Businesses bleed as electricity gulps N221bn in H1

The challenges besetting businesses in Nigeria are many, and top among them is soaring power costs, BusinessDay’s findings have revealed.

Aisha Mohammed is a single mother of two who works as a seamstress in Lagos, Nigeria. She relies on her small business to provide for her family, but rising power costs are making it increasingly difficult to stay afloat.

“The cost of powering my business has doubled in the past year,” she said. “I’m struggling to keep up and I’m worried that I’ll have to close my shop if things don’t get better.”

Mohammed’s story is not unique. Many Nigerian businesses, from micro to multinational, are struggling to cope with rising power costs amid the surge in the prices of petrol and diesel, used by many to power their generators.

Data obtained by BusinessDay from the financial statements of eight listed firms showed that they recorded an 18.35 percent increase in energy costs to N221.75 billion in the first half of 2023 from N187.36 billion in the same period last year.

Leading the pack with the highest energy costs reported in H1 2023 are the cement makers, with Dangote Cement spending N157.020 billion on fuel and power, a 20.82 percent growth from 2022.

“The quantum of power produced in Nigeria is not even enough for individual homes, not to talk of meeting the demands of industries,” Samuel Anozie, managing director of ODS Empire, a Lagos-based manufacturer and realtor, said.

BUA Cement spent N47.91 billion on energy in H1 2023, an increase of 9.92 percent from N43.58 billion in the same period in 2022, while Dangote Sugar spent N42 million, up from N29 million in the same period of 2022.

BUA Foods Plc’s diesel and fuel costs rose to N216 million from N122 million in H1 2022.

Fidelity Bank posted N366 million as its electricity cost, up from N271 billion in the same period of 2022, while Wema Bank recorded N829 million as its diesel expenses as against N685 million in the same period of 2022.

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BusinessDay findings showed rising energy costs disrupt productive activities in Africa’s most populous country as factories self-generate more than 14,000 megawatts of electricity due to poor supply from the distribution companies (DisCos).

For instance, manufacturers spent N144.5 billion on alternative energy sources in 2022, up from N77.22 billion in 2021, according to figures released by the Manufacturers Association of Nigeria (MAN) in June.

This, of course, affected their cost of operations negatively, as they explained that the high cost translated to about an 87 percent increase in the cost of access to alternative energy sources by manufacturers within a year.

“It must be stated that right now, the cost of powering our processes is around 35 percent of our total inputs’ costs,” Francis Meshioye, president of MAN, said in a note.

He added: “What comes to mind is that whatever the cost of our inputs is generally, it should not be too expensive when compared with other countries.

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“If the cost of inputs, especially power, overshoots what it should be, then definitely we cannot be competitive internationally in the first instance. So, with a high cost of power, you stand the chance of not being competitive.

“Also, there is a tendency for the cost of power to be high because the commodity is scarce. You know our country produces less than 5,000MW of electricity for over 200 million people, including manufacturers and other businesses.”

Statistica, a global statistical firm, puts the electricity demand in Nigeria at over 32 terawatt-hours as of 2022. It said this followed a slight upward trend observed since 2020.

It said the demand remained stable between 2002 and 2010, and increased annually afterward until 2017.

Data from the World Bank’s Power Sector Recovery Programme showed inadequate power supply costs businesses in Nigeria about $29 billion yearly.

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It also revealed that Nigeria has the largest number of people without access to electricity worldwide, as one in 10 people without access to electricity currently resides in the country.

Findings showed some companies that have stopped receiving supply from the DisCos include Flour Mills of Nigeria, Dangote Group, Cadbury, Haffar, Kam Industries, and Qualitec Industries.

It was gathered that some manufacturers only use public electricity supply in offices but utilise alternative power sources in the production lines.