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Nigeria's leading finance and market intelligence news report.

New electricity tariff pushes manufacturing companies in Kano to re-set production 

The new electricity tariff announced by the Federal Government has the tendency to compel more manufacturing companies in the commercial city of Kano to migrate from public power supply to the private generation of electricity with Liquefied Natural Gas (LNG), experts have observed.

The new hike in tariff is coming on the heels of the revised Multi-Year Tariff Order (MYTO) announced last week which gave approval to the 11 Distribution Companies in the country to increase the unit price of electricity by as much as 50 percent.

The approval signed by Sanusi Garba, chairman, Nigerian Electricity Regulatory Commission (NERC), stated that the new tariff takes effect on the 1st of January, 2021, and it supersedes the previous Order NERC/2028/2020, issued last year by the commission.

Commenting on the implications of the new decision on manufacturing entities in Kano, Haruna Danzago, chairman, Aspira Nigeria Limited, one of the companies in the state that recently acquires the capacity to independently generate its own power through LNG disclosed exclusively to BusinessDay that the hike in the tariff has the tendency to push more companies in the state to embrace the LNG option in power generation.

Danzago, who is also a National Council Member of the Manufacturers Association of Nigeria (MAN), noted that the new tariff is currently beyond what most companies can pay, and still remain in operation.

He said that judging from the additional cost which the hike represents to doing business in the country, the most rational thing for most of the manufacturing companies at this moment are to invest in a private capacity that will enable them use gas for power supply.

“This is precisely what we are doing here in Aspira Nigeria Limited, as you are aware our company is one of a member of the Lee Group, and of recent, we have invested in building, capacity to independently generate our own electricity through the supply of LNG by Greenville Liquefied Natural Gas Company Limited, which is based in Rivers State.

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“Under the project we have acquired 110M cryogenic storage tank with two vertical tanks installed in our factory which is located along Hadeija Road in the metropolis. This investment has empowered us to be able to generate 4 megawatts of electricity, and we are planning to scale up the generation capacity which will enable us to be independent of the national grid.

“The building up our capacity in this regard is going to impact employment generation because we are now enjoying a more steady electricity supply at a reduced cost”, he explained.

In the new Order NERC/225/2020, the commission said the hike in the price of the commodity was necessitated by the 14.9% inflation rate rise in November 2020, foreign exchange of N379.4/$1 as of December 29, 2020, available generation capacity, US inflation rate of 1.22%, and the Capital Expenditure (CAPEX) of the power firms to raise the tariff.

The revised Service-Based Tariff (SBT) also saw an increase in the rates payable by all classes of electricity users unlike the one of November 2020 that exempted low power getters.

The new price regime will be effective till June 2021, while a Cost Reflective Tariff (CRT) that is expected to further raise the cost higher will be activated from June to December 2021, the NERC’s statement revealed.

It would be recalled that the Minister of State for Petroleum Resources, Timipre Sylva, towards the end of last inaugurated two LNG driven power plants that have the combined capacity to generate about 11 megawatts of electricity at premises of Aspira Nigeria Limited, and Mamuda Agro &Allied Nigeria Limited, both based in Kano.

NERC had in December 2020, NERC revealed that it had begun a review for another tariff, which has been completed and had taken effect from January 1, 2021.

The Commission had raised tariff for the DisCos in September but that drew outrages from customers and the organized labor, prompting the federal government to suspend it while parties dialogued.

By November 1, 2020, the suspended tariff was implemented after some discounts were given for customers who get 12 hours and above power supply daily.

However, those with less than 12 hour supply did not get a tariff hike, according to the NERC order of November 2020.

Danzago is of the view that the use of LNG will significantly reduce operating cost of fuel incurred by companies when compared with the use of diesel and LPFO.
He added that the adoption of LNG option in electricity generation for industrial production, has been proved to be more environmentally friendly as it generates less carbon emission when compared to other power sources.

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