The challenges besetting manufacturers in Africa’s largest economy are many, but top among them is the high instability in the supply of electricity.
Power sector crisis in the country has crippled many businesses, leaving others struggling to survive.
Manufacturers are not left out, as they lament that the poor supply of electricity has raised the cost of doing business in Nigeria by about 35 per cent.
In 2022, for instance, manufacturers spent N144.5bn on alternative energy sources, up from N77.22bn in 2021, according to figures released by the Manufacturers Association of Nigeria in June.
This, of course, affected their cost of operations negatively, as they explained that the high cost translated to about an 87 per cent increase in the cost of access to alternative energy sources by manufacturers within a year.
The supply of electricity by players in the power sector has failed to meet the expectations of Nigerians. Industries, homes, small businesses as well as various institutions are complaining.
But manufacturers in Nigeria see themselves as the worst hit, going by the large demand for electricity by these set of players in the Nigerian economy.
Nigeria generates less than 5,000 megawatts of electricity daily for a population of over 200 million people. On September 26, 2023, for instance, the country’s peak generation was 4,632.6MW, which is basically served to residents in cities, while those in villages hardly get supply.
“It must be stated that right now, the cost of powering our processes is around 35 per cent of our total inputs’ costs,” said the President, Manufacturers Association of Nigeria, Francis Meshioye.
He added, “What comes to mind is that whatever the cost of our inputs is generally, it should not be too expensive when compared with other countries.
“If the cost of inputs, especially power, overshoots what it should be, then definitely we cannot be competitive internationally in the first instance. So, with a high cost of power, you stand the chance of not being competitive.
“Also, there is tendency for the cost of power to be high because the commodity is scarce. You know our country produce less than 5,000MW of electricity for over 200 million people, including manufacturers and other businesses.”
Statistica, a global statistical firm, puts the electricity demand in Nigeria at over 32 terawatt-hours as of 2022. It says this followed a slight upward trend observed since 2020.
The global analytical firm further notes that the demand remained stable between 2002 and 2010, and increased annually afterward until 2017. It says the fast-growing population of the country can explain the increase.
“The quantum of power produced in Nigeria is not even enough for individual homes, not to talk of meeting the demands of industries,” the Managing Director, ODS Empire, a Lagos-based manufacturer and realtor, Samuel Anozie disclosed.
He stated that the cost of manufacturing products in Nigeria has been rising over the years due to the hike in the cost of energy.
“I produce plastic containers and other items you can use plastics for. I am also in the real estate business. But I can tell you that it is more profitable to run real estate than being a manufacturer of plastic products.
“The cost of power alone can kill your business as a manufacturer in Nigeria, not to talk of allowing you to be competitive with other industrialists from neighbouring countries in West Africa.
“Where are the textile industries that we used to have in large numbers in the North? Most of them have gone under. Many manufacturing companies in various parts of the country have also collapsed.
“And if you ask them, they will tell you that the high cost of energy contributed to their demise to a large extent. How can you run a manufacturing company successfully on generators? How?”,Anozie queried.
Nigeria’s power situation
The power generation and distribution arms of the sector were officially privatised in Novermber 2013, while the transmission segment is still being run by the Federal Government, through the Transmission Company of Nigeria.
At the time of privatisation, the aim of the government was to ensure that the sector meets the yearnings of Nigerians in terms of electricity supply. But this is not so till date.
Despite the privatisation of the sector, the Federal Government has been making financial interventions in the industry, but the delivery of electricity is still far below expectation.
A document on Power Generation Trend (2013 – August 2022), put together by the Association of Power Generation Companies, the umbrella body of electricity producers, shows that Nigeria’s average utilised generation during the review period hovered between 3,600MW and 4,118MW.
The report shows the country’s available power generation capacities during the review period, as well as the average utilised generation.
Available generation capacity is different from the average utilised generation, as the latter is constantly lower than the former.
