• Thursday, April 18, 2024
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Power crisis hits top firms as energy costs rise 27%

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The energy costs incurred by several major listed companies in Nigeria rose significantly last year amid the crisis rocking the country’s power sector.

The companies whose data BusinessDay analysed saw a combined 27 percent increase in energy cost to N275.41 billion in 2023, up from N216.77 billion in 2022.

The cement makers lead the pack with the highest energy costs reported in 2023, with BUA Cement reporting an 86.5 percent increase to N123,26 billion from N91.18 billion.

Following closely is Dangote Cement, which reported a 49.80 percent rise in energy costs in 2023 to N399.20 million from N266.48 billion.

Lafarge Africa also reported an increase in energy costs by 21.62 percent to N75.66 billion from N62.20 billion.

In the fast-moving consumer goods space, BUA Foods recorded a steep increase in energy costs to N21.23 billion in 2023 from N14.11 billion.

Dangote Sugar Refinery’s petrol and oil costs rose to N113.38 million in the first half of 2022 from N53.9 million in 2023, while Nascon Allied Industries’ petrol and oil costs grew by 84.5 percent to N45.61 million from N24.71 million.

Analysts said this significant rise in energy costs underscores the challenges faced by businesses in Nigeria, particularly in maintaining operational efficiency amidst increasing expenditures.

Bala Zakka, an energy analyst, said manufacturers can’t afford to incur additional costs, considering the state of the Nigerian economy.

“Before now, small businesses were already groaning in pain due to lack of electricity. With the increase in tariff, their operating cost will go up and what that means is an increase in the cost of goods and services,” he told BusinessDay.

Cordros Securities’ 2024 outlook shed light on the challenges faced by the manufacturing sector in the third quarter of last year.

The report highlights how escalating energy costs and currency fluctuations exerted significant pressure, leading to a notable slowdown in growth.

Transnational Corporation of Nigeria saw an increase of 12.2 percent in the cost of natural gas and fuel, from N48.54 billion in 2022 to N54.46 billion in 2023.

The healthcare sector was not left behind, as GlaxoSmithKline Consumer Nigeria Plc also reported a 72.9 percent decrease in its electricity, fuel, and utility costs to N23.1 million from N85.3 million.

Ayodeji Ajilore, an investment research analyst at ARM Securities, highlighted the significant impact of escalating energy costs on consumer goods firms. He emphasised that these rising costs are affecting various aspects of operations, including input expenses, as well as selling and distribution costs.

Ajilore spoke about a prevalent trend of frequent price adjustments across the industry. This strategy, aimed at managing the impact on margins, has resulted in a noticeable slowdown in output, as evidenced by the second-quarter GDP figures of 2022, he said.

“Although essential food manufacturers might have the needed legroom to implement incessant upward price reviews; discretionary goods manufacturers are already taking a hit as hinted above,” he added.

Ajilore said the continued rise in energy costs poses threats to firms’ margins and could contribute to further inflationary pressures.

According to him, this situation presents a dual challenge: on one hand, shrinking profitability for firms, and on the other, a reduction in consumers’ purchasing power. “This combination represents a significant challenge for both businesses and consumers alike.”