Manufacturers form own power company as energy cost hits N59bn

Faced with rising cost of power, the Manufacturers Association of Nigeria (MAN) has formed a new power company called the Manufacturers Power Development Company Limited, to reduce the impact of energy cost on their operations.

“We are making efforts to reduce the impact of energy cost on our margins. Power takes up between 30 and 40 percent of our expenditure, so we want to cut down this, especially now that we are facing foreign exchange challenges,” Ibrahim Usman, board chairman of the Manufacturers Power Development Company Limited, told BusinessDay in an exclusive interview.

Cost of energy borne by Nigerian manufacturers has risen from N25 billion in 2014 to N59 billion in 2015, forcing major players to enter into a power supply arrangement with three independent companies that will provide up to 10 megawatts of electricity to industrial clusters.

The power project is structured on a build-own-operate model, which is a system where a private company is granted the right to develop, finance, design, build, own, operate, and maintain a project.

Manufacturers in Lagos, especially those in Amuwo-Odofin, Ilupeju and Henry Carr (Ikeja) industrial clusters, will be the first beneficiaries, Usman said.

Manufacturers in the industrial clusters will sign an agreement with private power suppliers, which will mandate them to pay for the electricity they consume.

“We want to deploy this power in a modular form in small units. We want efficiency, such that if there is any servicing going on, manufacturers will still have power. There will be power for 24 hours available when it takes off in 2017,” he said.

He said this would be replicated in other industrial clusters in the Eastern Nigeria, Ibadan, Kaduna and Kano, among others.

Cost of energy for manufacturers has risen from N25 billion in 2014 to N58.82 billion in 2015, according to the latest report released to BusinessDay by the Manufacturers Association of Nigeria. The figure could rise by 15 -20 percent by the end of 2016 as power supply to major industrial zones, which improved in the first quarter of 2016, declined in the  second, third and the first two months of the last quarter of the year.

The MAN report shows that manufacturers are now resorting to the use of energy purifiers and boosters such as USP and Inverters to boost the poor quality of electricity supply by the electricity distribution companies.

Similarly, power outages on daily average of electricity supply from DISCOs   increased to six times per day across MAN industrial zones, from four times per day recorded in the corresponding period of 2014.

Manufacturers use mostly gas and Low-Pour Fuel Oil (LPFO) to power their operations, but gas is cheaper, though its supply has been irregular. Manufacturers spend $8 each per square metre of gas, which is now expensive on the back of dollar scarcity. Small and medium manufacturers use diesel and fuel to power their generators.

“There is a need to modify the Gas Subsidy Law of 2008 to reclassify gas supply to manufacturers from commercial to industrial,” Michael Ola Adebayo, chairman of the Manufacturers Association of Nigeria (MAN) Gas Users Group, told BusinessDay in an exclusive interview.

Regular gas challenges are forcing multinationals and large companies to resort to the use of coal for power generation. Dangote Group is already using coal energy, while Ashaka Cement is building a N100 billion coal-fired plant in Gombe State. Lafarge Africa’s WAPCO Operations at Ewokoro, Ogun State, is currently using biomass to generate power and reduce CO2 emissions.

“Manufacturers, especially the multinationals, should begin to use coal because of the challenges we have with gas,” Aliko Dangote, president of Dangote Group, advised manufacturers at an event held by Lagos Chamber of  Commerce and Industry.

ODINAKA ANUDU