has turned to the Independent Power Project (IPP), which many of its members abandoned few years ago, to stay afloat.
MAN said its members spend between 30 and 40 per cent of their working capital on power because of the epileptic supply, particularly to industrial zones. Some of them, who spoke with The Nation, said they could no longer wait on the Federal Government to improve power generation and distribution as many have gone under with countless job losses.
MAN started the IPP project in 2006 and stopped work on it in 2013. The IPP was to cost MAN between N10 and N12 billion. The initiative was to provide 808 megawatts of power. But the project was abandoned based on assurances by the then National Electric Power Authority (NEPA) and later Power Holding Company of Nigeria (PHCN) that electricity supply would improve.
However, rather than improve, electricity supply, especially to the industrial zones, worsened, throwing manufacturers into confusion. For instance, Chairman, Manufacturers Power Development Company Limited, a subsidiary of MAN, Mr. Ibrahim Usman, said manufacturers had come together to change the ugly tide that has put some of them out of business.
At a stakeholders’ meeting on MAN industrial clusters in Lagos last week, he said the security challenges would exacerbate if nothing was done to halt the massive job losses due to lack of power supply to the industrial zones or clusters. The manufacturing clusters include Ikeja and Apapa (Lagos), Agbara/Ota/Abeokuta (Ogun) and Kano Bompai (Kano), among others.
Usman said after studying the government’s plans and the realities on ground, with transmission towers and cables of over 40 years in disuse, manufacturers could not but come together and partner independent power project providers to take care of business clusters and the over 80 per cent Small and Medium Enterprises (SMEs) making up the manufacturing sector.
According to him, the planned power project can be embedded or captive power generation and transmission. He said it would take care of the manufacturing clusters. “We owe it to ourselves to stay in business, especially now that power generation has gone as low as 2, 000 megawatts as against the over 7,000 megawatts needed to remain in business,” he said.
Recalling May 24 to 26, 2014 when, for the first time in Nigeria, power supply from the national grid hit zero, throwing Africa’s largest economy and some neighboring West African countries into darkness, Usman said no economy can survive in such an uncertain climate.
“MAN is, therefore, poised towards self-generation of electricity. We are contending with a lot of other issues such as porous borders, unhealthy competition from cheap and sub standard products from other countries, multiple taxation and regulation and other unhealthy environmental business practices that impact our operations,” he said.
He explained that MAN, in doing so, intends to work closely with international donor agencies, the World Bank and independent power producers and government to build the businesses of its members and grow the economy. He said of the 24 clusters identified, MAN was working on two clusters in Ikeja and Amuwo-Odofin in Lagos with Kano and Katsina hydro power generation almost concluded.
MAN President Dr. Frank Udemba Jacobs confirmed the association’s plan to revive the IPP. “We are right resuscitating the project and very soon we will sign a Memorandum of Understanding (MoU) with foreign companies that will help in building it. And this will be mostly for our clusters, that is, areas where we have most of our companies,” he recently said in Lagos.
According to Jacobs, manufacturers are looking at getting between 50 and 100 Megawatts from the IPP project. He said manufacturers’ energy use constituting 40 per cent of operational cost cripples production and reduces competitiveness of locally-produced goods.
“This cost is burdensome and could lead, if not checked, to massive shake-up in factories. It could hinder potential investment in the sector, especially as the majority of manufacturing companies are under the SME category,” Jacobs warned.
How does MAN hope to get round the Nigerian Electricity Regulatory Commission (NERC) regulation that only distribution companies DisCos can distribute electricity? Usman, an engineer, said MAN would discuss withthe government and relevant agencies.
Criticising some of the provisions in the NERC Act and the power sector privatisation, he regreted that they were patterned after the Indian model without going the full hog to do what the Indian government did to make theirs work.
Usman, insisting that the privatisation process was faulty and that the public should not suffer for government’s indiscretion, argued that if the government had taken time to analyse the process before adopting the model, Nigeria would not have been in this sorry state, with the DisCos complaining of losses caused by lack of due diligence before buying the power assets.
Pointing out that such claim did not hold water, he said the private investors as businessmen ought to have done proper due diligence before buying the assets. He rejected a situation where Nigerians are made to pay for what they did not consume and wondered how the investors turned back to claim they bought scraps loaded with debts and obsolete equipment when they had time to bid for the projects.
Usman also faulted the nation’s power mix, insisting that it is evidently a poor policy product. According to him, the imbalance in the power mix is responsible for unstable electricity supply.
“Our power mix is not right. We should have had coal, wind and solar and not solely dependent on gas, which has, of recent, been the object of sabotage, bringing the nation to her knees.
“As advanced as the United States is, 50 per cent of her power is from coal, but we didn’t learn that from them,” he said, noting that as a way out of the ugly power supply situation, MAN had invited seven IPP providers to make presentations.
He said of the lot, MAN would choose what is best for its members. “It can be embedded or captive power, depending on the needs and proximity to one another. As the umbrella body for manufacturers, we have taken the gauntlet to free our members from the suffocating electricity challenge and very soon our members will bounce back in full capacity,” Usman said.
There are challenges
As optimistic as MAN is that its members would bounce back in full capacity when the project comes on stream, there are challenges. For instance, International Finance Corporation (IFC) Investment Officer, Africa Infrastructure, Mrs. Heidi Ijomah, said MAN’s plan can only succeed if there are credible off takers, credible counter-parts and credit enhancement.
She said a lot of power developers will need financers. She also said there is the need for the sector to be self –sustaining, adding that DisCos need to be financially viable as in other countries.
She said: “IFC, a World Bank group has identified Nigerian energy sector as high priority. We are looking at putting a facility together to help the DisCos cut losses, which they claim is in the 50 per cent region and attract investors to the sector.
“It’s sad the DisCos are reporting losses before actual take-off of their businesses. This cannot attract new investors and if not checked, the sector will remain comatose as the increase that was expected by the DisCos has not come. We must state that it is right for businesses and indeed, individuals to pay for services rendered to them by the DisCos.”
On the way forward, the IFC boss canvassed private sector funding, including guaranteeing a 70: 30 debt to equity funding and cost effectiveness, arguing that it is the only way the sector can be viable and attract investors.
According to Ijomah, if there are chronic debtors, theft and vandalism, the growth of the sector will be stalled as new investors will shy away from investing and obsolete machines currently in use will not be improved upon.
She asked that the DisCos should be encouraged to remain in business to grow not only the productive sector, but the economy as a whole.
The Chairman Man Ikeja Branch, Mr. Felix Oba Okojie, in his remarks, criticized the vexed issue of price reflectiveness. He queried the rationale behind the DisCos feigning innocence on the condition of the power sector before buying into it. He also wondered why people should be asked to pay for what they did not consume.
Okojie said manufacturers have taken their fate in their hands to stay in business and will vigorously pursue the path they have chosen as it is evident that government is not up to it.
