Nigerians may not have heard the last of industry closures as many more are soon to go under if the Nigeria Gas Company (NGC), sole marketer of industrial gas in the country, goes ahead with its plan to increase the price of the commodity by 200 percent.
Industry stakeholders are of the view that if this arrangement by the monopoly company is allowed to take effect, most of them currently operating with gas engines would be forced out of business.
An industrialist told Business Day that they had enjoyed relatively regular supply of gas until they were informed recently of a price increase.
According to the source, gas price is determined by the price of low pour fuel oil (LPFO), based on the contract agreement signed by each user with the monopolist supplier. Consequently, NGC has now adopted the international (offshore) price of LPFO as a base to fix the price of gas, a product, which is drilled and processed locally in Nigeria.
“Gas is a 100 percent local product and there is no reason its price should be raised. Definitely, the industry cannot absorb this price and surely most of them will not be able to compete with goods manufactured cheaply overseas at subsidised power costs. The result is untimely death for industries,” the source affirmed.
Dunlop, the only remaining tyre manufacturing company in Nigeria, after the divestment of Michelin from the country, last week announced plans to close down their local factory and power outages was cited as one of the major reasons for their rising cost of production.
The company agued that power problem provided an additional 40 percent to their cost of production, which made it impossible for them to compete in both the local and international markets.
The same power problem also led to the closure of Phoenix Steel, a steel fabrication company, based in Ikeja, Lagos.
Early this year also, Lafarge, (former WAPCO) a cement producing company, attributed its loses in 2007 to power outages and gas cuts.
Bruno Lafont, chairman and chief executive officer of Lafarge says “government can support in the supply of gas, especially in the distribution network, in power supply, infrastructure development and on every thing it can do to reduce production cost.”
The price situation in Nigeria reflects the cost of production. The cost of production is relatively high in Nigeria compared to other countries. This is due to the fact that fuel, transportation and power are expensive.
Bashir Borodo, president of Manufacturers Association of Nigeria (MAN), is of the view that the situation is not peculiar to Nigeria, suggesting that it is a global issue. “You can see protests around the world, in Europe and different parts of the world. Oil price is high, so it is not a domestic problem. The only domestic angle to it is that the Power Holding Company of Nigeria is unable to generate much electricity so companies have to rely on gas and diesel which increases their cost of production.”
Borodo also laments the virtual collapse of public power supply and the current high cost of diesel in the country as manufacturing companies spend so much on fuel now that it is N160 per litre. In an economy where 80 percent of the power need is self-generated from diesel, many companies, small and medium scale, have either collapsed owing to the high cost of diesel, or are on the verge of shutting down. “I got a recent call from hoteliers and even service companies to inform me that they could not continue because of the power problem and high cost of powering generators.”
Femi Otedola, president/CEO of Zenon Petroleum and Gas, Nigeria�s biggest diesel importer, had earlier in a statement appealed to the Federal Government to subsidise diesel import to force down the price “at least temporarily.”
Industrial gas became popular in 2005 when diesel prices began rising astronomically and supply became epileptic. Industrialists who believed in Nigeria and its economy started to invest in gas generating sets, which is the current practice in the industrialised world.
An executive of one of the affected companies who spoke with Business Day said, “We are all experiencing power problems. But most of us are scared to open up for fear of sanctions or victimisation from the authorities,” the source noted.
Consequently, stakeholders in the sector are of the opinion that the situation, which paralysed production activities in most part of 2007, may result in job losses as well as factory closures in the new year, if the issue of power is not addressed urgently by the government.
“It is already affecting our members and people will definitely be thrown out of jobs, factories will close and there will be crisis in the country,” observed Adeniyi Ogunsanya, vice president, Industrial, Small and Medium Industries of the Nigeria Association of Chambers of Commerce, Industry, Mines and Agriculture (NACCIMA).
Ogunsanya, who is also the managing director of Tropical Paints Limited, noted that the development is an indication that the country is not yet serious with project 2020, a programme geared towards launching Nigeria in the bracket of the 20 most developed countries of the world.
“This is the right time for President Umaru Yar�Adua to declare the state of emergency that he promised at the beginning of his tenure. The 2020 goal will be a mirage if the electricity problem is not tackled. And to make matters worse, the Nigeria Gas Company has not even helped matters by declaring that they are only distributors and not producers of industrial gas.”
According to the gas company, “what we get is what we distribute”. They have also said they will need about N480 billion to meet local demand of the product,” Ogunsanya noted.
Also in a telephone chat with Business Day, Bunmi Ogunpola, a senior manager with Winners Pharmaceutical Industries Limited, said the development is already affecting them negatively, as it has further driven up their cost of production, as a result of their reliance on diesel.
“Consumers are to bear the brunt of this as all local manufacturers are affected, and to stay in business, we will mark up our prices,” Ogunpola said.
Business Day investigations revealed that apart from Phoenix Steel, which has remained closed, most factories located at the Ikeja area of Lagos shut factories sometime in 2007 due to gas cuts which occurred regularly at different periods of the year.
The switch from diesel to gas as an alternative power source was a relief to some privileged manufacturing companies in Lagos, a development which did not last as a result of the unreliability of gas supplies attributed to pipeline vandalism among other reasons.
According to a stakeholder in the food and beverage industry, “thieves continue to break into the gas pipelines up stream and steal liquid gas as it comes in its natural form, from the earth and before it is converted to gaseous form.” Damages to pipelines caused by vandals were also a contributory factor to gas shortages. Consequently, the NGC shut down the pipelines for repairs. This happened severally in 2007, in addition to the inefficiency of the NGC, as a government organisation.
“We are not left out in this predicament; our suppliers also suffer the same faith, which affects our operations negatively. Our flour and packaging suppliers are also on gas, so when they suffer gas shut downs, their operations also get interrupted and it affects our supply chain, which further aggravates the situation,” noted the source that prefers anonymity.
As a solution to the problem, the source advocated that security should be beefed up around the pipelines and also that liquid gas should be converted to gas at the source, so that the product is piped in gaseous form, making it almost impossible to steal from the pipelines.