- Propose ways to mitigate hardship
The energy sector is acclaimed to be the engine room of any economy. But the administration of President Bola Tinubu has gone ahead to remove subsidies from both the petroleum and electricity subsectors of the energy sector. FESTUS OKOROMADU writes on the implications of these initiatives on the economy.
As Nigerians await the release of the inflation figure for the month of March 2024 by the National Bureau of Statistics, one of the dominant issues across board is how to tackle the continuous rise in the cost of living.
Concern for the economic well-being of citizens now dominates debate across every stratum of the society. From the household unit to corporate organisations, down to associations and even civil society, there are concerns over the persistent rise in the cost of living.
Consequently, stakeholders have had cause to review and analyse government’s commitment to creating the enabling environment for citizens to experience true essence of living, more so, when certain policy statements and decisions of government and its agencies are perceived to be inimical to the citizens and corporate entities.
No doubt, some concerns and worries are real. For instance, the NBS in its report of inflation rate for February 2024 announced a 2.51 percent inflationary hike month-on-month to 31.7 percent from 29.9 percent in January. Apart from being the thirteenth month’s consistent rise, the February figure also translates to a 28-year high, thus raising questions over the impact of policymakers’ decisions on managing the economy.
Details of the February headline inflation growth shows that Food inflation in particular climbed by 1.8 percent to 37.92 percent, driven by sharp increases in prices of rice (35.7 percent), beans (17.6 percent), tomatoes (40 percent), eggs (18.4 percent), Turkey (25 percent), and others. On the other hand, core inflation (which excludes food and energy), rose by 1.54 percent to 25.13 percent.
While analysts presume that the figures suggest that structural inflationary pressures are persistent, they also identify cost-push factors, weaker Naira, and forex translation costs in the replenishment of inventory are contributing factors.
“If we are realistic, the electricity rate in Nigeria is such a mess that no serious company will invest on that rate, unless it is a charity. We have to be real and deal with that. In some states, water rates were last reviewed in 1997. That is why no investor goes there”
Analyzing recent government policy pronouncements on the economy vis-à-vis the persistent inflationary hike, managing director, Financial Directivities Limited, Bismarck Rewane said, “The situation calls for a comprehensive change of strategy in the use of monetary and fiscal measures to address inflationary trends effectively.”
Similarly, the Abuja Chamber of Commerce and Industry, in a reaction to the situation called on the Federal Government to strengthen the fiscal sector of the economy.
Reacting to the consistent hike in inflation figures, the President of ACCI, Emeka Obegolu, said there is an urgent need for governmental interventions to fortify the fiscal landscape, crucial for propelling the nation towards industrialization.
Addressing the energy sector, Obegolu stressed the need for significant improvements to the power infrastructure to alleviate the burden of high production costs caused by electricity shortages. Enhancing access to electricity across the country is paramount to reducing the cost of living and mitigating inflationary pressures.
Energy related policies
While the likes of Rewane and Obegolu are calling for change in the use of monetary and fiscal policies as a way of addressing inflationary hike, energy analyst Steve Nwuchukwu thinks otherwise. According to him, the current economic crisis in the land is fueled by the President Bola Tinubu’s administration decision to remove subsidies from the energy sector.
He noted that the removal of fuel subsidy is responsible for the current hike in the cost-of-living, stressing that with the latest removal of subsidy for a category of electricity consumer, Nigerians should expect further increase.
“The economy is powered by energy, whether it is petroleum products or electricity, both are key factors to manufacturing and other economic activities, so when you remove subsidy without creating alternative sources for powering the wheel of machines, the impact is rise in cost generally.
“First when the petrol subsidy was removed, the cost of fuel including petrol and diesel went up, resulting in a rise in the cost of transportation as well as the cost of production. With the recent removal of electricity subsidies to industrial areas and urban cities classified as Band A, we can only expect more increases in the cost of production which will be transferred to consumers,” he said.
Challenging business environment
The Nigerian Breweries Plc has indicated plans for a company-wide reorganisation which include the temporary suspension of operations in two of its nine breweries.
In a statement obtained by journalists, the company emphasized its commitment to minimizing the impact on its workforce by exploring all feasible alternatives.
These measures include relocating and redistributing employees to the remaining seven breweries and offering support and severance packages to those that become unavoidably affected.
According to the company, following the recent announcement of its Business Recovery Plan, Nigerian Breweries Plc has indicated plans for a company-wide reorganisation aimed at securing a resilient and sustainable future for its stakeholders.
The statement signed by Sade Morgan, Corporate Affairs Director, noted that this move is essential to improve the company’s operational efficiency, financial stability and enable a return of the business to profitability, in the face of the persistently challenging business environment.
“In letters signed by the company’s Human Resource Director, Grace Omo-Lamai, and addressed to the leadership of the National Union of Food, Beverage & Tobacco Employees and the Food Beverage and Tobacco Senior Staff Association, the company informed both unions that its proposed plan would include operational efficiency measures and a company-wide reorganisation that includes the temporary suspension of operations in two of its nine breweries.
