Manufacturers lament rising energy costs as power supply slump persists

Manufacturers across all sub-sectors are increasingly lamenting the rising cost of energy, which has pushed up their operating costs and prevented many of them from making remarkable profits in recent times.

“We have between eight to 16 hours of power outages in the country at the moment. Why are we surprised that most manufacturing firms post high operating costs here? Most of the costs we incur from alternative sources of power are passed onto the consumer, a situation that shrinks demand,’’ said Seni Adetu, CEO, Guinness Nigeria plc, at this year’s Lagos Economic Summit tagged ‘Ehingbeti,’ held last week.

“In the case of Guinness, we had to spend $3 million in a bid to have access to gas for our operations. We talk of diversification; most industrial nations have their manufacturing sectors contribute between 20 percent to the Gross Domestic Product (GDP), but ours is just 7 percent,” he said.

The Nigerian electricity sector has continued to attract attention from local and international community owing to poor generation, transmission and distribution capacities that have dogged the industry over the years. In late 2013, the Federal Government of Nigeria successfully privatised the sector, an exercise that produced 10 distribution companies (discos) and five generation companies.

In spite of this, the generation capacity still hovers between 2500 megawatts (mw) and 4000mw. Power distribution fell 22 percent late last year, while some energy analysts said it fell even to less than 1300mw between late March and early April 2014.

Bayo Ikujenyo, president, Ota-Agbara Chamber of Commerce and Industry, recently said that Ota and Agbara industrial areas in Ogun State alone need as much as 2400mw.

“The cost of diesel is increasingly having a negative impact on our revenues and profits,’’ he said, at a press briefing, recently.

The World Bank rates 170 out of 178 countries in terms of power generation, transmission and distribution capacities. The country’s per capita kilowatts consumption is 149kw per annum as against the global weighted average of 3,128kw per annum. World Bank data also show Nigeria lags behind Algeria, Ghana, Cameroon and Angola. While the country targets 40,000mw by 2020, India has reached 223,344mw by middle of 2013. Annual electricity generated in 2012, by Nigeria expressed in kilowatt-hours was about 20.13 billion, whereas, that of South Africa was 238.3 billion.

In 2009, the Manufacturers Association of Nigeria (MAN) disclosed that members spent N1.8 billion weekly on diesel used in production. Analysts believe this would have doubled following sharp increases in diesel prices within the last five years.

Unilever’s revenue as of December 2013, saw 8 percent growth from 2012’s, rising to N60.004 billion from N55.5 billion. On the hand, its cost of sales rose 11 percent to N37.55 billion, from 2012’s N33.90 billion. Distribution, administration and other expenses rose 14 percent to N14.5 billion, from 2012’s N12.73 billion. Consequently, pre-tax fell 16 percent from 2012’s to N6.91 billion, from N8.18 billion.

In the same vein, First Aluminium Nigeria plc’s revenue as of 2013, fell 3 percent from 2012’s. In 2012, revenue was N8.639 billion, while it was N8.390 billion in 2013. Incidentally, cost of sales rose 10 percent (despite 3% fall in revenue).

However, stakeholders are quick to point out that there are other expenditure that make up cost of sales or administrative expenses, where energy costs are often figured into. But they also stress the noticeable effect high energy consumption has on these costs.

“We should rise to the responsibility of vigorously exploring other reliable, available, accessible and affordable sources of alternative energy needed for economic production process for growth and development,’’ said Iyalode Alaba Lawson, president, Odu’a Chamber of Commerce, Industry, Mines and Agriculture (Odu’accima).

‘Guinness will bounce back’

Despite that Guinness Nigeria plc’s performance has not met up to analysts’ expectations, the firm is not yet out and remains good for long-term investors, Exotic research analysts have said.

They attribute challenges in the beer industry to protracted slowdown in economic activity and consumer spending, which is just a short-term phenomenon. Further devaluation of the naira could further affect Guinness as it highly depends on imported barley, which is an essential input.