Despite the coming of the electricity generation and distribution companies, power supply remains erratic. Offices, shops and homes are being powered by generators. In the manufacturing sector, rising energy cost remains the biggest threat to sustainability of business, reports Assistant Editor OKWY IROEGBU-CHIKEZIE.
Two years ago, President Goodluck Jonathan boasted that by June 2013, Nigerians will not require the use of stand-by generators anymore, assuring that electricity supply would be stable.
“I promise Nigerians we will stabilise power, “ the President said in an interview in February 2012.
He said: “By the middle of next year (2013), you will ‘dash’ me your generator. I’ll send it out of this country because we won’t need it here anymore.” It was a promise that raised the hopes of many particularly manufacturers that electricity supply would improve soon.
In making the promise, the President must have been encouraged by the privatisation and handover of power assets to private investors in November last year.
However, the President’s promise is yet to be fulfilled, almost one year after. Nigerians are yet to see an improvement in electricity supply. Rather than improve, it has dropped abysmally, hovering between 3, 000 and 3, 200 Megawatts (MW), which is a far cry from the anticipated 14, 000 megawatts by 2013, under the administration’s power reform roadmap. The power roadmap targeted 40,000 MW by 2020.
Because of the drop in electricity supply, the generator market has continued to boom. Several brands and sizes of generators are competing for patronage. Inn offices, market stalls and homes, generators have come to the rescue.
In Lagos, which houses over 17 million people, for instance, generators are common sights. Today, a business plan incomplete the cost of generators and maintenance.
The Central Bank of Nigeria (CBN) estimates that Nigerians spend a $13 billion yearly to fuel generators. Worst hit are manufacturers, industrialists, and small business operators that find succour in generators.
For the President, Lagos Chamber of Commerce and Industry (LCCI), Mr. Remi Bello, poor electricity supply remains the manufacturing sector’s major challenges. While noting that the power sector privatisation is yet to make the desired impact on the sector, he lamented that profit margin of manufacturing firms are still adversely affected due to rising energy cost. He said huge energy cost remains a major threat to business sustainability.
Bello said although some multinationals and other conglomerates in the sector may have the resilience to cope, the situation remains a nightmare for most SMEs manufacturing outfits.
He noted that the stagnation of the SME sector remains the tragedy of the country’s economy, as production is critical to economic and social stability.
He said the business environment is generally not conducive for manufacturing enterprises, which is why the risk of industrial investment is high and continues to get higher. The various policy interventions have not had the desired impact on the sector. Unless there is an effective and sustained protection and support for the sector, it is difficult for any significant progress to be made in this regard,” Bello said.
Chairman, DN Meyer Plc, Sir Remi Omotoso is also not finding the state of the nation’s power sector funny. “We all know that power is life. If you don’t have it you can’t move forward. Power is basic in manufacturing. As a company we generate close to 70 per cent of our energy needs and that makes a huge negative influence to our accumulation of cost. The power crisis is a major issue. Unfortunately, as a former minister predicted that it may take 65 years to tackle the problem.”
He stressed that his company, which has been around for decades, has the capacity to satisfy the needs of consumers in the entire Economic Community of West African States (ECOWAS) region, but has been seriously hampered by the high cost of production , which makes the price of the end product more expensive than the imported ones. “We have not been able to satisfy our natural market because they (consumers) have alternatives and cheaper sources of paints and coatings from countries such as Dubai, Germany and Belgium,” he said.
Executive Director, Agusto & Co., Yinka Adelekan regretted that Nigeria’s electricity consumption per capital has been adjudged to be the lowest in Africa. According to a report by the consulting firm, the country’s electricity consumption per capital, measured by the World Bank at 149 Kilowatts/hour (KWH) is low due to self generation by most of the citizenry which is often not captured “Typically, Nigerians resort to self-generation of electricity; about 81 per cent of the national population (or 150 million Nigerians) generate electricity through alternative sources to compensate for irregular power supply,” she said.
Adelekan also said that with an estimated annual economic growth of between 7 per cent and 13 per cent, as well as urbanisation rate of 3.8 per cent, the nation’s electricity demand is projected to grow from 15, 730 MW in 2014 to 41, 133 MW and 88, 282MW by year end 2015 and 2020, respectively. She disclosed that as at March 2014, electricity supply from the national grid stood at 4, 306 MW, far below the estimated demand of 12, 800 MW. This, Adelekan added, implies that currently Nigeria is only generating about 34 per cent of the country’s requirements, and this provides an enormous potential for new and existing players in the industry. She said access to electricity is low in the country, as only 40 per cent of the population has access to electricity, compared to the world average of 80 per cent.