“As a result, and in accordance with labour requirements, the Company invited the Unions to discussions on the implications of the proposed measures,” the company said.
The company recalled that recently it notified the Nigerian Exchange Group of its plan to raise capital of up to N600 billion (Six Hundred billion naira) by way of a rights issue, as a means of restoring the company’s balance sheet to a healthy position following the net finance expenses of N189 billion recorded in 2023 driven mainly by a foreign exchange loss of N153 billion resulting from the devaluation of the naira.
Speaking on these developments, Managing Director/CEO Nigerian Breweries Plc, Hans Essaadi, described the business recovery plan as strategic and vital for business continuity.
“The tough business landscape characterized by double-digit inflation rates, naira devaluation, FX challenges and diminished consumer spend has taken its toll on many businesses, including ours. This is why we have taken the decision to further consolidate our business operations for efficient cost management and optimal use of our resources for future sustainable growth.”
“We recognize and regret the impact that the suspension of brewery operations in the two affected locations may have on our employees. We are committed to limiting the impact on our people as much as possible by exhausting all options available including the relocation and redistribution of employees to our other 7 breweries; and providing strong support and severance packages to all those that become unavoidably affected. We are also committed to supporting our host communities in ways that ensure they continue to feel our presence.
“We remain wholly committed to having a positive impact on our host communities and our consumers; leveraging our strong supply chain footprint; excellent execution of our route to market strategy; and our rich portfolio of brands across the Lager, Stout, Malt, Soft drinks, and Energy drinks categories; and more recently, Wines and Spirits with the acquisition of Distell” he added.
The company also recalled that it recently added to its broad portfolio with the acquisition of an 80% business stake in Distell Wines and Spirits Limited, a local business in the wines and spirits category, as a demonstration of its resilient and forward-thinking strategy to deliver long-term value creation for its shareholders and other stakeholders.
The Nigerian Breweries’ Business Recovery Plan includes a rights issue and a company-wide reorganisation exercise which includes temporary suspension of two of its nine breweries and an optimisation of production capacity in the other seven breweries, some of which have received significant capital investment in recent years.
New electricity tariffs
Acting on behalf of the Federal Government, the Nigerian Electricity Regulatory Commission, on April 3, 2024, announced a tariff increase of about 240.91 percent for electricity consumers with over 20 hours of daily power supply raising them from an average of N66/N77 per kilowatt hour to N225.
The government attributed the hike to various factors, including the exchange rate of the Naira to Dollar, transmission loss factor, generation cost, transmission and admin cost, wholesale gas to power prices, and benchmark gas transportation tariff.
The tariff hike implementation which took immediate effect has implications for all Nigerians, transcending social and economic boundaries. This is because, outside the affluent households said to be captioned as Band-A customers, the band also covers the bulk of commercial establishments such as industrial estates.
Analysts affirm that the ripple effect of increased operational costs for these businesses will inevitably lead to higher prices for goods and services. Consequently, consumers across all Band categories—A, B, C, D, or E—will bear these escalated costs, affecting their purchasing power and overall living expenses.
It is also crucial to highlight the adverse effects of this tariff increase on unmetered customers. Without meters to accurately measure their electricity usage, these customers risk bearing even higher costs due to the tariff hike.
The Q4/2023 Electricity Report from NBS noted that there were 5,830,668 unmetered customers across the country during the period.
The urgent need for unmetered customers to acquire meters is emphasized, albeit with the acknowledgment that meter costs have surged recently. As of February 2024, single-phase meters cost N82, 000, while double-phase meters cost N259, 000.
But, amidst these challenges, analysts said there are potential positive outcomes associated with the increased electricity tariffs. Distribution companies stand to gain improved access to finance, enabling them to modernize and enhance their infrastructure, ultimately leading to better service delivery.
Speaking to such positives, an economist and Chairman FASMICRO Group, Ndubuisi Ekekwe, said the move should not be seen as the government’s insensitivity to citizens.
“My position is that improving how much some customers pay for electricity in Nigeria is a good policy and should not be seen as being insensitive to our citizens.
“If we are realistic, the electricity rate in Nigeria is such a mess that no serious company will invest on that rate, unless it is a charity. We have to be real and deal with that. In some states, water rates were last reviewed in 1997. That is why no investor goes there.
“Unless we want charities, these changes must be made for real investors to come. I can tell you what the government will get from investors after its investment powerpoint presentation, we like your market but we cannot invest at those rates because we cannot make money.
“The data is self-evident: some of the richest publicly traded companies in Nigeria are the power generating companies, GENCOs (Transcorp Power, Geregu Power) even as we have the most bankrupt or bankrupting companies at the DISCO (distribution) phase.
