A harsh business environment created by unstable power supply has forced many industries to declare a state of emergency in the sector, ahead of the one planned by the government.
An investigation by Daily Independent show that about 2,000 local industries spend over N20 billion on diesel monthly to provide own electricity.
This does not include the cost of maintaining power generators.
The impact of the staggering expenditure is that while many operate below capacity, others relocate to neigbouring countries, or close down completely, worsening Nigeria’s unemployment crisis.
Operators of industries said they have cried for a long time but no one has come to their rescue, and that they have no alternative now than to take actions necessary for their corporate survival.
President of the Organised Private Sector in Nigeria, Sam Ohuabunwa, told Daily Independent in a telephone interview that operators are only responding to natural and business laws by resorting to alternative survival strategies.
“The cost of doing business in Nigeria continues to climb, worsened by poor infrastructure; and power is a culprit. It is a natural development. The problem is that no company can keep operating and be making losses. So, they have to do the reasonable thing which is to cut their costs or cut their losses, so that they won’t go into liquidation,” he stressed.
“And the major problem is the increasing cost of production which is making products uncompetitive in view of globalisation. It is uncompetitive because of high input, blamable mostly on the harsh operating environment, infrastructural problems and all other inputs that make production costs high. So, they want to seek alternative ways of remaining in business.”
Ohuabunwa, who is also the President of the Nigeria Economic Summit Group (NESG)and Director-General of the Nigeria Economic Consultative Assembly (NECA), said no serious company relies on public power supply.
“Those companies that cannot produce their own electricity and still return profit may look for other businesses to do. Those who can bear it will continue to struggle. Those who can’t will just seek other things to do and cut their losses. But the true position is that if I were the government, I will seek how I can compensate these companies, how I can keep them in operation, what sort of incentives to give them to keep them in operation till the power situation improves instead of allowing them to just close down indiscriminately like that. That’s what I would have advised the government; to render palliatives to keep hope alive.”
But keeping hope alive remains a mirage for industries as President Umaru Yar’Adua has said that steady power supply cannot be guaranteed until 2011.
The Nigerian authorities have been trying their hands and heads on all sorts of policies to find a solution to the power problem. These range from promises to declare a state of emergency in the sector by Yar’Adua to the setting up of panels, like the Rilwanu Lukman-led Power Sector Reform Committee and the Power Emergency Implementation Committee and the power probe by the House of Representatives Committee on Power which has now turned controversial.
Yar’Adua’s 2011 target was obviously informed by the report of the Rilwanu Lukman Committee which recommended an increase in electricity tariff. The new tariff, which took effect from July 1, 2008, would see consumers pay N11 per kilowatt (kw)per hour instead of N6, an 83.3 per cent increase.
But the Federal Government said it will subsidise the tariff for the next three years under the Multi-Year Tariff Order (MYTO)Support Fund. It will spend N177.95 billion on the subsidy over the period.
The MYTO was introduced by the Nigerian Electricity Regulatory Commission (NERC)to review tariff every year, based on prevailing economic conditions, to ensure that investors in the power sector get reasonable returns on investment.
NERC Chairman, Ransome Owan, has been campaigning for the review of tariff since last year. He has argued that the Commission’s drive to get the private sector to invest in the sector is slow in yielding result because of low tariff.
Investigation showed that 26 private power generating companies licensed by the NERC are stuck on the drawing board because of fears that they may not get reasonable profit at the rate of N6 per kw per hour.
According to the Lukman Committee, the power sector needs N10.2 trillion ($85 billion)in investments to generate 20,000 megawatts (mw), which makes it imperative to provide incentives for private investors. The new tariff is aimed at dispelling fears about profitability among investors and to get licensed power generation companies to expedite action in getting them on stream.
“Now that they have the new tariff, and they know what it is going to be like in the next five years or even 15 years, it will allow them to bring their projects to financial closure. With this tariff component, we believe that the project sponsors will move a bit ahead of their plans,” Owan enthused.
He said it takes two years to build a power plant. This would give investors one full year of guaranteed income from subsidy if they get their companies on stream within two years.
That informs Yar’Adua’s assurance that Nigerians should expect constant power supply by 2011.
Sources at the Power Holding Company of Nigeria (PHCN)confirmed that the worsening power supply in the past six months is caused partly by 34 cases of system collapse and partly by obsolete equipment at many installations, some of which were installed over 60 years ago.
The little improvement currently experienced in some parts of the country is attributed to the resuscitation of some of the collapsed thermal and hydro stations, although they still operate below half of capacity.
About 2600 mw are generated currently and the figure may hit 3000 mw soon if the water level continues to rise and the supply of gas improves at the thermal stations.
While the PHCN continues to struggle with outdated facilities, industries and other businesses continue to suffer. The textile industry is practically becoming extinct as only a handful is still in operation.
Manufacturing companies surveyed said they spend between N10 million and N15 million monthly generating their own energy.
Dunlop has announced plans to close down its Nigerian plants and relocate to a neighbouring country.
The company said it spends about N15 million monthly on diesel alone to power its production plants.
Michellin too has announced plans to shut down its Port Harcourt plants and possibly relocate outside Nigeria.