To make matters worse, the few who have access to electricity pay at a premium. For instance, Bello lamented that “most SMEs spend considerable sums on payment for power supply and often times these firms never get supply commensurate to payments made.” While calling on the National Electricity Commission (NERC), the electricity industry regulator, to urgently address the growing concerns of consumers over the outrageous bills, Bello said there is need for a review of fixed charges. He insisted that it is an unfair demand on power consumers.
The National Vice-President of the Nigerian Association of Small Scale Industrialists, Chief Duro Kuteyi, is no less worried by the outrageous tariff charged consumers without a commensurate service delivery. He said the SME sector can only grow if the practice of fixed electricity charges to small scale industrialists is discontinued. He decried the impact of the high electricity charge of N186, 000 compared to actual usage of about N50, 000 and called for a proper billing system where industrialists are made to pay for what they use. He asked for a quick intervention on the power sector, noting that the burden of electricity on his members can best be imagined as may have closed shop.
Why has there been no significant improvement in electricity supply despite the power sector privatisation? Adelekan said that Nigeria’s electricity generation capacity has fluctuated between 3, 500 MW and 4, 400 MW over the last two years due in part to shortage of gas supply. As she observed, a significant number of gas pipelines were vandalised across the country, which disrupted gas supply to power plants. Other factors contributing to the country’s low electricity generation output, she said, is the deplorable condition of some of the Power Holding Company of Nigeria (PHCN) successor generation and distribution companies (GENCOs and DISCOs), as well as high transmission/distribution losses.
Indeed, apart from shortage of gas, the new core investors are faced with daunting challenges. For instance, The Nation learnt that shortly after the transaction and subsequent takeover of the power assets, the investors discovered that the privatisation was based on wrong assumptions because there was cash crunch in the sector and financial institutions were not willing to fund the projects, having committed about N1 trillion, which they (the lenders) are doubtful of recovering at the expected time. The exposure of the financial sector to the power sector, the investors said, is already heavy and the uncertainties arising from the situation increase their (financial sector) risk perception, which makes additional financing to cover the gaps identified in the sector difficult.
The investors also felt bad that their projected revenue fell below expectation. They said that cash collected from customers (end users) of electricity is much lower than expected and was not enough to cover all costs in the sector. They said that the GENCOs and DISCOs face deviations between their projected business plans and the actual situation. The deviations, they said, are bigger than what can be handled within the limits of the official assumptions given for the privatisation.
The investors also identified power equipment and facilities vandalism as a major challenge. Other challenges include energy theft, energy wastage by customers, and lack of urban planning whereby people build along the right of way of the utility companies and under high tension lines, among others.
The challenges notwithstanding, Adelekan insists that the opportunities in the power sector are too numerous to be ignored by investors, given the wide supply-demand gap and the country’s huge population. Already, such advise as well as previous calls for increased private sector investment in the power sector, appear to be hitting the right chord. The management of Dangote Cement Plc, for instance, recently announced plans to invest $250million in coal-fired power plants in its Obajana, Ibeshe and Gboko plants.
The Group Managing Director, Dangote Cement, Mr. Edwin Devakumar who announced this, said already the first consignment of coal has been imported from South Africa. He said the step was to address the poor power supply situation in the country. “As you know, the gas and fuel oil supply situation is going from bad to worse every day and all the manufacturing industries and all the power plants are affected,” he noted.
The Group Managing Director regretted that the situation had reached such a critical stage that the company had been importing low Pour Fuel Oil (LPFO) due to its scarcity in the country, remarking that Nigeria normally used to export the product to other nations. According to Devakumar who disclosed that his company has taken delivery of three vessels of LPFO imported through the Apapa Ports, said each carried 30, 000 tones of the product while each of the coal plants would have capacity to generate 30 megawatts of electricity.
He further stated that the company had to rent tank farms in Apapa, Lagos and Calabar, Cross River State to discharge the imported LPFO before transferring it to the cement plants. He particularly stressed the urgent need for the government to do something about the problems of gas and LPFO supply, noting that businesses cannot survive in the country without power and fuel and expressed fear that if the ugly situation is not resolved, it could compound the problem of unemployment and insecurity.
“We have already lost about 10 per cent of our capacity and that means less cement in the market”, he said, adding however, that the company had also increased its production lines to take care of any shortfall. He explained that Dangote Group’s investment in coal-fired plants will give the company a lot of relief, stressing that the investment in coal has also created opportunities for the sector.
Will other private investors take a cue from Dangote and save Nigerians and manufacturers the embarrassment of persistent poor electricity supply? Time will tell. But until and unless that happens, electricity consumers would continue to groan, while the rank of generator merchants continue to grow at the detriment of the economy generally.
