For the first time in Nigeria, power supply from the national grid hit ground zero, throwing Africa’s largest economy into unprecedented darkness and chaos. The three-day blackout, which began on May 24, was triggered by a system collapse and the strike action embarked upon by oil and gas workers. Although, normalcy is gradually returning, the crisis left business operators in all sectors of the economy, especially manufacturers, severely bruised, prompting renewed calls for the deregulation of the downstream sector of the oil industry. Assistant Editor CHIKODI OKEREOCHA reports.
Nigerians are known for their resilience and never-say-die disposition. They have the uncanny ability to endure unsavory situations, smiling through them or shrugging them off. But in the last two weeks, it has been extremely difficult to extract a smile from Nigerians. The precarious state of the economy, especially in the days and weeks leading to the inauguration of President Muhammadu Buhari as Nigeria’s fifth democratically elected President on Friday, May 29, hardly gave anybody cause to smile. For the first time in history, there was zero electricity supply from the national grid. For three days, Sunday, May 24 to Tuesday, May 26, most residential, commercial and industrial consumers watched helplessly as their businesses crumbled under the weight of a major system collapse that plunged the nation into unprecedented darkness.
The system collapse was said to have been caused by Nigeria’s weak transmission infrastructure. And as if that was not enough embarrassment, the situation was worsened by the industrial action embarked upon by Petroleum and Natural Gas Senior Staff Association of Nigeria (PENGASSAN) and Nigeria Union of Petroleum and Natural Gas Workers (NUPENG). The strike by the two major unions in the oil and gas industry disrupted gas supply to the electricity plants. Eighteen out of the 23 power plants in the country were unable to generate electricity due to shortage in gas supply to the thermal plants, according to Chairman of National Electricity Regulatory Commission (NERC), Dr. Sam Amadi.
Going by the record, Nigeria, that prides itself Africa’s largest economy, generates 1, 327 megawatts (MW) of electricity for its 170 million people, even as the former Minister of Power, Prof Chinedu Nebo put the electricity need of the people at more than 150,000 megawatts.
Amadi stated that one of the hydro stations had water management issue, which led to the loss of over 2, 000 mw. The Nation learnt that 70 per cent of power generation in the country is from gas-fired turbines, leaving 30 per cent to hydro. The Federal Government under the ousted Peoples Democratic Party (PDP) declined experts’ calls for the diversification of energy sources. It failed to explore alternative power sources such as renewable energy, including coal, solar, wind and biomass. In the heat of the crisis, power generation dropped to an all-time low of 1, 327 mw down from about 4, 500 mw in April.
Manufacturers, business operators groan
Although, normalcy is gradually returning after the aggrieved unions called off the strike on May 25, but business operators in all sectors of the economy, especially manufacturers and industrialists, have been counting their loses. Before the blackout, the electricity demand by members of Manufacturers Association of Nigeria (MAN) stood at about 3, 000 mw for optimal performance, but they have been getting less than 1, 000 mw gets to the Association.
Records have shown that over 75 per cent of the electricity needs of manufacturers are generated in-house, leaving only 25 per cent coming from the utility firms. A source close to the Electronics and Electrical Sectorial Group of MAN confirmed this. The source said members of MAN invest about N2 billion per week to power their plants.
The source, who pleaded anonymity because he was not authorised to speak for the group, described as unfortunate that MAN members pay electricity consumption bills above N120 million monthly.
Noting that it is difficult to quantify how much manufacturers lost to the three-day outage, manufacturers may have lost about N5 billion.
The amount, he said, does not include man-hour losses damages to machines, tools, raw materials and disruption to production processes as well as staff redundancy as workers earned their salaries for the period they were unproductive. “When power goes off, waste materials, manpower, time and so many things are wasted. At the end of the day, you discover that you are not making profit,” the source said.
It is easy to see why manufacturers rue the economic lockdown. For one, it added to their long list of woes, as most of them have long been bogged down by rising production cost due to inclement operating environment.
