The Manufacturers Association of Nigeria (MAN) and the Nigeria Labour Congress (NLC) have deplored the proposed 40 percent hike in electricity tariff scheduled to take effect from July 1, 2023.
The director general of MAN, Mr. Segun Ajayi-Kadir, said in a statement entitled ‘Possible impact of impending electricity tariff hike on manufacturers’ that the planned increase is outrageous.
He said the expectation of the manufacturers is that both the 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.
He said manufacturers spent at least N144.5 billion on sourcing alternative energy in 2022, up from N77.22 billion in 2021, translating to an 87 per cent increase in the cost of access to alternative energy sources.
He said the fact that the government itself was owed N75 billion in unpaid electricity bills was indicative of how burdensome the cost of electricity had become.
“Already, we have power constituting between 28-40 per cent in the cost structure of manufacturing industries.
“You can imagine the impact on energy-intensive manufacturing industries such as metal processing, heavy machinery, and chemical manufacturing.
“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.
“Manufacturers will ultimately pass on the additional cost to the consumers of their products, and this will increase the cost of the products in the market and complicate the rising inflation rate in the country.
“Also, the sector’s competitiveness will definitely worsen as the high cost of the products will make locally produced items less competitive when compared with imported alternatives,” he said in an interview with NAN.
MAN also stated that the federal government had increased electricity tariff by 186 percent in the past eight years.
“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 said.
He also noted that that the absence of stable, effective and fairly priced electricity supply in Nigeria has been a long-standing challenge for manufacturers.
“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,” he said.
MAN also said an increase in electricity tariff will reduce the purchasing capability and result in the fall in demand and recession of manufacturing activities over time.
Besides, he said there would be a reduction in profit margins “among small and medium-sized enterprises (SMEs) who are unable to accommodate the higher price.”
“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,” he added.
Similarly, the NLC described the planned electricity tariff hike as “both insensitive and callous.”
President of the congress, Mr. Joe Ajaero, said in a statement that there had been “surreptitious increases without notice in violation of statutes.”
He warned about the consequence of the proposed plan saying “by the time other products or service-rendering entities come up with their new prices or rates, the ordinary person would have been compacted into dust,” and advised the “apostles of the market who have called NLC all sorts of names to check their conscience.”
The statement reads: “The plan to increase electricity tariff by 40 by July 1st is both insensitive and callous and reflects an organised indifference to the well-being of consumers, especially, the poor ones.
“The massive increase is explained away as a response to the over 100 per cent increase in the pump price of premium motor spirit. Details reveal a movement in inflation from 16.9% to 22.41 (threatening to needle 30), and a shift in exchange rate from N441 to N750. We believe not even these figures are a justification for this reckless proposed tariff increase.
“The issue of capacity to pay and quality of service delivery are not only germane but superior to any rationalisation by market logic. The service providers in spite of sundry support have not been able to meet the threshold of 5000 megawatts.
“Coupled with this, there have been surreptitious increases without notice in violation of statutes. The inherent risk in the new regime of tariff is that there is no control, implying that by August, consumers will pay new rates.
“The other risk is that by the time other products or service-rendering entities come up with their new prices or rates, the ordinary person would have been compacted into dust. We would want to advise apostles of the market who have called NLC all sorts of names to check their conscience.
“The rate at which they are going is highly combative and combustible. With the contemplation of payment of school fees in tertiary institutions and increases in privately-owned ones in addition to other costs/tariffs on the way, life in Nigeria could truly be Hobbesian.
“The market economies which the market fundamentalists seek to emulate have in place socio-economic safeguards which we do not have. In light of this, our advice is that this proposed tariff hike should be shelved for our collective safety.”
