How SMEs in northern Nigeria are leveraging gas to grow their business

Under a cloud of insecurity, erratic power supply, and rising diesel costs, SMEs in northern Nigeria are using virtual gas pipelines to keep the lights on and grow their business, writes ISAAC ANYAOGU.

With over 20,000 people on its payroll, manufacturing firm, Aspira Nigeria Ltd., part of Lee Group of Companies, manufactures personal care products, plastic bags and footwear and is the second highest employer in Kano after the state government.

To move supplies across northern Nigeria where insurgents and bandits are on the prowl is dangerous enough but that was not the company’s most daunting challenge – it was power.

 The manufacturing companies in northern Nigeria, investigation show, have a nation-wide distribution system and  some even ship products as far as Cameroon and Sudan

Located along the Hadejia Road, one of Kano’s industrial districts, Aspira along with other companies suffer frequent power cuts.

These interruptions lead to downtime, raising maintenance costs of industrial machines as they frequently break down.
“It was a nightmare for us,” says Sami Jafaar, the managing director of the company which started operations in 2009.

Jafaar also said the problem of irregular power supply was complicated by fluctuating diesel prices and the attendant pollution problems as the smoke from the diesel leaves the factory dirty.

This forced the company to search for alternatives. Unlike petrol, diesel is deregulated in Nigeria and the prices fluctuates.

According to data from the Nigerian Bureau of Statistics, in November the average retail price of Automotive Gas Oil (Diesel) paid by consumers increased by 24.17 percent on a year-on-year basis from a lower cost of N223.74 per litre, Now prices have shot above N300/litre.

The Naira has weakened on a yearly basis for nine years on a stretch and doubled the cost of diesel generators.

Nemr Hammoud, vice chairman and chief operating officer of Mamuda Group of Companies, another large manufacturing outfit in Kano, not too long ago was in a similar position. “We sat down and reviewed our power cost and we were alarmed,” he told BusinessDay.

The Mamuda Group, one of the largest manufacturing companies in northern Nigeria is a diversified business conglomerate convened into five main sectors: beverages, sacks, mat, foods, and leather.

The company recently started a new line of carbonated drinks, Pop Cola and an energy drink, Infinite Power. This is why power was a grave concern.

According to the Manufacturing Association of Nigeria (MAN), over 40 percent of manufacturers’ cost is on power.

Nigeria’s electricity generation has hovered around 4,000 MW for years and industries barely which is inadequate to meet industrial and household needs.So companies began to generate their own power.

Self- power generation to the rescue
Nigeria’s gas pipeline network does not currently connect the northern part of the country.

The reason can be traced to the country’s policy of treating gas as an irritation in the quest for oil.

According to the National Petroleum Investment Management Services, a subsidiary of the NNPC, gas commercialisation and utilisation really began with the promulgation of “Associated Gas Framework Agreement of 1991 which provided fiscal incentives to commercialise gas and sought to eliminate gas flaring by allowing oil companies offset their capital expenditures in gas projects from oil revenue.

By 1999 when the Nigeria Liquefied Natural Gas (NLNG) plant started operations, over 2.8 Billion Standard Cubic Feet per Day (Bscfd) or 74 percent of associated gas produced in the course of oil production was flared.

Nigeria has made conscious efforts since then to develop Non-Associated Gas (NAG) wells to ensure reliability of supply as Associated Gas production fluctuates with oil production and cannot be used to guarantee gas supply commitments.

The new Petroleum Industry Act now provides fiscal terms for gas exploration.
Due to proximity to gas reserves in the Niger Delta, two of Nigeria’s functional gas pipeline networks – the 514km Escravos Lagos Pipeline System (ELPS) and the West African Gas Pipeline (WAGP) are in the southern part of the country.

The ELPS capacity has been doubled as it provides domestic gas to power plants, local industries and the West Africa Gas Pipeline (WAGP).

The 678km WAGP has a capacity of 180 Billion cubic feet (Bcf) of natural gas per year and supplies gas to some ECOWAS countries.

This situation quickened industrialisation of southern parts of the country like Lagos and Port Harcourt but has been slower in the north.

This led to stunted economic growth and bred high levels of poverty and crime.
However, there are still thriving industries in northern Nigeria, only their business costs are much higher due to the creaking grid and rising diesel cost.

“We had to think of another alternative,” said Jafaar. “The solution was to turn to gas.”
Aspira contacted Clarke Energy, a multinational specialist in installation and maintenance of distributed power generation solutions who installed a 4MW gas power plant.

They also contacted Greenville Energy Ltd, who was also developing a business model to take advantage of the gap in the gas pipeline network into northern Nigeria to supply gas to the plant.

These are very expensive installations, though the companies were unwilling to disclose the cost, inquiries show it cost between over N1bn to install a 1MW gas plant.

Greenville offers Liquefied Natural Gas to businesses in remote locations or those without access to gas sources in 16 states in Nigeria.

It also provides cryogenic storage tanks to the larger customers so that adequate stocks can be maintained for smooth operations.

Read also: FG’s autogas programme seen having little impact on petrol subsidy

Greenville LNG hubs Source. Greenville
After this installation, Jafaar said the impact has been massive.

The company recorded 50 percent savings on energy cost, eliminated downtime boosting production and reduced emissions.

“This is very, very important for us, because now we can expand more, we can be competitive, produce more and we are expanding the factory facilities and hiring more people,” Jafaar said.

Soon after, other businesses within the industrial units began opting for their own solution. Mamuda Group installed a 22MW power plant capacity maintained by Clarke Energy.

“We have a long-term agreement with one of the largest LNG companies in Nigeria, who are able to sustain our gas needs by trucking to our sites,” said Hammoud.

The company also reported similar benefits as did Aspira. On the strength of improved power supply Memuda expanded its production lines.

The Nigerian government is building the Ajaokuta–Kaduna–Kano pipeline planned to transport natural gas from Ajaokuta, in Kogi State to Kano, in Kano State, through several states and urban centers, as part of the Trans Nigeria Gas Pipeline. Construction of the 614 kilometres pipeline commenced in July 2020.

The project has been divided into three phases, under a build and transfer (BT) model, in a public-private partnership (PPP) arrangement, which involves the contractor providing 100 percent of the financing.

With 15 percent financing of about US$430 million already secured from international lenders, it is anticipated that closure on the remaining US$2.5 billion will be achieved with Chinese lenders.

However, power is not the only constraint to doing business in northern Nigeria. Some business owners say the foreign exchange pressures present another challenge to obtaining raw materials for their factories.

“The market is there but for manufacturers like us, the main problem is obtaining foreign exchange, because we need it to buy raw materials.

For example, palm oil produced locally is not enough for food as well as production. Nigeria is producing less than 50 percent of what the market needs so we have to import some but naira devaluation is an issue,” Hammond said.

Jafaar said the northern market is very big and versatile and the people are resilient, knowledgeable, open to trying new things, and care very much about prices as well as the quality of the products despite widely held assumptions.

They also said security is a major issue because it constrains easy movement of goods and people. Kidnapping and the threat of violence from bandits and insurgents has raised security costs including payment for protections.

The manufacturing companies in northern Nigeria, investigation show, have a nation-wide distribution system and  some even ship products as far as Cameroon and Sudan.

To serve the international market, Mamuda Group has positioned itself to become the highest exporters of finished leather to Europe and China and is currently the second largest non-oil exporter in the country.

These companies are adding value to the Nigerian economy providing employment opportunities for skilled and unskilled labour and earning greenback from exports.

Mamuda currently hires over 11,000 people helping to decimate the ranks of youths who may otherwise have engaged in crime.