The business environment had taken a turn for the worse following the devaluation of the naira in the wake of the crashing crude oil prices at the international market.
The implication of the latest crisis is that the hope of an early reversal of Nigeria’s record as the most expensive country to do manufacturing business in the world may not be realised soon. At the moment, cost of manufacturing in the country is about nine times that of China, four times that of South Africa and about twice that of Ghana. Manufacturers have had to contend with falling profit margin, which remains a major threat to business sustainability and global competitiveness.
MAN’ President Dr. Frank Jacobs said last week that manufacturers are faced with payment for electricity not consumed.
“Despite the poor energy situation in the country, NERC has maintained increased electricity charges not considering its implication on the economy, especially on the productive sector,” he said at a media luncheon at MAN’s House, in Lagos.
Dr. Jacobs said despite the current high tariff from NERC, the manufacturing sector spends so much on alternative energy sources for production and the implication was increase in the average cost of production in the sector, which lowers the competitiveness of locally produced goods against imported close substitutes.
He urged the new government to streamline electricity tariff to reflect the actual consumption by the industries instead of the current use of estimated bills.
Yet, manufacturers are not the only ones counting their losses. Smaller business operators are equally feeling the pains. For instance, dealers in frozen foods in Ijora-Olopa, Lagos, last week, cried out over heavy loses inflicted on them by the blackout. The frozen food dealers under their umbrella association, Ajeromi Frozen Food Market Association, raised the alarm that between May 23 and May 25 alone, they lost food items estimated at N10 million.
President of the association, Alhaja Afusat Popoola, who listed the lost items to include chicken, turkey, fish, shrimps, gizzard and prawns, said members of the association were caught unawares because they never envisaged a prolonged energy crisis.
Her words: “The traders were crying when we ordered them to surrender all the decayed food items for destruction on Tuesday. The market has a reputation for selling fresh frozen food and we cannot allow any trader to sell bad frozen food under our leadership.
“What we destroyed on Tuesday because of power outages and our inability to buy petrol and diesel was worth more than N10 million. We are appealing to the Eko Electricity Distribution Company (EKEDC) to always consider the impact of outages on our business and the health of the general public. Our business depends on regular supply of electricity.”
She lamented that irregular electricity supply had forced many traders out of business and also made many to be indebted to the banks.
Mrs. Popoola said: “We used to have many frozen food traders in this market before, but this power outage has forced them out business. Previously, when power supply was regular, we used to sell more than seven trucks of fish, turkey and chicken, daily.
“There is no kind of fish that one will not find in this market before because it is the number one frozen food market. But, the poor power supply has liquidated many traders. Some of them who use generating sets spend close to N80, 000 to buy diesel or petrol monthly. By the time one removes this amount from monthly sales, you discover that you’ve spent above your profit and part of your capital to buy diesel.”
The crisis also left sour taste in the mouths of operators in the aviation sector. The blackout forced many domestic airlines to cancel flights due to scarcity of Jet A- One. Most passengers were stranded at the general aviation terminal of the Murital Mohammed International Airport (MMIA), Ikeja, Lagos, as fuel shortage disrupted flights’ schedules. The collateral losses were mind-boggling. An aviation source told The Nation that for each of the three days, Arik, the biggest domestic airline, lost about $1 million.
This translates to about $3 million for the three days the crisis lasted. With about seven domestic airlines operating in the country, the source, who declined to be mentioned, said the local aviation industry lost close to $10 million in ticket sales alone to the economic shut down.
Banks, telecom firms also affected
Bank customers were jolted when, in the hit of the crisis, banks started scaling down operational time from the official closing time of 4pm to 1pm, citing the crippling fuel shortage as reason. The Guarantee Trust Bank (GTB), First City Monument Bank (FCMB), Sterling Bank and First Bank Pls, among others, sent SMS to their customers to bear with them.
