An indication of a looming crisis in the manufacturing sector emerged, after the Steel Manufacturing Group of the Manufacturing Association of Nigeria (MAN) threatened to shut down their factories over exorbitant electricity tariffs. Citing lopsidedness, MAN warned that the new tariff order Multi Year Tariff Order (MYTO 2.1) which went into effect on January 1, was paralyzing most companies in the country. MAN also accused the Nigerian Electricity Regulatory Commission (NERC) of giving preferential lower rates to some firms, because of their location. The group urged NERC to continue to operate on the old MYTO rate, pending the life of its tenure (2017). They also implored NERC to consider and approve a uniform tariff for all steel manufacturers in Nigeria regardless of their location. A shutdown portends ominous consequences for the economy, and at a time of heightened political tension and insecurity, Nigerians deserve some respite. The country needs a proactive, national development agenda for the manufacturing sector; one that integrates other sectors and percolates other areas of national life.
Speaking at a NERC stakeholders’ meeting held in Abuja, the Chairman of the MAN Steel Manufacturing Group, Sunil Goel, on behalf of his members, tasked NERC to go back to the old MYTO which was initially scheduled to run from 2012- 2017. He said: “As steel manufacturers and other consumers on tariff D3 are DISCOs most prominent consumers/customers, and electricity being the most critical input to our production process, we want to reiterate the following obvious facts and the impacts of the new hike on electricity tariff on our production and its adverse effects on our planned long term projections which were actually based on MYTO 2012-2017 tariff order. The MYTO 2012-2017 which was meant to run for five years, formed the basis of our members’ long term planning which your sudden increase has now seriously interrupted. As we are not informed of the revocation of the MYTO order, we consider your sudden action unfair to our members,” Goel noted, adding that the new 45% hike was too astronomical.
The manufacturing sector remains crucial to national development, given its potential for job creation, revenue generation, and contribution to national GDP. Beyond the job losses that will follow a shutdown of factories, the new tariffs will undoubtedly lead to increased prices of commodities, especially iron rod and consequently make same unaffordable for many Nigerians. Factory closures will adversely affect revenue generation to power Discos. Coming at a time when power supply output has dropped below 3,000 megawatts, with adverse effects on business and economic activities, the tariff hike certainly was ill-conceived and ill-timed and showed gross insensitivity on the part of government, which does not appreciate the suffering of the people as a result of the near total blackout in the country. It amounted to fraudulent exploitation as there was no basis for the hikes.
NERC approved the new tariff for industrial and commercial consumers, which went operational on January 1, while freezing increase for residential consumers until June. Comparatively, Nigeria is now demanding N28.28 per kWh as minimum unit charge, while countries such as USA, Canada, China, India, Russia, and even Angola, charge as low as between three to N21 per kWh as their minimum price. NERC blames the situation on the erratic power situation in the country. ”We don’t have stable electricity in Nigeria, because we have not made the right investments to build capacity,” noted NERC Chairman, Dr. Sam Amadi. He said: “NERC has often been caricatured as a tariff commission but…underlying these complaints is the fact of increasing energy cost and its negative impact on global competitiveness of Nigerian industries. Truly, the cost that businesses and industries pay in Nigeria is high. But the highest portion of this cost comes from self-supply of electricity. If power from the grid is stable and adequate we will see significant decrease in the cost of energy. How to increase energy supply to industrial and commercial consumers in Nigeria is the most important and urgent challenge we face.”
Given the worsening electricity supply situation in the country caused by endemic problems, including shortage of gas, there is no indication that there would be any improvement in power supply; at least not in the foreseeable future, hence the manufacturers may have to brace up for more hardship. Gas shortage, which is the fundamental problem, has not been addressed and the blame game as to why there is no gas continues. As for the hydro-power stations, with the onset of dry season during which there is low water level for the dams to operate effectively, there would not be any respite either in terms of low electricity supply. Since no significant improvement in power supply is feasible in the short term, it all means that the DISCOs would continue to operate at a loss, which cost would in turn be passed to consumers, including manufacturers. What a shame!
For the manufacturing sector to make economic sense to the nation, the government must operate a national plan that is built on an enlarged vision of development, beyond the sprinkling of largese. It must set up the enabling infrastructure and amenities that can sustain whatever industry it has been able to set up. It is of no use setting up an industry that would depend on the contractor mentality of power generation through the purchase or leasing of generators rather than constructing power stations.
There must be a clear vision both at the microscopic level of everyday living and at the level of futuristic plans; or else the country cannot meet up in the global industrialization race. Pricing mechanisms are good, yet not enough to target the problem in the sector; it is rather a relief; an ad hoc measure that is merely reactionary. Instead of hiking tariffs all the time, government should focus on diversification of power supply sources to reduce over-dependence on gas or hydro. A power supply mix is needed to stem the endemic electricity problem and it is, indeed, strategically unwise for any government to rely wholly on one source for its electricity development program.
