Ibrahim Usman

Energy sometimes consumes 40% of our production costs – manufacturers – perforated newspapers

Chairman of the Board, Industrial Energy Development Company, Ibrahim Othman, talks about how an unstable energy supply negatively affects the manufacturing sector in this interview with Sami Olatunji

Six years ago, the Manufacturers Association of Nigeria started the MAN Power Development Company. How successful is this initiative? What are the challenges?

Well, I can say that we were quite successful. It took some time before the members were able to understand and appreciate the importance and need of such a company. But eventually, they now know how important that is. We have been able to intervene in a number of ways to ensure that our members have stable, reliable and affordable energy in the factories. We are still working on it. I can’t say we’re very happy with what happened. No, it is a very difficult environment. Don’t forget that the DisCos are running the show, and they’re entrepreneurs just like the rest of us. In fact, that’s why we’re in court with them. The government wants us to take this case out of court. The case is about the estimated bills and other bills they gave us, which we did not accept. But things are now settled. At the moment, for example, we are working on organizing an intervention of $70 million from the European Union. We are at the forefront of coordinating and arranging for our members to enjoy and benefit from this program. However, there are always challenges. One of them is that they look at the eligible clients scheme. The qualified customer scheme is designed to eliminate excess power in the system. At present, the excess power may reach 3000MW-4000MW or more. Therefore, we have to create a way in which power is not rejected and our members have that power. But since DisCos don’t like it, it was quite a challenge. However, negotiations are now underway and I believe they will be settled.

How do you assess the state of energy supply in the country? Do you think there has been any improvement over the years? Or are things getting worse?

In terms of the amount of power available in the system, there is a significant improvement. This is in terms of what is created. The challenge was the distribution and uptake of our members. In the end, we hope for the best.

How does unstable power supply affect manufacturers in a country?

In some countries, energy consumes only about 10 percent of their production. In Nigeria, energy consumes, at times, up to 50 per cent of our production cost. So, how can we be competitive? There is no way our merchandise can be competitive. With the African Continental Free Trade, which is on the way to emerge, it poses a huge challenge to Nigeria. Our goods cannot be competitive when electricity alone consumes up to 40 percent of the cost of production. It’s a very big challenge.

Since many manufacturers use diesel and gas to power their operations, do you think the government should subsidize diesel or gas instead of gasoline, especially with the rising cost of energy?

This is very clear. The government should come to support the cost of business or find a way to create a scheme where manufacturers can get some relief from this high cost of business. With the rising cost of business, there is no way we can make our products competitive. If our products are not competitive, we will be the losers in the African continental free trade. We will not win because countries like Egypt, South Africa and Morocco have a good stable power before us.

Is there any possibility that some manufacturers will choose to reduce the quality and quantity of their products while trying to reduce the cost of production?

We are already seeing that happening now. Do you blame them? They work to make money to survive, and they have to survive. Therefore, they have to consider several ways. One way is to lower the quality to take care of what they spend.

Many manufacturers are ditching DisCos for personal power supplies. How does it affect production costs?

This adds to the manufacturing cost. When the cost of manufacturing goes up, the prices of the goods will go up and our goods will not be competitive. So, when we go to African Continental Free Trade, they will defeat us. South Africa, Egypt, Morocco and Tunisia will defeat us. Even Ghana will kill us. Our goods will not be sold competitively in those countries because it will be very expensive.

Has partnering with independent power developers help reduce the cost of power supply?

yes. why not? When you partner with them, they specialize in power. They produce power and you consume it to do good business for them. So, it is a win-win arrangement.

Did the lack of a stable power supply shut down any manufacturing company?

Many of them closed because they could not survive. Some of our members, especially those in the steel sector (who produce steel), their raw materials require energy. It’s the electricity they use to smelt steel. Therefore, they cannot continue when the price is too high and their merchandise cannot be competitive. Therefore, many of them closed. I don’t have a specific thing on my mind that I can mention to you right now but I can assure you that there are some in poor condition due to the electricity issue. Some of them may not have been closed but their production capacity has been greatly reduced.

What do manufacturers want the government to do to reduce production costs?

We said that several times. The government can subsidize our diesel cost. They can make sure the customer’s qualified system is down. Qualified clients system is very important for our clients and the government has not backed away from that. We have complained to the Nigerian Electricity Regulatory Commission that the eligible customer plan should be allowed to take off so that we can get rid of the excess capacity in the country for the time being. So, these are areas that the government can go into to make things easier for everyone.

To what extent do you think Nigerian manufacturers are embracing clean energy amid rising energy costs?

We’re doing very well. We’ve been educating our members about it. Currently there is an EU program where we have sensitized our members across the country about the use of renewable energy not only for our operations but we are also encouraging our employees to take special facilities to put renewable energy in their homes. So, it’s something MAN is very excited about, especially solar. There is a $70 million grant from the European Union, being given as a loan through our banks – Access Bank Plc and UBA Plc – to members trying to go the renewable energy path. That includes energy efficiency. Energy efficiency is also very important. Our members pay for it. Therefore, we work very hard to make sure that our devices are the types that use highly efficient energy, and not the old type of equipment. In fact, part of the grant from the European Union is for the replacement of old and outdated equipment, which consumes a lot of energy. Therefore, we are good at renewable energy and energy efficiency.

What do manufacturers want the government to do to reduce production costs?

First of all, the Nigerian government through the Central Bank of Nigeria and the Minister of Finance is not really looking to support manufacturers. Competitiveness in the international market depends to a large extent on the support given to domestic manufacturers in a country by their government – the question of tariffs, easy access to foreign exchange, and the question of facilitation of manufacturing operations (eg having power) must be considered. We said that several times. The government can subsidize our diesel cost. They can make sure the customer’s qualified system is down. A qualified client system is very important to our clients and the government has not backed away from that. We have complained to the Nigerian Electricity Regulatory Commission that the eligible customer plan should be allowed to take off so that we can get rid of the excess capacity in the country for the time being. So, these are areas that the government can go into to make things easier for everyone. The government needs to enhance the competitiveness of manufacturers. They have to ensure smooth logistics, among other things. He said the government didn’t care what manufacturers were saying because of corruption among government officials.

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