“Why is it that the GENCOs have great rates with the Federal Government to generate power, and the generation phase has attracted capital and investments but the DISCOs do not have great rates to distribute, and no one wants to invest therein? The implication is that some DISCOs reject power because if they distribute, they will only return losses. In other words, there is no incentive to expand capacity to distribute the small power generated.
“So, someone must fix that anomaly, and if the Minister is working on that, he must be allowed to do that. Personally, I have written about that, and I am happy someone is fixing it. It is about time; I commend the Minister for that boldness, hoping that someone will not sue to reverse the tariff, as was done last time, dislocating Nigeria’s electricity sector for years.”
But taking a broader look at developments in the energy industry in Nigeria in recent time, Rewane said the hike in electricity tariff as well as the commencement of production of diesel by the Dangote refinery is a good omen for the country.
Commenting on the tariff hike, he said, “This action is expected to reduce reliance on expensive alternatives like generators, cut production costs and potentially lower commodity prices, only if there is stable power supply.
“Consequently, consumers will pay a higher electricity bill which will reduce disposable income and increase production cost of firms.
“Dangote refinery’s diesel supply at N1, 225/litre could ease transportation and logistics costs, mitigating inflationary pressures.
“Overall, tariff hikes and improved diesel supply are anticipated to positively impact commodity prices by reducing production costs and transportation expenses, though short-term risks persist.”
Call for transparency and accountability in power sector
On its part the Nigerian Society of Engineers has raised concerns over issues of transparency and accountability in the implementation process of the new tariff to ensure the salvation of the Nigerian Electricity Supply Industry.
Speaking at a media briefing in Abuja, NSE President, Margaret Oguntola, acknowledged the need for restructuring of tariff in the power sector but stressed the importance of a well-implemented framework. She highlighted concerns about transparency in billing processes, accountability of regulatory bodies, and measures to address downtime during repairs on transmission and distribution lines.
Oguntola emphasized the need for differentiated pricing based on consumer segments, suggesting that revenue from industries should subsidize costs for residential areas. She called for immediate sanctions for defaulting DisCos to ensure value for consumers.
However, a civil society organisation, the Electricity Consumer Protection Centre, insists that the recent electricity hike was unjustifiable given the poor performance of DisCos in the past.
Speaking to journalists in Abuja, the Executive Director, Electricity Consumer Protection Centre, Princewill Okorie said it was wrong for the government to continually approve tariff increases for the DisCos when consumers have never had improved supplies for monies invested in the sector.
Okorie noted that the government needs to keep control over pricing in the sector since the operators have shown little interest in putting money into improving infrastructure and networks.
According to him, “there are fundamental problems in the sector that the government needs to fix before talking of any tariff increase. We don’t look at the issues of implementation and enforcement. The power sector is very fundamental to the social and economic development of this nation.
“Nigeria is a signatory to the United Nations convention on human, social, cultural and political rights, and also Section 34 (1) of Nigeria’s Constitution is against torture, inhuman and degrading treatment. And from the way Nigerians are being treated today in the power sector, it is clear that they are being tortured, dehumanised and treated without respect.
“The increase in tariff is not justified and we reject it,” he stressed.
He called for a probe into how DisCos spend the operations expenditures and capital expenditure provided for them in the tariff order, stating that over the years consumers have continued to provide poles, transformers and cable without being reimbursed by the utilities.
According to him, while budgets for OPEX and CAPEX have continued to increase, transparency in the expenditures has dwindled.
“There are fundamental problems in the sector that the government needs to fix before talking of any tariff increase”
Plans to increase power generation
While the debate over the recent tariff hike is ongoing, some Nigerians have expressed more concerns over availability of electricity, with many reporting the inability of the DisCos to meet the terms of the price increase.
In an attempt to boost consumers’ confidence in the prospect of DisCos truly meeting the target of providing 20 hours electricity supply, the Minister of Power, Adebayo Adelabu, says government plans to increase power generation with additional 6,000 Megawatts of electricity within the next six months.
The minister who disclosed this while speaking on a national television last week said the government is committed to addressing the challenges plaguing the power sector and ensuring a substantial increase in electricity generation.
Currently, Nigeria generates and transmits over 4,000MW of electricity, with distribution issues being the primary bottleneck.
Adelabu, however, expressed confidence in overcoming these hurdles and achieving the targeted 6,000MW milestone.
Acknowledging the existing challenges, Adelabu reiterated the government’s determination to resolve them, leveraging the expertise of industry stakeholders and experts.
“We are currently at a little over 4,000MW today… But we are going to change the narrative in this administration. In the next six months, Nigerians should expect not less than 6,000MW of power generated,” Adelabu affirmed.
The minister highlighted Nigeria’s installed capacity of 13,000MW across hydropower and thermal plants, underscoring the need to optimize this potential to meet the nation’s electricity demand.
Adelabu called for patience from Nigerians as the government works to address the sector’s challenges, assuring citizens of a tangible improvement in power supply within the stipulated time frame.
