...Manufacturers spend N800bn annually on generators
By Bimbola Oyesola, Louis Iba, Uche Usim and Charles Nwaoguji
IT seems the Federal Government is finally coming to terms with the reality in the power sector now, going by President Muhammad Buhari’s statement at the Economic retreat last week.
He was quoted as saying that the poor power situation in the country was no longer a laughing matter.
The local manufacturers painted the scenario thus: About 70 per cent rise in cost of operations was recorded as power generation, which rose to above 4.500megawatts, suddenly dropped to less than 1,200megawatts, resulting in loadshedding by the power distribution companies. Although generation as at Thursday last week had been restored to about 3,365megawats, getting electricity evenly distributed to the real sector has become a task the Discos have not found funny.
According to a report from the Manufacturers Association, of Nigeria (MAN), members companies in the past three years, spent N20.8 billion, monthly on power generation to run production process.
MAN President, Frank Jacobs, said the ripple effects of the power shortages and constant outages were numerous, ranging from cut down in production, job loss to outright closure or relocation to other countries by industries. He added that companies had to bear so much loss as the outage often occurs when goods are in the middle of production.
He said: “when you are producing and power is taken unannounced, goods in line of production would be destroyed.”
As a result of this, Jacobs said many members of MAN have resorted to generating power privately and completely cut off their operations from the national grid.
“Most companies, like Coca cola, Wempco, Nigeria Flour Mills and especially the multi nationals self-generate their power. They don’t rely on the national grid. And for the last three years, our study showed that our members spent averagely in a month, N20.8 billion, he said.
Corroborating this, the Director General of the Nigeria Employers Consultative Association (NECA), Mr. Segun Oshinowo, said generating alternative power to run the manufacturing sector is expensive and invariably increases the cost of production.
Oshinowo said as Nigerian companies operate in the global market, the consequence of incurring high cost on power generation undoubtedly would make the nation’s industries less competitive.
His words:”The products which our companies would be churning out would be competing with others coming from abroad whose countries have good infrastructure. Definitely, the prices of those products coming from outside will be cheaper, while ours will be higher and less competitive due to cost of production. The same goes for those companies exporting their products, it will still be less competitive and it’s really a serious problem.”
On his part, the Director General, Lagos Chamber of Commerce and Industry (LCCI), Mr Muda Yusuf, said members of the Chambers, be it multi nationals or Medium, Small or Micro Entrepreneurs (MSMEs) have all resorted to alternative source of energy, ranging from gas, diesel or PMS, which he said is affecting their cost of operation and over all effectiveness.
“Some of the big companies have completely cut off from national grid to private gas supply as means of providing power for their operation. This is because some of their operations and productions cannot work with the epileptic power we are experiencing in the country. All the multinationals are generating their power themselves right now.”
Yusuf said though some of the companies still manage to operate on public electricity, but noted that they have to revert to diesel to power their generators anytime there is an outage, which he said is more expensive.
He lamented that with the present scenario of fuel scarcity, companies expenses on alternative source of power has doubled.
“Those that suffer most now are the SME and the micro operators that rely on generators, more so now that the fuel is not even available, their problems have been compounded”, he said.
With a remarkable increase in operational cost and poor purchasing power of consumers, the manufacturing companies have had to lay off thousands in the last six months, with about three million still to go.
A 2015 report of the Good Governance Initiative (GGI), a non-governmental organisation advocating uninterrupted power supply in the country, says Nigerians spend N3.5 trillion on fuelling their generators annually.
Its President, Mr. Festus Mbisiogu, said an intensive research conducted by the body to ascertain the negative multiplier effects of unsteady power supply last year showed that the manufacturing sector spends over N800billion yearly on generators.
He added that this is apart from about N2 trillion spent on running generators by over 17 million Small and Medium Scale Enterprises (SMEs), banks, other corporate entities and traders across the country.
He explained: “In the banking sector, each branch spends over N4million on diesel in a month. When you multiply that figure by the number of bank branches in Nigeria, it could be collosal. An average family man spends between 60,000 and N100, 000 in a month on fuel, apart from the maintenance.
