Why manufacturers are pushing for electricity tariff hike reversal
Manufacturers are still over the recent increase in electricity tariff for Band A customers. Even after government buckled under pressure by aggrieved Nigerians and re-adjusted the tariff downward, and also sought to justify the higher tariff by citing the reduced electricity subsidy from about N3 trillion to N1 trillion, manufacturers are not swayed. To them, only an outright suspension of the tariff hike will suffice, given what they consider as its negative trickle-down effects on the economy, especially the manufacturing sector. Assistant Editor CHIKODI OKEREOCHA looks at some of the arguments put forward by manufacturers in favour of a reversal.
Even before protesters, Wednesday last week, stormed the Ikeja Underbridge in Lagos, demanding among other things, a reversal of electricity tariff hike, members of the Organised Private Sector (OPS), particularly manufacturers, had been unrelenting and unequivocal in their demand for the immediate suspension of the implementation of the recent increase in electricity tariff by the Nigerian Electricity Regulatory Commission (NERC) for Band A customers.
The obviously riled manufacturers had kicked their heels in, insisting that the over 230 per cent increase in electricity tariffs at this difficult time is not business friendly. According to them, it would exacerbate the already high-cost operating environment, leading to closure of many private businesses, increase the rate of unemployment and of course, insecurity in the country. They also pointed out that the exponential tariff increase in the face of inadequate electricity supply is inimical to the competitiveness of Nigerian products and businesses.
Sometime in April this year, the Federal Government, through the NERC, drew the ire of manufacturers and indeed, electricity consumers across the country when it announced a huge increase in electricity tariff for customers under the Band A category, from the initial N68 per Kwh (kilowatt hour) to N225 per Kwh. Although, Electricity Distribution Companies (DisCos), backed by NERC, in exchange, dangled a 20-hour minimum daily supply of electricity to Band A customers, the 240 per cent increase was not well received by manufacturers and other members of the OPS, including Nigerians.
However, it took sustained opposition by manufacturers and aggrieved Nigerians to force the hand of the Federal Government to approve a downward review of the electricity tariff for Band A customers from N225/Kwh to N206.80/Kwh. And perhaps, to justify the recent increase in electricity tariff for Band A customers, Minister of Power, Adebayo Adelabu, last week, said the move reduced the electricity subsidy paid by the Federal Government from about N3 trillion to N1 trillion.
Adelabu, who spoke at a public hearing on electricity tariffs in Abuja, organised by the House of Representatives Joint Committee on Power, Commerce, National Planning, and Delegated Legislation, said without the tariff increase, the expected electricity subsidy would have been about N3 trillion. He insisted that government could no longer afford to bear the cost of N3 trillion in subsidies, arguing, however, that even with the tariff increase, the cost of electricity is still cheaper compared to Premium Motor Spirit (PMS), otherwise known as petrol, and diesel
The Minister also said Nigeria offers the cheapest electricity tariff in sub-Saharan Africa. His words: “We are still about the cheapest, even in sub-Saharan Africa, in spite of the tariff. Our neighboring countries pay higher. So, the price isn’t comparable. Band A is cheaper compared to other sources of generating power. It is almost 50 per cent cheaper to connect to band A of the national grid than to run on fuel and diesel. So, when we complain about the higher tariff, it is cheaper for any business to pay for a grid connection than to individually generate power.”
However, Adelabu’s arguments in favour of the tariff increase did not hit the right chord in the ears of many Nigerians, with angry protesters riding on the platform of the 2024 Democracy Day to once again re-echo their disapproval of the tariff increase. Even before the protesters took to the streets on Wednesday, June 12, manufacturers, who appear to be worst hit by the unsavoury impact of the latest tariff increase had mounted intense pressure on the Federal Government to pull the breaks on the implementation of the new electricity tariff.
Manufacturers, under their umbrella body, Manufacturers Association of Nigeria (MAN), said based on feedback and numerous complaints from member-companies on the implications of the astronomical increase in electricity tariff by the NERC for Band A customers, “This sudden exponential increase in the face of inadequate electricity supply is inimical to the competitiveness of Nigerian products and businesses and will further aggravate the cost of production.”
The occasion was the recent bi-annual presentation of Q1 2024 MAN CEO’s Confidence Index (MCCI) report at MAN House, Ikeja, Lagos, were MAN DG Segun Ajaiyi-Kadir said, for instance, that as an immediate impact of the outrageous increase in electricity tariff, a medium-sized company using 700Kw will need to pay about N1.4 billion per annum for electricity. He, however, lamented that in China, a similar medium-sized company will pay a little over N725.8 million.
