• Sunday, December 03, 2023
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Price increase, lower capacity utilization loom for manufacturers on surging diesel cost

Diesel prices rise 28.69% in one year—NBS

Nigeria’s inability to supply and distribute sufficient electricity has left manufacturers at the mercy of alternative energy sources such as the use of generators that consume diesel and petrol.

Over the years, businesses have managed this additional cost of generating energy, however, this has become a more intense problem as prices of diesel and fuel are currently spiralling out of control.

Following the ongoing crisis between Russia and Ukraine, manufacturers woke up to a sudden hike in the price of diesel which is not regulated by the government by almost 92 percent, this caused a surge in their energy and production cost leaving them confused.

Usman Imanah, Managing Director and CEO of Friska Farms Limited said the rising cost is already taking a toll on production activities which occur daily, noting that poor electricity supply has made his factory dependent on an alternative energy source which is a diesel generator to function.

“We used to buy diesel for N340 per litre suddenly, it increased to N651 and it did not stop there, now allocation to energy cost will automatically increase and this will hurt our production activity,” he said.

He added that other than the energy cost, logistics services have also been affected, stating that he ordered for a generator to be brought in from Ojodu to Ibeju Lekki where his factory is located and is being charged N150 thousand as against the N75,000 that was previously charged.

In dealing with the additional cost, he said, “As much as we don’t want to, we will have to increase the prices of our goods because that is the only option we have as we do not want to compromise the quality of our products,” he said.

Kwajaffa Hamma, director general of the Nigerian Textile Manufacturers Association (NTMA), said energy cost has always been a challenge that has affected manufacturers, however it has become more intense.

“In my factory, due to low product demand and our inability to compete with imported products, we only utilized 20 percent of our capacity but now we will further reduce it and reduce our production quota because we rely heavily on diesel,” he said.

Read also: Avoiding lower profits, transporters push rising diesel cost to consumers

Hamma noted that effecting a price increase in his products is not possible as they are already suffering losses and dealing with low product demand.

Data from Manufacturers Association of Nigeria (MAN) shows that in 2020, manufacturers spent N81.91 billion providing alternative energy which was a 33 percent increase to the N61.38 billion expended in 2019. Although no official data has been provided for 2021, market realities show that the cost of proving alternative energy significantly increased too.

MAN revealed that high cost of power due to increase in electricity tariff, poor electricity supply, increase in the cost of self-generated electricity were major challenges affecting businesses which significantly reduced productivity and profit.

Mansur Ahmed, MAN president, told BusinessDay at an interactive forum that the cost of alternative electricity generation alone constitutes about 40 percent of production cost, adding that with such high costs, made-in-Nigeria products will hardly be competitive in the local, regional and global market.

“As manufacturers, we cannot achieve competitiveness with the current state and cost of energy, it is also limiting the chances of achieving an industrialized economy, hence it is expedient that the government scale-up its plan for the energy sector to reduce cost, improve processes, maximize value addition and generate employment,” Ahmed said.