•Calls for its suspension
By Merit Ibe, ibe.merit@yahoo.com
The Organised Private Sector of Nigeria (OPSN) has lamented the over 200 per cent increase in electricity tariff, saying over 65 per cent of private businesses, especially manufacturing firms and SMEs, may be forced to shutdown due to the high electricity tariff.
Director General of the Manufacturers Association of Nigeria (MAN), Segun Ajayi-Kadir, who spoke on behalf of the group noted that it has received numerous complaints from its member-companies on the implications of the recent astronomical increase in electricity tariff by the Nigerian Electricity Regulatory Commission (NERC) for Band A customers without the required and proper consultations with the private sector.
Ajayi-Kadir pointed out that the sudden exponential increase in the face of inadequate electricity supply was inimical to the competitiveness of Nigerian products and businesses and will further exacerbate the impact of high cost of production.
In his analysis, the MAN DG said a look at the impact of increase in electricity tariff to N225/kwh (determined using exchange rate of N1,463.31/$1) on the cost profile of a medium sized company using 700kw revealed that the firm will need to pay about N1.4 billion per annum (700 x 225 x 24 x 365)for electricity.
He noted that with the new tariff of N225/kwh, Nigeria now ranks third after Germany and United Kingdom on the list of countries with high electricity cost, adding that what is most worrisome with the Nigerian case is the fact that the electricity to be supplied is not adequate.
Decrying that the hike was coming on the heels of macroeconomic instability, infrastructure deficit, as well as other supply side constraints limiting the performance of the productive sector, Ajayi-Kadir noted that the astronomical increase is against the MYTO Order referenced NERC/2023/05, which valued the cost-reflective tariff at N114.8/Kwh (determined using exchange rate of N919.39/$1).
“It also does not reflect the current exchange rate reality that has seen the Naira appreciate by 62.95 per cent above the dollar in the last one month.”
Following the submissions from member-companies, the MAN Director General said the OPSN is constrained to state that the more than 200 per cent increase in electricity tariff at this difficult time is inimical to the survival of our businesses and would lead to unprecedented downturn in the productive sector of the economy.
He said It will have negative trickle-down effects and certainly impoverish Nigerians.
“The unwarranted increase will worsen the upward swing in inflation, aggravate the pressure on the disposable income of the average Nigerian and lead to closure of many private businesses.
“The cumulative effect will be an escalation of the current high level of unemployment and insecurity in the country.”
Commending the efforts of government, Ajayi-Kadir said OPSN hereby calls for the suspension of the implementation of the new tariff to enable all stakeholders have meaningful dialogue around the process and methodology of determining electricity tariff as well as jointly agreeing on the transparent mechanism required for tariff setting.
“The Organised Private Sector (OPSN) comprising top Business Membership Organisations (BMOs) MAN, NACCIMA, NECA, NASSI and NASME representing more than five million businesses in Nigeria, has taken due notice of the various reforms initiated by the President Bola Tinubu administration to stabilise the economy, enhance human capital development and increase the tax-to-GDP ratio to 15 per cent while enhancing fiscal transparency.
“We commend the efforts of government in this direction and look forward to an accelerated implementation of the right policies to achieve the set objectives. It is against this backdrop and after extensive consultations with our members that we address a recent concerning issue that is threatening the survival of our businesses.
“Meanwhile, the astronomical increase is against the MYTO Order referenced NERC/2023/05, which valued the cost-reflective tariff at N114.8/Kwh (determined using exchange rate of N919.39/$1). It also does not reflect the current exchange rate reality that has seen the Naira appreciated by 62.95 percent over the dollar in the last one month.
In a comparative analysis of electricity cost, he said: “A closer look at the impact of increase in electricity tariff to N225/kwh (determined using exchange rate of N1463.31/$1) on the cost profile of a medium sized company using 700kw revealed that the firm will need to pay about N1.4b per annum (700 x 225 x 24 x 365)for electricity. Ine China, a similar medium sized company will pay a little over N24m (700 x 94.14 x 24 x 365). Obviously, the new electricity tariff is outrageously higher, when compared with the going rates in countries with significant manufacturing performance.
“In the United states of America (USA), United Kingdom, Germany, France, China, India, South Africa, Ghana and Benin Republic, prevailing electricity cost per kilowatt hour are $0.1545, $ 0.3063, $0.53,$0.0573,$0.076, $0.068, $0.0999, $0.123 and $0.195 respectively.
“The conversion values of the afore-mentioned electricity cost in Naira are N191.38, N379.41, N656.50, N70.98, N94.14, N84.23, N64.53, N152.36 and N125.95 respectively. Clearly, with the new tariff of N225/kwh, Nigeria now ranks third after Germany and United Kingdom on the list of countries with high electricity cost. What is most worrisome with the Nigerian case is the fact that the electricity to be supplied is not adequate. Also, the increase is coming on the heels of macroeconomic instability, infrastructure deficits, as well as other supply side constraints limiting the performance of the productive sector. Truth be told, over 65 percent of private businesses, especially manufacturing concerns and SMIs, may be forced to close down due to the high electricity tariff.
“In consideration of the above and from compelling primary data and submissions from member-companies, the OPSN is constrained to state that the more than 200 percent increase in electricity tariff at this difficult time is inimical to the survival of our businesses and would lead to unprecedented downturn in the productive sector of the economy. It will have negative trickle-down effects and certainly impoverish Nigerians. The unwarranted increase will worsen the upward swing in inflation, aggravate the pressure on the disposable income of the average Nigerian and lead to closure of many private businesses. The cumulative effect will be an escalation of the current high level of unemployment and insecurity in the country.”