15 January 2013

Nigeria: Manufacturers Worry Over Sustenance of Improved Power Supply

Crusoe Osagie examines the recent claims of improvement in municipal power supply to manufacturers in the country and states that only the sustenance of the effort will make it worthwhile for real sector operators

Survival against All Odds

That the manufacturing sector in Nigeria did not succumb entirely to the debilitating threat posed to it by the menacing power supply problem is one of the wonders of the last decade and a half.

The Manufacturers Association of Nigeria (MAN)'s survey at the time revealed that power generation constituted about 40 per cent of the cost of production of the manufacturing outfits in the country.

The malady brought the manufacturing sector to its knees so badly that, when the figures were good, capacity utilisation was as low as 20 per cent. Thousands of manufacturing job were lost and tax revenue to the Federal Government from the sector dwindled seriously.

The entire industry was ravaged, key sectors were severely damaged and significant number companies folded up. For example, tyre manufacturing giants Michelin and Dunlop were both consumed by the power supply challenges; they shut down their manufacturing plants in Port Harcourt and Lagos respectively and resorted to importation to serve their customers in the country.

United Nigeria Textile Company (UNTC) was another company that hit the rocks during that period, triggering a near systemic failure of the entire textile industry.

According to figures from the Nigerian Textile Manufacturers Association, about 104 out of the 140 textile companies in the country stopped producing, with over 200,000 workers losing their jobs. Although the problem of smuggling compounded the crisis faced by the textile industry, the primary cause of their demise was uncompetitive cost of production caused by the astronomical cost of alternative power generation.

However, after the release of the new power roadmap by the federal government and gradual privatisation of the power sector kicked off, modest but noticeable changes have resulted.

According to MAN, from a miserable three hours average daily municipal power supply to manufacturers across the country between year 2000 and 2010 the fortunes have began to change.

Recent statistics from MAN, Lagos Chambers of Commerce and Industry (LCCI), Abuja Chambers of Commerce and Industry (ABUCCIMA) and Nigerian Association of Commerce and Industry Mines and Agriculture (NACCIMA) have all placed the average municipal daily power supply to industries at between six hours and nine hours.

Manufacturers' Fresh Fears

Council member and past president of MAN, Alhaji Bashir Borodo, confirmed the improvement in public power supply across the country and noted that it has brought about a slight reduction in their operation cost.

He warned that the advancement, which the improvement in power has produced, is now being eroded by the security crisis in the country especially in the North-eastern region. "There has been an improvement in power supply in the country," he said "but I hope it will be consistent because the problem is always sustenance," he noted.

He explained that the major problem with power supply is usually the distribution system, stressing that most of the distribution infrastructure were dilapidated.

"They have targeted the generation of 10,000 megawatts by the end of 2013 but even though they are able to hit this target, would they be able to efficiently distribute what they have generated? he queried.

Speaking on how the improvement has affected the bottom line of manufacturers, Borodo said even though the tariff regime for public power supply has become steeper, it is still more affordable and more convenient than independent power generation.

"In general we can say power from the grid has more advantages besides the fact that it is still significantly cheaper. There are other factors that make power from the grid more desirable apart from affordability; one is that it comes without the massive pollution associated with private power generation. There is also the issue of focus on the core business of manufacturing," he said.

Stressing that security is now gradually becoming the major threat to business in the country just like the near absence of municipal power was in the past 15 years, he pointed out that the manufacturing sector is currently facing losses of up to 20 to25 per cent due to the loss of market occasioned by the security challenge.

"I think if we can improve security we will improve things a lot because security is adversely affecting sales and there is a loss of between 20 and 30 per cent of Nigeria's export to neighbouring countries."

"If you are aware, not up to 60 per cent of products made in Lagos, Kano and other industrial areas are consumed locally. Many of these products go to neighbouring countries such as Niger, Cameroun, and Republic of Benin among others, but these people are no longer coming to buy as they used to because of the security problem.

"The North-eastern part of the country is mostly affected by this problem and if urgent steps are not taken the security problem will become as much a drainpipe as the lack of power was and this will greatly set the nation's economy backward," he said.

Seeking Sustainability

Director General of LCCI, Mr. Muda Yusuf, also supported the claim of an improvement in power supply in the country and attributed it to an improvement in gas supply to the thermal power plants.

"For a long time they have not got the issue of fuel-to-power plants right but it appears that this has improved," he said. He however pointed out that the major challenge in this area is sustainability.

Yusuf noted that although public power supply was still cheaper that privately generated power, even with the hiked tariff, government must take steps to reduce the cost of municipal power supply in order to improve the chances of manufacturers and industrialists.

He particularly pointed out that the fixed charge which the Power Holding Company of Nigeria (PHCN) charges consumers, even if they have not consumed any power at all, is extremely irksome and unacceptable and must be abolished.

He also noted that the dichotomy in tariff, which will ensure that people in rural areas pay less than people in urban cities, is not being implemented; stressing that a blanket tariff structure is still being enforced across the country.

Consolidating on Gains

With statistics already showing an improvement in the nation's manufacturing sector and capacity utilisation almost rising above 50 per cent, the real sector appears to be waking up from a prolonged slumber.

Industrial jobs are slowly picking up again and the business climate appears to become fairer. Yet ominous danger still looms and all the aces are with government to ensure that this once comatose sector recovers fully.

Towards Continuity

Steps must be taken to ensure that the gradual improvement in power supply is not just a flash-in-the-pan. Decisive steps must also be taken to tackle the seemingly intractable security challenge and also ensure that the government policies and incentives, which have conspired to produce the hope we now see in the sector, are not reversed.

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