“With over 6,133 bank branches and each expending N4million on diesel a month, N48million will go down the drain in a year, and this will amount to N294.4billion per annum across all the branches. This means that not less than N1.5 trillion must have gone into diesel purchase in the past five years. This is outside the amount spent on powering ATM points located outside banking premises and maintaining the generators, among other critical banking infrastructure”, he stated.
Financial experts say the amount spent on fuel and generators by manufacturers and SMEs will increase remarkably this year as 2016 is clearly the harshest since the 2008 global economic meltdown.
The rough business climate has forced many companies to close shops, while the surviving ones are retrenching workers daily.
Recently, the Organised Labour raised an alarm that the food, beverage and tobacco sector of the nation was on the verge of shutting down and that over three million jobs were at risk due to the inability of companies to meet the crippling cost of production.
Already, leading companies in the sector such as Nigerian Flour Mills, Nigerian Breweries, Guinness, Nigerian Bottling Company, 7-UP Bottling Company, Friesland Campina Wamco, among others, have written to labour for discussions on planned sack of workers.
The companies listed their challenges to include acute forex shortage, poor power supply from the generation and distribution companies, scarce and costly fuel to run their generators, among others.
Daily Sun checks reveal that in the last three months, no fewer than 1,500 workers had been sacked in the food and beverage sector as employers seek ways of coping with strangulating operational costs.
At a recent press conference in Lagos, the leaders of Food, Beverage and Tobacco Senior Staff Association (FOBTOB) called on the Federal Government to intervene and save the industry and over three million jobs that are under threat.
The President of FOBTOB, Quadri Olaleye, claimed that employers in the sector had devised every opportunity to sack workers, adding that between the 2012 and the first half of 2015, over 3,000 workers were sacked in the guise of re-engineering, restructuring, right sizing, downsizing, redundancy and re-organisation.
The National Bureau of Statistics put the total number of SMEs in the country at over 17 million, many of which rely on generators to run their businesses as the country continues to grapple with abysmal power generation.
Looking at his own sector, the Chairman of Toiletries and Cosmetics Manufacturers Group, Mr. Ikpong Umoh, said ‘ hopes were dashed following the inability of the power generation companies (Gencos) and Distribution Companies (Discos) to provide the power supply needs of the citizens two years after the privatisation exercise. He observed that the role of manufacturing in a developing country like Nigeria cannot be trivialised.
He called on the President Muhammadu Buhari led government to urgently save the manufacturing sector from total collapse by providing constant power supply.
Also, speaking in the vein, the National President of Nigerian Association of Chambers of Commerce, Industry, Mines and Agriculture (NACCIMA), Chief Bassey Edem, said that despite the privatisation of the power sector, there is still epileptic power supply in the country.
He lamented that the country generates less than 5,000 megawatts (MW) of electricity for its over 170 million population.
This, Edem said, does not go anywhere in meeting the requirement of the Nigerian people. He stated that many Nigerians that are out of job today would have been employed, directly or indirectly, if there is reasonable power supply, adding that manufacturing industries would operate well, expand their capacities and employ more people. As a way forward, he said that government, through Discos, should constantly put checks on marketers and stop them from engaging touts.
In his view, Yusuf, the LCCI boss said industries in Nigeria are going through hard time.
“I think some thing has to done if this country is move forward. We cannot continue this way as a nation. Where on earth have you see manufacturing running generators as major source of energy supply? Government should see to the plight of the manufacturers in the country before all the industries relocate to Ghana as we are experiencing today,” he warned.
The President/CEO of Erisco Foods Limited, Chief Eric Umeofia told Daily Sun that the high cost of running manufacturing plants on generators was one of the reasons most local industries had remained uncompetitive and profitable as going concerns. “Imports of substandard goods, smuggling and high cost of electricity have all combined to wreck havoc on theNigerian manufacturers,” he said.
In the aviation sector, many businesses are going through very hard times. It is estimated that the industry is incurring an additional cost of about N100 million, having to power its facilities on generators. A senior airport officials who handles the operations aspects of Nigerian airports and does not want to be named said “running the various government airports on private power generators had doubled cost of maintaining the airports and also stifled recent attempts to earn reasonable revenue as a business.”