Electricity sometimes gobbles up 40% of our production costs – Manufacturers

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Manufacturers Power Development Company Chairman of the Board, Ibrahim Usman, discusses how unstable power supply negatively affects the manufacturing sector in this interview with SAMI OLATUNJI

Six years ago, the Manufacturers Association of Nigeria launched MAN Power Development Company. How successful has this initiative been? What were the challenges?

Well, I can say that we did quite well. It took some time before members could understand and appreciate the importance and necessity of such an undertaking. But in the end, they now know how important it is. We have been able to intervene in several ways to ensure that our members get stable, reliable and affordable power supply in the factories. We are still working on it. I cannot say that we are very satisfied with what happened. No. It’s a very difficult environment. Remember, it’s the DisCos who run the show, and they’re business people like us. In fact, that’s why we’re in court with them. The government wants us to get this case out of court. The case is about the estimated billing and other billings they gave us, which we didn’t accept. But things are looking up now. At the moment, for example, we are working to organize a 70 million dollar intervention from the European Union. We are at the forefront of coordinating and organizing for our members to benefit and benefit from this program. However, there are always challenges. One of them is that they review the plan for eligible customers. The eligible customer scheme was designed to mop up excess electricity in the system. At present, the excess power can reach 3000MW-4000MW or more. So, we need to create a means by which power is not rejected and our members enjoy that power. But because DisCos don’t like it, it was a big challenge. However, negotiations are ongoing at the moment and I believe this would be resolved.

How do you assess the state of the power supply in the country? Do you think there has been an improvement over the years? Or are things getting worse?

In terms of the volume of power available in the system, there is a big improvement. It is in terms of what is generated. The challenge has been distribution and adoption for our members. Ultimately, we hope for the best.

How is the unstable power supply affecting the country’s manufacturers?

In some countries, electricity represents only about 10% of their production. In Nigeria, electricity sometimes represents up to 50% of our production costs. So how can we be competitive? Our products cannot be competitive in any way. With African continental free trade approaching, this is a very big challenge for Nigeria. Our products cannot be competitive when electricity alone can account for up to 40% of your production costs. It is a very big challenge.

Since many manufacturers use diesel and gas to power their operations, do you think the government should subsidize diesel or gas instead of gasoline, especially with the high cost of energy?

It’s very obvious. The government should step in to subsidize the cost of doing business or find a way to create a program for manufacturers to get some relief from this high cost of doing business. With the high cost of business, we cannot make our products competitive. If our products are not competitive, we will be the losers of African continental free trade. We won’t win because countries like Egypt, South Africa and Morocco with good stable power are ahead of us.

Is it possible that some manufacturers choose to reduce the quality and quantity of their products as they try to reduce production costs?

We are already seeing this happening now. Do you blame them? They are in business to make money to survive, and they have to survive. So they have to look several ways. One way is to lower the quality to take care of what they spend.

Many manufacturing companies are ditching DisCos for personal power sources. What impact does this have on production costs?

This increases the manufacturing cost. When the manufacturing cost becomes high, the prices of goods increase and our goods are no longer competitive. So when we enter the African continental free trade, they will defeat us. South Africa, Egypt, Morocco and Tunisia will be ahead of us. Even Ghana will finish us. Our products will not sell competitively in these countries because they will be too expensive.

Has partnering with independent power developers helped reduce the cost of power?

Yes. Why not? When you partner with them, they specialize in power. They produce energy and you consume it to do good business for them. So it’s a win-win arrangement.

Has the lack of stable power supply caused a manufacturing company to shut down?

Many closed because they couldn’t survive. Some of our members, especially those who are in the steel business (who produce the steel), their raw material involves energy. It’s the electricity they use to melt the steel. So they can’t continue when the price is so high and their products can’t be competitive. So many of them have closed. I don’t have one in particular in mind that I can mention to you now, but I can assure you that there are some in a terrible state because of the electricity problem. Some of them may not have closed, but their production capacity has decreased considerably.

What would manufacturers want the government to do to reduce production costs?

We have said it many times. The government can subsidize the cost of our diesel. They can make sure the qualifying customer program triggers. The eligible customer program is very, very important to our customers and the government has not given up. We have complained to the Nigerian Electricity Regulatory Commission that the eligible customer scheme should be allowed to take off so that we can mop up the excess electricity in the country at the moment. So these are areas where the government can intervene to make things easier for everyone.

To what extent would you say Nigerian manufacturing companies are embracing clean energy amid rising energy costs?

We are doing very good. We have made our members aware of this. Currently there is a European Union program where we have educated our members across the country on the use of renewable energy to not only power our operations, but we also encourage our staff to take special installations to put renewable energy in their homes. So it’s something MAN is passionate about, especially solar. There is a grant of 70 million dollars from the European Union, which is given as a loan through our banks – Access Bank Plc and UBA Plc – to members trying to go the renewable energy route. . This includes energy efficiency. Energy efficiency is something that is also very important. Our members demand it. We therefore strive to ensure that our equipment uses highly efficient types of energy, not old types of equipment. In fact, part of the European Union grant is intended for the replacement of old and archaic equipment, which consumes too much energy. So we are good at renewable energy and energy efficiency.

What would manufacturers want the government to do to reduce production costs?

First and foremost, the Nigerian government, through the Central Bank of Nigeria and the Minister of Finance, is not really looking to support the manufacturers. Competitiveness in the international market depends to a large extent on the support given to local manufacturers in any country by their government – the question of customs duties, the ease of obtaining foreign exchange, the question of the facilitation of workmanship (e.g. having power) need to be considered. We have said it many times. The government can subsidize the cost of our diesel. They can make sure the qualifying customer program triggers. The eligible customer program is very, very important to our customers and the government has not given up. We have complained to the Nigerian Electricity Regulatory Commission that the eligible customer scheme should be allowed to take off so that we can mop up the excess electricity in the country at the moment. So these are areas where the government can intervene to make things easier for everyone. The government must strengthen the competitiveness of manufacturers. They must ensure smooth logistics, among other things. He said the government has not been interested in what manufacturers are saying because of corruption among government officials.

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