Business

MAN: New electricity tariff, stiff test for manufacturers

Recently, the Manufacturers Association of Nigeria (MAN) raised great concerns about the revised Multi-Year-Tariff Order (MYTO) for January to June 2021 by the Federal Government through the Nigerian Electricity Regulatory Commission (NERC) with the adjustment of N2.00 to N4.00 per kilowatt hour of electricity, effective January 1, 2021. Taiwo Hassan reports

Indeed, investigations conducted among local manufacturers and Micro, Small and Medium sized Enterprises (MSMEs) in the country showed that mounting high inflation rate coupled with growing costs of energy, including frequent hike in fuel price and electricity tariff are driving many businesses to mortality at a time the economy is suffering from the negative impact of COVID-19. More hardships have also hit many SME businesses in the country with many of them trying to survive under the Federal Government’s survival funds palliative. High energy cost fueled by hike in fuel price and electricity tariff has remained the much talked about burdens affecting the growth and development of Nigerian businesses in the 21st Century.

Unnoticed tariff adjustment

NERC, on December 30, 2020, under its new Chairman, Engr. Sanusi Garba, decided to solely approve increased electricity tariff adjustment of N2.00 to N4.00 per kilowatt per hour of electricity, effective January 1, 2021, without consultations with stakeholders. Obviously, MAN stated that the increase in tariff, which is coming at the commencement of the African Continental Free Trade Agreement (AfCFTA) and barely three months after the huge increment was imposed on electricity users in October 2020, was not manufacturing friendly. According to the association, it appears to be insensitive to the prevailing precarious situation of the sector. Besides, the increase is coming at a wrong time and would clearly reverse the little gains in the recent past. This is against the background of prevailing harsh operating environment, the increasing burden of taxes, the enormous spending on self-generated electricity up to the tune of N70 billion (excluding hundreds of billions naira spent on settling monthly electricity bills) and the ailing state of a sector that is just recovering from a lockdown occasioned by Covid-19. The Director General of MAN, Segun Ajayi-Kadir, said: “We are worried that the recent increase in price of electricity will have overwhelming negative impact on the Nigerian economy, especially the manufacturing sector.”

Key

Ajayi-Kadir emphasised that MAN represented the interests of over 3,000 manufacturers (small; medium; large and multinational industries) spread across 10 sectors, 76 sub-sectors and 16 industrial zones. According to him, manufacturers are heavy users of electricity in Nigeria and this necessitated the association’s keen interest in all electricity related discourse and development, particularly electricity supply and tariff. He stressed that the manufacturing sector employed over five million workers, directly and indirectly with 8.93 per cent contribution to Gross Domestic Product. In addition, the MAN DG stated that the sector also dominated export trade in the West African region, generates foreign exchange, and contributes substantially to revenue of government and human capital development in Nigeria. He said: “It is, therefore, imperative that the performance of the sector is enhanced through a pro-manufacturing policy that will encourage scale and lower unit cost of production rather that throwing fiery darts that will worsen its performance. “Top on the list of challenges confronting the sector is the issue of inadequate electricity supply and this has been largely responsible for the lackluster performance of the sector for some decades now. “In fact, electricity related expenses of a manufacturing concern constitute about 40 per cent of the production overhead in some sub- sectors. This is not growth friendly and is antithetical to competitiveness.”

Challenges

The MAN DG noted that the manufacturing sector was already plagued with high cost emanating principally from energy’s poor regulation. According to him, this poor condition is responsible for the oscillatory performance of the sector. “It is, therefore, important that any policy that will add to the already bloated cost of production in the sector should be avoided. One would normally expect that before embarking on this outrageous increase in electricity tariff, its impact on the manufacturing sector and the economy at large would have been properly evaluated to mitigate a crowding out effect on the economy in general and the productive sector in particular,” he noted.

Expectations

The manufacturing sector, which is the engine of sustainable growth, is still struggling with the debilitating impact of the pandemic and is yet to recuperate. The expectation of operators is that government will continue to provide stimulus packages that will aid the recovery of the sector and avert the shutdown of factories nationwide with multiplier effect on the employment of about 5 million workers. Ajayi-Kadir stressed: “We expect that NERC as the regulator will ensure improved electricity generation, transmission and distribution that will lead to adequate and reliable electricity supply in the country rather than squeezing the mere 4000MW to meet all revenue needs of key sharing stakeholders. “We equally expect NERC to make regulations that will ensure that 80 per cent of consumers are metered to ensure consumption reflective payment; aid inflow of investment in the energy industry in order to increase generation capacities and usher in large scale production of electricity. The recent absurd increase does not support these desirable propositions.”

Last line

The position of the country’s manufacturers is that the recent increase in electricity tariff is not friendly and ill-timed because it will exacerbate the already costly environment, worsen competitiveness, further depress productivity in the sector and may exclude Nigeria from the list of beneficiaries of AfCFTA.

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