For instance, in a message sent to its customers, FCMB stated clearly, “Dear customer, our branches will close at 1pm from Monday May 25th, 2015 due to the shortage of petroleum products. All our alternative channels will remain available.” However, there are banks that shut down banking operations, but could not communicate same to their customers, a situation that infuriated their customers.
Unlike in the other sectors, the loss suffered by the banking sector to the crisis could not be ascertained. Some banking and finance experts who told The Nation that banks only wanted to minimise or cut their losses; that much as the banks were losing money, they were also saving cost by scaling down operations. Besides, all their electronic (e-channels) were active, allowing transactions to go on.
However, customers did not find the situation funny, as some of the Automated Teller Machines (ATMs) in major cities across the country had network problems as the inverters that power the network had little or no power to run the machines. It is inverter that powers ATMs after daily banking operations. Anytime the inverter runs down, the ATM will seize to work. The result: long queues of angry and frustrated customers.
Many customers of telecoms services providers also got their share of the frustration following serious service degradation caused by difficulties in getting diesel to power the base stations.
All the major service providers such as MTN, Airtel and Etisalat warned that the scarcity of petroleum products particularly diesel was hitting hard on their operations.
For instance, MTN, in SMS sent to its subscribers, informed that they might experience “degraded service” due to the scarcity. The message read: “Dear customer, due to the diesel scarcity nationwide, you may experience degraded services.” The message, however, said the company was working hard to tackle the problem and solicited for the understanding of its subscribers.
Although, MTN and indeed, all other operators assured that they were working to continue to deliver quality services despite the fuel scarcity challenge. The Nation however learnt that such assurances were only intended to pre-empt a possible backlash from angry subscribers, who were actually experiencing poor quality of services, and it could not have been otherwise, as base stations and switches across the country are powered with generators.
The situation was not different at the nation’s ports where operations suffered serious hitches due to the scarcity. “The ports and terminals are driven by heavy-duty equipment and cranes, which are powered by diesel. It is sad to note that it is becoming increasingly difficult for our members to replenish their diesel stock due to the lingering scarcity of the product,” members of Seaport Terminal Operators Association of Nigeria (STOAN), said in a statement last week.
Small scale businesses shut down
Most small scale businesses simply went on vacation and locked up their ware points. Soft drink, bottled water and sachet water hawkers, (aka pure water), recorded huge losses, as patronage tumbled because of lack of electricity to chill the drinks. Barbing and hair salon operators shut down for lack of fuel to power their generators. Those who managed to maintain skeletal services after scouting for fuel at between N600 and N650 per litre, jerked up the cost of their services.
Recounting her ordeal, a supervisor with an upscale hotel in Lagos, Miss Chidi Igwe, said she trekked the entire Shagari Estate on Ipaja Road in search of a salon to fix her hair. She said the one that opened for business in the sprawling estate charged her N1, 800 against the usual N800.
She also lamented power outage in the last one month despite the fact that her subscription to DSTV, the PayTV service provider, never stopped running. Besides, Miss Igwe said she cannot even remember the last time she went to work with her dress ironed.
Eateries, beer parlour owners recorded low sales, as customers stayed indoors. Those who managed to leave their homes contended with skyrocketed fare, as transporters increased fares fivefold. For instance, passengers commuting from Iyana-Ipaja to Obalande/CMS coughed out between N600 and N700, up from the original N200. Those who could not cope with the high transportation cost trekked long distances. Nigerians cursed and hissed. It was bedlam.
It is extremely difficult to put a figure to what the nation lost to the economic lockdown, considering the nation’s penchant for poor record keeping. However, experts and operators say that the financial hemorrhage and social dislocation could be huge running into hundreds of billions of naira.
Calls for deregulation heighten
With the inauguration of a new government on May 29, the Director-General, Enugu Chamber of Commerce, Industry, Mines and Agriculture (ECCIMA), Mr. Emeka Okereke, said a fresh impetus has come the way of President Buhari to deregulate the downstream sector of the oil and gas industry. He said the new government only needs to muster the necessary political will and courage to call the bluff of certain cabals in the oil and gas industry and deregulate.
