MAN opposes increase in electricity tariff

By Oluwaseun Ogunsola

The Manufacturers Association of Nigeria (MAN) has condemned the proposed increase by 40 per cent in electricity tariff from July 1, 2023, describing it as outrageous, adding that the move could sound the death knell for many small and medium-sized enterprises (SMEs) in the country.

This was made known in a statement by MAN’s Director-General, Segun Ajayi-Kadir, who said that effective and fairly priced electricity supply has always been a challenge for manufacturers, forcing many of them to add unreliable electricity supply with alternative energy sources, such as diesel, which has unfortunately become increasingly expensive.

He warned that the government should avoid introducing  measures that will further choke the manufacturing sector and the whole economy. Surveyed data by MAN showed 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 per cent increase in the cost of access to alternative energy sources by manufacturers within a year.

“In the last eight years, electricity tariff has been increased by 186 per cent. The fact that the government itself owes N75 billion in unpaid electricity bills is indicative of how burdensome the cost of electricity has become. A 40 per cent hike at this time is simply outrageous.”

He added that a further rise in electricity tariff would increase the cost of production for manufacturers.  “Already, we have power constituting between 28-40 per cent 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 chemical manufacturing.”

Ajayi also added that an increased in the electricity tariff would wear away profit margins and reduce their ability to expand operations and create new jobs as well as disrupt activities for SMEs who are unable to accommodate the higher price.

“The hike would also 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 taxpayer in the country. Therefore, in the event of poor income generation due to high costs of production, the government purse will suffer.

He added that additional costs would be passed to final consumers, complicating inflation. “The increase will further reduce purchasing capability and one of the resulting effects is the fall in demand and recession of manufacturing activities over time. The high cost of the products will make locally produced items less competitive when compared with imported alternatives.

“This is also true of exports, as Nigeria products may find it more difficult to penetrate foreign markets. Such a move will restrict our export earnings because it will be impossible to compete with counterparts in global trading. Some manufacturing industries may consider shifting production to other economies with lower electricity tariffs and guaranteed availability.”

He said they had hoped that the Federal Government and NERC would 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.

“Government should ensure that at least 90 per cent of electricity consumers are metered to ensure consumption reflective electricity bill payment, formulate electricity policies that will aid investment in energy industry to increase generation capacities that will usher in large scale production of electricity and ensure effective implementation of the recent Electricity Act (2023) that is aimed at increasing electricity supply in the country.”

He pointed out that there is urgent need for the diversification of energy sources and intensifying infrastructure investment in the power sector; eradicating outrageous bills by closing the metering gap through the liberalisation of ultimate users’ access to effective mass metering; ensuring the connection of all consumers to the grid to avoid free-riding and unfair charges on the few connected consumers; increasing electricity supply base in order to distribute the total cost among a high number of consumers at a much lower unit cost and eradicating energy poverty.

“Our expectation is that the government will engage in extensive and intensive consultations with 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.”