AshakaCem’s N11bn power project threatened by recession, weakening naira

The N11 billion contract recently signed between Lafarge Africa and RUHN Power Corporation of China to build a 16 megawatt captive power plant at its Ashaka cement plant in Gombe State, and expected to contribute a significant amount of energy to the national grid, is now threatened by Nigeria’s negative economic outlook, authorities at the company have said.
This is because country’s battle with a weakening naira against the dollar has already taken a toll on the company’s cash reserves, and at a time that the entire Nigerian economy takes a downward trend into recession.

The company says that N12 billion out of its N15 billion cash reserves, about 85 percent of it, will be used for the project, with the intention that excess energy from it will be fed into the national grid.

However, with the inflation rate of the local currency jumping above 17 percent in Q2 2016 based on figures from the Nigerian Bureau of Statistics, funding of contracts that were previously entered into at lower exchange rates of the naira to the dollar may face hurdles or possible cancellations since most of them are import dependent.

These include the importation of hardware for power plant construction and remuneration for expatriate workforce.

According to Suleiman Yahyah, the board chairman of AshakaCem, “we have the support of Lafrage Africa, but we are now at a time when the naira is seriously devalued. When we started this conversation, the naira was at N180 to a dollar but today, the official rate is nearly N300 and we don’t know what it will be by 2018, and this is one of the key requirements for industrialization, the attractiveness of industry, which is a state problem.”

The management of AshakaCem had to convince Lafarge Africa and Lafarge Holcim by travelling several times for high level meetings in Switzerland before the project was approved, but the weakening economic fundamentals may result in the foreclosure of these ambitious projections, even as the company’s chairman sounded his own concerns.

“So let me use this important opportunity to request President Muhammadu Buhari to, in recognition of this our determination not to fold our arms in the face of an economic recession, to still commit almost 85 percent of our cash reserves, a very risky decision, declare the northeast a tax free zone for the next five years,” he said.

Commenting further on the project, Yahyah expressed that “we are biting the bullet, we are taking a big heat on our cash reserves, which is about N15 billion and we are taking nearly N12 billion out of it to fund this project.”

The 16 megawatt power plant being planned by the company, which will be lignite-fired, represents the first step by Lafarge Africa towards cost recovery in cement production, as AshakaCem currently ranks among the most expensive energy costs in the LafargeHolcin Group.

The expectation of the company, Yayah said, is that by 2011, when AshakaCem will be celebrating its 40th anniversary, she will also be celebrating her independence from the national grid, and without further reliance on Yola Disco for its energy requirements.

AshakaCem is the only industrial business of its scale in the northeastern region of Nigeria, which is home to nearly 23 million people, but has suffered insurgency and with significant displaced people, unemployment and, recently, malnutrition and the fear of famine.

The company has an installed capacity of 1 million metric tonnes but there are plans underway to add 3 million metric tonnes of capacity over the next three years.

It is also planning for a second production line of 2.5 million metric tonnes, with the construction of other power plants if the first one succeeds, as well as a central air conditioning system for the factory, but all these may fail if the nation’s economic fundamentals remain as shaky as they remain today.