Power sometimes gulps 40% of our production costs – Manufacturers
Power sometimes gulps 40% of our production costs. The Chairman, Board of Directors, Manufacturers Power Development Company, Ibrahim Usman, speaks on how unstable power supply is adversely affecting the manufacturing sector in this interview with SAMI OLATUNJI
Six years ago, the Manufacturers Association of Nigeria started MAN Power Development Company. How successful has this initiative been? What have been the challenges?
Well, I can say that we have been quite successful. It took some time before members could understand and appreciate the importance and the need for such a company. But at the end of the day, they now know how important it is. We have been able to intervene in several ways to ensure that our members get stable, reliable, and affordable power at the factories. We are still working on it. I cannot say that we are very pleased with what has happened. No. It is a very tough environment. Don’t forget that the DisCos are the ones running the show, and they are business people just like us. In fact, that is why we are in court with them. The government wants us to take this case out of court. The case is over the estimated billing and other billings they have been giving us, which we didn’t accept. But things are being sorted out now. Right now, for example, we are working on organizing a $70m intervention from the European Union. We are at the forefront of coordinating and arranging for our members to enjoy it and take advantage of that program. However, there are always challenges. One of them is that they look at the eligible customer scheme. The eligible customer scheme was designed to mop up excess power in the system. Right now, the excess power may be up to 3000MW-4000MW or more. So, we have to create a way whereby power is not rejected and our members enjoy that power. But because the DisCos don’t like it, it has been a big challenge. However, negotiations are going on right now and I think it would be sorted out.
How would you rate the state of power supply in the country? Do you think there has been any improvement over the years? Or are things worsening?
In terms of the volume of power available in the system, there is a big improvement. This is in terms of what is being generated. The challenge has been the distribution and uptake for our members. Eventually, we hope for the best.
How is the unstable power supply affecting manufacturers in the country?
In some countries, power takes only about 10 percent of their production. In Nigeria, power, sometimes, takes up to 50 percent of our production cost. So, how can we be competitive? There is no way our goods can be competitive. The African Continental Free Trade, which is coming up, is a very big challenge for Nigeria. Our goods cannot be competitive when electricity alone can take up to 40 percent of your production cost. It is a very big challenge.
Since many manufacturers use diesel and gas to power their operations, do you think the government should provide subsidies on diesel or gas rather than petrol, especially with the high energy cost?
That is very obvious. Government should come in to subsidize the cost of business or find a way to create a scheme where manufacturers can get some relief from this high cost of business. With the high cost of business, there is no way we can make our products competitive. If our products are not competitive, we are going to be the losers in the African Continental Free Trade. We will not win because countries like Egypt, South Africa, and Morocco with good stable power are ahead of us.
Is there any possibility that some manufacturers may choose to reduce the quality and quantity of their products as they attempt to reduce production costs?
We are seeing that happening now already. Do you blame them? They are in business to make money to survive, and they must survive. So, they have to look at several ways. One of the ways is to cut down on quality to take care of what they are spending.
Many manufacturing companies are abandoning DisCos for personal energy sources. How much impact is it having on production costs?
This adds to the cost of manufacturing. When the cost of manufacturing gets high, the prices of goods will get high, and our goods will not be competitive. So, when we go into African Continental Free Trade, they will beat us. South Africa, Egypt, Morocco, and Tunisia will beat us to it. Even Ghana will finish us. Our goods will not sell competitively in those countries because they will be too expensive.
Has the partnership with independent power developers helped to lessen the cost of the power supply?
Yes. Why not? When you partner with them, they specialize in power. They produce the power and you consume it to make good business for them. So, it is a win-win arrangement.
Has the lack of stable power supply led to the shutdown of any manufacturing company?
Many have shut down because they could not survive. Some of our members, especially those who are in the steel sector (who are producing the steel), their raw material involve power. It is the electricity they use in melting the steel. So, they cannot continue when the price is so high and their goods cannot be competitive. So, many of them have closed down. I don’t have a particular one in mind that I can mention to you now but I can assure you that there are some in terrible condition because of the issue of electricity. Some of them may not have closed down but their production capacity has reduced tremendously.
What would manufacturers want the government to do in order to ease production costs?
We have said it several times. The government can subsidize the cost of our diesel. They can make sure that the eligible customer scheme gets off. Eligible customer scheme is very very important to our customers and government has not put its foot down. We have complained to Nigerian Electricity Regulatory Commission that the eligible customer scheme should be allowed to take off so that we can mop up the excess power in the country right now. So, these are areas the government can come in to make things easy for everybody.
To what extent would you say manufacturing companies in Nigeria are adopting clean energy amid rising energy costs?
We are doing very well. We have sensitized our members on that. Right now, there is a European Union program where we have sensitized our members all over the country on the use of renewable energy to power not only our operations but we are also encouraging our staff to take special facilities to put renewable energy in their homes. So, it is something MAN is very passionate about, in particular solar. There is a $70m grant from the European Union, which is being given as a loan through our banks – Access Bank Plc and UBA Plc-to members who are trying to go the renewable energy way. It includes energy efficiency. Energy efficiency is something which is also very important. Our members are pushing for it. So, we are working hard in ensuring that our equipment is the type that uses very efficient energy, not the old type of equipment. In fact, part of the grant from the European Union is for the replacement of old and archaic equipment, which consume too much power. So, we are good at renewable energy and energy efficiency.
What would manufacturers want the government to do in order to ease production costs?
First and foremost, the Nigerian government through the Central Bank of Nigeria and the Minister of Finance is not really looking at supporting the manufacturers. Competitiveness in the international market depends to a great extent on the support given to local manufacturers of any country by their government – the issue of Customs duty, ease of getting foreign exchange, issue of facilitating the manufacturing processes (for example having power) have to be looked into. We have said it several times. The government can subsidize the cost of our diesel. They can make sure that the eligible customer scheme gets off. An eligible customer scheme is very very important to our customers and the government has not put its foot down. We have complained to the Nigerian Electricity Regulatory Commission that the eligible customer scheme should be allowed to take off so that we can mop up the excess power in the country right now. So, these are areas the government can come in to make things easy for everybody. The government needs to strengthen the competitiveness of manufacturers. They have to ensure smooth logistics, among others. He said that the government has not been interested in what the manufacturers are saying due to corruption among government officials.