The available generation capacities in 2015, 2016, 2017 and 2018, for instance, were 6,616.28MW, 7,039.96MW, 6,871.26MW and 7,506.23MW respectively.
For 2019, 2020, 2021 and 2022 (January – August), the available power generation capacities of electricity producers across the country were 7,381.67MW, 7,792.51MW, 6,336.52MW and 5,634.47MW respectively.
Figures from September 2022 to September 2023 were not available at the time of filing this report.
Also, on the annual capacity payment loss in the sector, the report indicated that in 2015, 2016, 2017 and 2018, the industry’s losses were N214.93bn, N273.32bn, N236.47bn and N264.08bn, respectively.
In 2019, 2020, 2021 and 2022 (January – August), the sector’s annual capacity payment losses were N256.97bn, N266.10bn, N159.86bn and N88.13bn, respectively.
The above figures therefore show that despite the interventions by the Federal Government in the power sector, estimated at over N1.51tn, available generation capacity did not appreciate much, amid the capacity payment losses.
Power interventions
The Federal Government, aside from its annual budgetary allocations to the Federal Ministry of Power, undertook a series of interventions in the power sector in a bid to revamp the industry.
This, however, was despite the fact that the distribution and generation arms of the business were unbundled and officially sold to private investors in November 2013.
On September 30, 2014, the Federal Government announced a loan of N213bn to the privatised power firms.
On March 1, 2017, the Federal Government approved the sum of N701bn as a power assurance guarantee fund for the Nigerian Bulk Electricity Trading Plc to pay for the electricity produced by the generation companies for the period of two years.
It provided the fund to tackle the monthly liquidity challenges faced by generation companies, following the inability of power distributors to adequately meet their obligations in terms of remittances to the sector.
The government also provided another N600bn payment assurance facility to the sector in 2019. The fund was secured from the Central Bank of Nigeria.
Aside from these direct interventions from the Federal Government, the sector has also received funding from international financiers such as the World Bank, African Development Bank, among other development partners.
Incessant grid collapses
Data sourced from the Nigerian Electricity Regulatory Commission indicated that the country’s power grid had been recording incessant partial and total collapse since 2015, despite the funds pumped into the sector.
Figures from the commission showed that grid collapse cases in 2015 were 10. In 2016 it rose to 28, while 21 cases were recorded in 2017.
The power sector regulator outlined the number grid collapse cases in Nigeria in 2018, 2019, 2020 and 2021 as 13, 11, four and four, respectively.
The performance of the grid and various updates from power distributors showed that Nigeria’s power grid collapsed about seven times last year.
The last grid collapse in 2022 occurred on September 25, 2022, when power generation on the system crashed from over 3,700MW to as low as 38MW.
The grid became stable for a while. In early September this year, the Transmission Company of Nigeria, which manages the grid, celebrated what it described as 400 days of power grid stability in Nigeria, and claimed that the grid witnessed no collapse all through the 400 days.
The celebration was, however, short-lived, as the grid eventually collapsed on September 14, 2023, throwing the country into a widespread blackout. It was restored in less than 24 hours, but collapsed again on September 19, 2023, making it a grid double within five days.
Power experts lament
Operators in the sector confirm that trillions of naira had been invested in the sector over the past years, but the industry has failed to live up to expectation.
They, however, state that the Federal Government must provide functional leadership, enabling laws, among others, for the sector to be revived.
“The bankability of projects is the key to any investment and keeping faith with the established terms of the Multi Year Tariff Order enables investor confidence that guarantees funds for project financing,” the Executive Secretary, Association of Power Generation Companies, Dr. Joy Ogaji, stated.
She added, “The most important requirement to revive the Nigerian power sector, which despite the huge investment in the past years is currently in abysmal state, is for the executive arm of the Federal Government to take functional leadership in amending the identified shortfalls in the implementation of regulations to build investor confidence.