“The government has no business in doing business. Deregulation is an idea whose time has come. Put the right policies in place so that private investors can come in,” he told The Nation.
Mr. Okereke noted that because of political exigency, the administration of former President Goodluck Jonathan failed to take the bull by the horns and deregulate the sector.
While pointing out that this was why the administration buckled under the pressure of labour unions and civil society groups in 2012 when there was nationwide protest against the removal of fuel subsidy, he said subsidy has become unsustainable.
“Subsidy doesn’t make economic sense anymore. It has become unsustainable. We will never come out of the wood as long as we continue to subsidise the price of petroleum products. We cannot continue to postpone the evil day,” Okereke said.
He also urged the new administration to sustain the normalcy that is gradually returning to stabilise the oil sector by plugging all the leakages.
The ECCIMA chief has an ally in the Nigeria Employers’ Consultative Association (NECA) which has also called for proper deregulation of the sector. NECA’s Director General Segun Oshinowo argued that the recent reduction in the price of petroleum products by the government begs the more fundamental issues of appropriate policy framework that will promote investment in the downstream sector of the oil and gas industry and put a stop to the embarrassing and shameful importation of petrol.
He said: “Our expectation therefore, is that the government will seize the opportunity of the current decline in the price of crude oil to commence implementation of the policy on deregulation of the downstream sector of the oil and gas industry.
“This is a unique timing the government cannot afford to miss as full implementation of deregulation, which in time past had led to price increase and reaction by the labour movement in form of industrial action, does not have any negative effect on the masses.”
The NECA director-general added that rather than reducing the price of petrol from N97 to N87, there ought to have been a more holistic announcement of a new policy thrust of deregulation of the downstream sector and privatisation of the four refineries, which have now become sink-holes.
According to him, the economy stands to gain from deregulation.
Oil marketers under the aegis of Major Oil Marketers Association of Nigeria (MOMAN) could not agree less, noting that deregulation would stimulate investment in the sector and encourage the establishment of private refineries.
Its Executive Secretary, Mr. Obafemi Olawore, said the government should muster the courage to fully deregulate and remove subsidy or embark on continuous subsidy regime payment as at when due.
“If the government likes, it can introduce gradual removal of subsidy, but it should not go beyond six to 18 months,” Olawore said, adding that if fully deregulated with rules, Nigeria will have serious investors coming in to invest adequately.
He insisted that deregulation remains the answer and that the government must talk to the people and let them understand the advantages.
Henry Boyo, an economist, noted that the 23 firms franchised to established refineries have not invested their funds for fear of being asked by the government to sell products at regulated prices
According to Boyo, crude oil produced in Nigeria, Saudi Arabia, or America has a uniform international commodity price.
“In the same vein, the process of producing crude oil or refined petroleum products is the same everywhere in the world; it is the same equipment. So, if you put in the same feed stock what you will get at the end will be the same price,” he told The Nation.
Noting that monies spent by the Federal Government through the Nigerian National Petroleum Corporation (NNPC) on Turn Around Maintenance (TAM) of the state-owned refineries were enough to build new refineries, Boyo said the point remains at what price will the government sell the products.
He said notwithstanding the federal ownership of the refineries, products cannot be sold to marketers at below production cost.
His words: “In no time they will pack their loads and go. So, the question of whether we sell off the refineries is not the issue, it is pricing, “ adding that once the pricing is right, those who got licenses for refineries will swing to action.
He, however, said the process of influencing the pricing has to do with the naira-dollar mechanism.
Will the payment of about N1 trillion annually as subsidy continue under the President Buhari administration, when the nation’s revenue base is bleeding amidst rising debt burden of about $60 billion? Will the new administration remove subsidy and risk confrontation with organised labour and the civil society? How he dances around this minefield will be a litmus test of his resolve to fix the economy.
