Energy prices soar by 70%, cost manufacturers N290b in Q1

• Supply drops to 8.5 hours daily despite upgrade to Band ‘A’
• We’re priced out of the market with electricity hike, MAN cries out
• Output dips as costs of production, distribution skyrocket

The burden of local manufacturing may have increased in recent times as the operators spent N290 billion on self-generated energy in a space of three months – first quarter – exclusive data sourced from the Manufacturers Association of Nigeria (MAN) have shown.

This comes as energy costs of individual companies have soared beyond the reach of many, now standing at between 65-70 per cent of the total production costs.

The huge expense stems mostly from alternative energy sourcing even as the operators said other input costs have also risen astronomically. They added that if nothing is done urgently, the real sector will most likely suffer more casualties before the end of the year, throwing thousands into the labour market.

According to the association, at the end of last year, its members across different sectors, numbering over 2000, spent a total of N221.28 billion on diesel and gas expenses alone.

During the first quarter of this year, the figure rose sharply as the cost of diesel shot up to as high as N1,600 per litre, forcing their alternative energy spend to over N290 billion.

In Q1 of 2023, diesel was less than a thousand naira per litre, but it rose by 60 per cent a year after.

According to data sourced from MAN, the worst hit is the food, beverage and tobacco sector, as the operators’ alternative energy spending is well over N100 billion. This was followed by the motor vehicle and miscellaneous assembly sector with roughly N55 billion spent on diesel and gas.

The huge budget for alternative energy comes amid a sharp rise in electricity tariff for Band ‘A’ from N68 per kilowatt hour (kWh) to N206.8 per kWh, a decision the manufacturers have described as unacceptable. A source in MAN, regretted that all the manufacturers, especially those in the enterprise and industrial zones, have been forcefully moved to the premium brand even as supply to them has worsened.

According to the association’s second half ‘23 released early this year, the average daily hours of electricity supply deteriorated to 9.2 hours daily from 11.3 hours enjoyed in the first half of 2023.

In Q1 of 2024, it dropped to 8.5 hours daily, despite their upgrade to Band ‘A’ with the promise of at least 20 hours daily. According to the report, manufacturers in Kwara and Kogi states are the most affected, as they got an average of just six hours of electricity daily.

Information from MAN posits that members pay more but get less power even as high costs of diesel, gas and input costs have forced many manufacturers to scale down operations heavily, and pause production temporarily in some cases till the situation improves.

The challenges, coupled with the poor economic environment, have hurt selected manufacturing indicators according to the association’s Q1 2024 survey.     Compared to Q4 2023, production and distribution costs have risen to 20.7 per cent, just as capacity utilisation has dropped to -9.76 per cent from -3.81 per cent.

Production volume dipped to -10.14 per cent (-4.6 per cent in Q4 2023), investments also dropped to -5.16 per cent (compared to -2.8 per cent in Q4 2023) just as employment dipped to -5.27 per cent (-4.46 per cent in Q4 2023).
Sales volume dipped to -7.16 per cent (-1.62 per cent in Q4 2023) while the cost of shipment rose sharply to 22.16 per cent in Q1 2024 from 19.48 per cent in the previous quarter. The operators attributed the poor performance to the unbearable cost of energy.

Former MAN chairperson, Apapa/Amuwo-Odofin Branch, Frank Ike Onyebu, regretted that diesel and gas costs have been a bone in the throat of manufacturers for years and that while they were still hoping and lobbying the government and DisCos for an improvement in electricity supply, they were slammed with an over 200 per cent increase in tariff.

“We were buying diesel at around N1,500 per litre in Q1and now the new electricity tariff is competing with diesel costs. I have no idea how they arrived at N225 per kilowatt but it is beyond outrageous. The worst part is that all manufacturers here were forced onto Band A but instead of getting 20 hours of electricity supply daily, we are getting 20 steady hours of darkness on average. We (manufacturers in the Apapa/Amuwo-Odofin Industrial Area), personally foot all the repair and infrastructure bills of Ikeja Disco, which we happen to be under. We are between a rock and a hard place, between the costs of using diesel and paying the tariff, we are drowning,” he said.

Lamenting that the current cost of electricity is even higher than that of China and some other countries, Onyebu said Nigeria is pricing itself out of the market as local manufacturers can no longer compete on any level, even regionally under the AfCFTA.

“We are tackling two problems; very little electricity is being supplied and yet, we pay exorbitantly for whatever is being supplied,” he said.

Onyebu said the electricity bill for his factory in April 2024 was N180 million, a steep increase from N80 million in March. He said the company has not been able to pay owing to dwindling sales.

“Several businesses here got something similar to what we got but the average is between N20 and N50 million. To put it in context, those getting the latter figure were paying between N5 and N10 million just a month earlier. It is beyond outrageous and we cannot pay these figures.

The way this government is going, they are going to kill all the factories and worsen unemployment. Many factories have shut down; some have relocated but if this hike is allowed to stand, many more companies will shut down before year-end,” he said.

He revealed that they have tried to pass part of the costs but because purchasing power is low, it has been a struggle.
“Energy and input costs have never been this high and most manufacturers are confused on what to do. All of us have had to pass on these outrageous costs to end-user goods and buyers are complaining the costs of goods are very expensive but what can we do? We are not making any profits for now, we just want to remain in business,” he said.

He said if the electricity were constant, diesel costs would be eliminated but that has not been the case as they are not only paying more for darkness, but their diesel costs have also instead, increased because of poor electricity.
“We have two transformers in this factory (bought and serviced completely by us) and we have not had light on one transformer since last week. When we called IKEDC, they said there was a fault and left it at that, expecting us to foot the repairs as usual. Yet, we are billed outrageously at the end of the month. Government should have met with stakeholders before this increase and even at that, the increase should not have been more than 40 per cent,” he said.

Chief Executive Officer (CEO), the Centre for the Promotion of Private Enterprise (CPPE), Dr Muda Yusuf, regretted that high energy costs are one of the biggest problems facing manufacturers today.

“The situation was particularly bad in Q1 because of the high cost of diesel and this has two major implications for manufacturers. First, because of the shortcomings in the public power supply, most manufacturers have to generate their power, either through gas or diesel. Gas pricing is benchmarked in dollars and is a huge burden in terms of cost. Furthermore, diesel prices were extremely high in Q1 and the impact on productivity was profound,” he said.

Yusuf said the high diesel costs also affected logistics as most of the trucks used to move raw materials and finished goods across the cities and country are diesel-powered.

“This in turn affected the price of production and the products themselves, erased all profit margins and forced some companies to their knees. Not all of these costs can be transferred to consumers as the ability to transfer costs depends on how elastic the demand for the product is and for many products, consumers have abandoned them or sought cheaper alternatives. This means that manufacturers have been forced to bear most of these costs, affecting not just profit margins but their ability to compete locally and regionally.

“Coupled with the high costs of diesel, the hike in electricity tariff has also weakened manufacturers more and if we are to go through the books of manufacturers, it is clear that energy costs would take a huge chunk of production costs, no manufacturer can compete or even remain afloat this way,” he said.