“The key gaps include incomplete implementation of power sector reforms and regulations; dearth of appropriate man-power in the sector; lack of laws to stem activities of energy thieves; and strong political leadership in exercising the Act.”
Also, the President, Nigeria Consumer Protection Network, who served in the National Technical Investigative Panel on Power System Collapses/System Stability and Reliability (June 2013), Kunle Olubiyo, said the power sector lacked the required governance structure.
“Not much would be achieved in an electricity market that is deliberately skewed to fail and lacks the requisite governance structure, fiscal discipline and responsibility,” he said.
He called for adequate follow ups through monitoring and evaluation, stressing that there are near zero performance indicators in the industry.
“We cannot succeed nor progress without the enforcement of market rules and extant rules that promote probity and accountability to upscale revenue and collection efficiencies,” Olubiyo noted.
He adds, “That is the essence of having the NBET, Market Operator and the Nigerian Electricity Regulatory Commission that should follow-up the commercial components optimally. But there are lots of deliberately skewed loopholes.”
Multinationals plan exit
Meshioye hinted that due to the poor power situation coupled with other challenges in Nigeria; more international manufacturing companies may leave the country and site their factories in other nations.
He warned against the implementation of a hike in the tariff payable by power consumers.
According to the MAN president, some international manufacturing firms have already exited Nigeria as a result of the power crisis, coupled with the unpredictability of the country’s foreign exchange rate before it was recently unified.
“In every system there’s always a core structure and this includes the elements that make up the total cost spent in generating your revenue. Now, what we experience as manufacturers is that energy cost is a major cost in processing our products.
“Now, if you spent N144bn on alternative energy sources in one year, you can only imagine the impact which that will have on your cost of operations. The manufacturing business in Nigeria is affected by so many factors, energy is a major one,” said Meshioye.
He added, “Manufacturers provide almost every infrastructure by themselves. Outside the major roads, you find out that manufacturers provide water, power, security, etc.
“So when you look at it, you find out that the cost of doing business is so huge, that a businessman will ask, is this the only place I can do my business? Can’t I move my capital elsewhere?
“The downsizing of businesses in Nigeria, for instance, shows that businesses are not doing very well. So this power issue and other things have made some manufacturers, particularly international businessmen to relocate from Nigeria to other countries.”
He insisted that something must be done about the power issue, adding that raising tariffs was not in the interest of manufacturers.
“Therefore anything to reduce this energy cost will be very beneficial both to manufacturers and the masses in general. So if power constitutes a high cost to us, being a major driver of costs of production, it could escalate to other things.
“It is one of the things that make some manufacturers to seek to move their business to another region and site their factories there. It is not the only reason, but, of course, it is one of the major ones,” Meshioye stated.
FG sets target
Officials of the Federal Ministry of Power, however, stated that the government is making efforts to address the country’s electricity supply challenges.
They sent speeches of the Minister of Power, Adebayo Adelabu, at recent functions to our correspondent, where the minister stated that the government has a target of ensuring that the country generates up to 20,000MW.
In one of the recent speeches, Adelabu said the Federal government in a bid to boost electricity generation, and national grid stability, is planning to invest $20bn in new power plants and transmission lines.
The minister also assures Nigerians that the government is going to grow the power sector in 2023 and beyond through huge investments.
“The Nigerian government is actively advancing the power sector through various measures. With a $20bn investment plan, new power plants and transmission lines are set to be established to boost power generation and grid stability,” he claimed.
Reacting to this, Meshioye said the government’s 20,000MW target is laudable but noted that it must not come at an exorbitant cost.
“It is a laudable ambition, because if achieved it will lead to the supply of electricity to most Nigerians. But the point is, at what cost? If it is coming at a very reasonable cost, lower than what it cost us to power our industry now, then it is fantastic.
“So this should be realistic, for we are talking about having it in four years’ time, and increasing power by about five folds. We will be happy to have it, but it should come at a competitive cost, affordable and should not be higher than the power cost we are experiencing or might experience by that time.”
