Manufacturers: Proposed 40% Hike in Electricity Tariff Outrageous, Perilous

*Say some may relocate plants to African countries with lower tariff

Dike Onwuamaeze

The Manufacturers Association of Nigeria (MAN) has described the proposed 40 percent hike in electricity tariff scheduled to take effect from July 1, 2023, as “simply outrageous.”

The MAN also highlighted that the federal government had increased electricity tariff by 186 percent in the past eight years, adding that the “expectation of the manufacturers is that government and the Nigerian Electricity Regulatory Commission (NERC) will ensure improvement in electricity generation, transmission and distribution that will lead to adequate and reliable electricity supply in the country, rather than increasing the tariff on the mere 4000MW, to meet all revenue needs of stakeholders in the electricity supply industry.”

The manufacturers expressed these views yesterday in a press statement titled, “Possible Impact of Impending Electricity Tariff Hike on Manufacturers.”
The manufacturers stated that the proposed increase in tariff would lead to rise in cost of production, reduction in manufacturers’ profit margin, high probability of activities paralysis and potential reduction in government’s collectible revenue.

The association further noted that implementation of the proposed tariff would complicate the inflationary pressure on the economy, accelerate the recession in the manufacturing sector, hurt the competitiveness of Nigerian manufacturers and heighten the probability of manufacturing firms relocating their plants from Nigeria to other countries.

According to the Director General of MAN, Mr. Segun Ajayi-Kadir, who signed the press statement, “it is highly concerning for manufacturers to witness the electricity tariff skyrocketing beyond the present embattling high prices, starting July 1st. A 40 percent hike at this time is simply outrageous.”
Ajayi-Kadir further noted that the absence of stable, effective and fairly priced electricity supply in Nigeria has been a long-standing challenge for manufacturers.
He said: “The worrisome development has compelled many manufacturing industries to supplement the unreliable electricity supply with alternative energy sources. Regrettably, the available alternative energy sources such as diesel have become exorbitantly expensive.
“On average, surveyed data by MAN suggested that manufacturers spent at least N144.5 billion on sourcing alternative energy in 2022, up from N77.22 billion in 2021.

“This translates to about 87 percent increase in the cost of access to alternative energy sources by manufacturers within a year.
“In the past eight years, electricity tariff has been increased by 186 percent. The fact that the government itself owes N75 billion in unpaid electricity bills is indicative of how burdensome the cost of electricity has become.”

The MAN argued strongly that as a matter of fact, any further rise in electricity tariff will directly increase the cost of production for manufacturers.
“Already, we have energy constituting between 28 and 40 percent in the cost structure of manufacturing industries. You can imagine the impact on manufacturing industries that are energy-intensive such as metal processing, heavy machinery, and chemicals manufacturing.”
The Association added that “a spike in the electricity tariff will erode the profit margin of the manufacturers and reduce their ability to expand operations and create new jobs.”

It also feared that reduction in profit margins would be “a definite possibility among small and medium-sized enterprises (SMEs) who are unable to accommodate the higher price.”
MAN states further: “The hike in electricity tariff will reduce the manufacturers’ profitability and by extension the quantum of taxes and fees payable to the three tiers of government.
“Manufacturers remain the largest income taxpayers in the country. Therefore, in the event of poor income generation due to high costs of production, the government purse will suffer.

“In addition, the manufacturers would ultimately pass on the additional cost to the consumers of their products, which will increase the cost of locally made products in the market and complicate the rising inflation rate in the country.
“An increase in electricity tariff will reduce the purchasing capability. One of the resulting effects is the fall in demand and recession of manufacturing activities over time.”

The association also envisaged a high probability of outward investment as “some manufacturing industries may consider shifting production to other economies with lower electricity tariffs and guaranteed availability.”
Ajayi-Kadir adds: “As it is today, the manufacturing sector, which is the engine of growth, is still struggling as a result of the inclement production environment in Nigeria.

“The expectation is that the government will engage in extensive and intensive consultations with the manufacturers; focus on measures that will salvage the sector and halt the trend of shutdown of factories, knowing the implications and the multiplier effects on employment and the economy.
“Care should be taken to avoid introducing burdensome measures that will further strangulate the manufacturing sector and the whole economy.”

The director general of MAN stated further that the government should ensure that at least 90 percent of electricity consumers are metered to ensure consumption reflective electricity bill payment.
He also advised the government to formulate electricity policies that will aid investment in the energy industry to increase generation capacities and ensure effective implementation of the Electricity Act 2023 aimed at increasing electricity supply in the country.