“Obviously, the new electricity tariff is inconsiderably very high when compared with the going rates in countries with significant manufacturing performance,” Ajaiyi-Kadir kicked, pointing out that “In the US, UK, Germany, France, China, India, South Africa and Ghana, prevailing electricity cost per kilowatt hour are $0.1545, $0.3063, $0.53, $0.089, $0.068, $0.0999 and $0.123 respectively. The conversion values of the afore-mentioned electricity cost in naira are N205.49, N407.38, N704.90, N76.21, N188.37, N90.44, N132.87 and N163.59 respectively.”
Apparently drawing strength from the fore-going comparative analysis, the MAN DG said: “Clearly, with the new tariff of N225/Kwh (i.e. before the slight reduction to N206.80/Kwh), Nigeria now ranks third after Germany and UK on the list of selected countries with high electricity cost. What is most worrisome with the Nigerian case is the fact that the electricity supplied is inadequate, in the face of macroeconomic instability, infrastructure deficit, as well as other supply side constraints limiting the productive sector’s performance.” Related News
Ajaiyi-Kadir lamented that Nigeria currently ranks among countries with the lowest access to electricity as only 59.5 per cent of its population has access to highly unstable electricity, far below the 100 per cent access in African countries like Egypt and Morocco. “Therefore, frankly speaking, over 65 per cent of private businesses, especially manufacturing concerns and Small and Medium Industries (SMIs) will be forced to close down due to the high electricity tariff,” he warned.
The thing is that the Federal Government, through the NERC, may have justified the tariff hike to address mounting debt and ensure the continued functioning of the power sector. But in doing so, many Nigerians who weighed in on the matter expressed fears that SMIs and MSMEs will hold the short end of the stick under the current high tariff regime. According to them, many of the small businesses might be forced out of business due to higher utility bills resulting from the tariff hike.
MAN represents the interests of over 3,000 manufacturers (small, medium, large and multinational industries) spread across 10 sectors, 76 sub-sectors and 16 industrial zones. And manufacturers are heavy users of electricity in Nigeria and this explains the Association’s keen interest in all electricity related discourse and development, particularly electricity supply and tariff.
Also, the manufacturing sector employs over five (5) million workers directly and indirectly with 8.93 per cent contribution to Gross Domestic Product (GDP). The sector also dominates export trade in the West African region, generates foreign exchange, and contributes substantially to government revenue and human capital development in Nigeria.
Based on these, MAN President Otunba Francis Meshioye said it is therefore imperative that the sector’s performance is enhanced through a pro-manufacturing policy that will encourage scale and lower unit cost of production rather that throwing fiery darts that will worsen its performance. He said top on the list of challenges confronting the sector is the issue of inadequate electricity supply and this has been largely responsible for the sector’s lackluster performance for some decades now
Meshioye said in fact, electricity related expenses of a manufacturing concern constitute about 40 per cent of the production overhead in some sub-sectors. “This is not growth friendly and is antithetical to competitiveness,” he charged, pointing out that the astronomical tariff increase itself was against the Multi-Year Tariff (MYTO) Order referenced NERC/2023/05, which, according to him, valued the cost-reflective tariff at N114.8/Kwh (determined using exchange rate of N919.39/$1.
He also argued that it does not reflect the current exchange rate reality that has seen the naira appreciate by 30 per cent from N1, 900 in February to N1.330 in April 2024, for instance. “The recent hike failed to comply with the customer consultation requirements. Ideally, electricity consumers should be given notice of intention to carry out a tariff review. NERC should publish a consultation paper, which can be downloaded from its website for review by stakeholders and all electricity consumers to a public consultation among others,” the MAN president added.
Furthermore, he accused the NERC and DisCos of failing to explain and justify how increase in tariff for Band A customers will lead to substantial increase in electricity generation and supply when the installed capacity hasn’t been fully utilized due to the limited capacity of Electricity Generating Companies (GenCos) and DisCos to generate and distribute adequate electricity supply nationwide.
Ajaiyi-Kadir, while pointing out that about 30, 000 MW of electricity is required to sufficiently meet the growing electricity demands by businesses and households in the country, said the Transmission Company of Nigeria (TCN) data show peak power generation of slightly over 4, 600 MW between March 6-13, 2024, which is far below all known benchmark for national industrial or socio-economic development.
The MAN DG insisted that the explanation by DisCos supported by NERC that consumers on Band A enjoy 20 hours minimum daily supply of electricity needs to be clarified and verified. “In addition, it is of essence to consider the number of outages due to in sufficient and inefficient infrastructure of electricity transmission and distribution as frequent outages/interruptions wreaks havoc in terms of production losses for manufacturers,” he said.
