Power: No sunny side yet for manufacturers

The roaring noise of cars and screeching sounds of motorcycles at the ever-busy Satellite Town, Lagos, easily shrouds hums of generating sets emanating from No 5, Dupe Otegbola Way.

The entrance gate and the two storey building lying within the 3000 square metres compound, perpendicular to the popular Navy Gate, belie industrial activities. This makes few trading neighbours and passers-by mistake this site for an importer’s office. But beyond the gate lies Star Auto Industries Limited, the only surviving brake pads manufacturer in Nigeria.

Apex, then located in Lagos, Lagos State; Edison, then in Nnewi, Anambra State; Fenok, in Onitsha, Anambra State; Feredo, then in Ibadan, Oyo State; Ibeto, then in Nnewi; Mintex, in Kano, Kano State; Uko, previously sited in Onitsha, were all producing this car component in the past but have now gone into extinction.

Entering Star Auto Industries would easily remind anyone that, behind the two storey house, is a beehive of production activities. The factory has four medium-sized generating sets that run shifts like their human counterparts, powering over nine heavy-duty machines.

The defunct Power Holding Company of Nigeria (PHCN) could not provide up to two-hour steady electricity for this factory. The new private firms, which took over electricity management from the inefficient PHCN, could even not provide up to one hour steady electricity supply to it. The firm, therefore, does not rely on external power supply.

The four generating sets, which run for more than 12 hours each day, consume hundreds of litres of diesel every week. A 2000KVA generator at the factory is only allowed to run for a maximum of four hours, while two 1000KVA and one 500KVA generators combine to sustain the factory for about eight hours each day. These generators break down at fits and starts, and require regular servicing.

“You may be surprised to hear this. These generators consume as much as 1000 litres each day,” Chidi Ukachukwu, chief executive officer, told this writer.

“What this means is that we spend as much as N155,000 ($923) on diesel each day. Each month, about N5 million ($29,761) goes into the books as energy cost,” he said.

Independent investigations suggest that Star Auto Industries may go the way of others as it battles with high energy spend, which has made it difficult to repay a loan borrowed from Bank of Industry, one of Nigeria’s development bank. This company used to have over 50 staff in the last five to six years, but its staff strength is dwindling with the speed of light.

“In fact, energy cost in the country makes us (manufacturers) uncompetitive. By the time you conclude your production process, your cost of production even becomes higher than prices of products from China, India and other Asian markets,” Ukachukwu said.

Like Star Auto, Nigerian manufacturers are daily confronted with high energy costs, which affect their margins and capacity to create jobs in an economy where 23.9 percent of citizens are unemployed. Big multinationals such as Nigerian Breweries, Guinness Nigeria, Cadbury, Dangote and Lafarge, among others, use gas plants, which are expensive to install.

Guinness Nigeria, for instance, had to spend $300 million to install a gas plant to prevent damage caused by power outages during production, according to Seni Adetu, immediate past chief executive officer of the brewery firm.

The challenge is that even multinationals that have gas plants struggle with gas shortages, prompting them to import the more expensive low-pour fuel oil (LPFO).

Joe Hudson, immediate past chief executive officer, Lafarge WAPCO, the country’s second largest cement manufacturer, which also use gas, told this writer that 40 percent of its cost goes into energy.

Pharmaceutical firms, both large- and mid-sized, are also not left out. May & Baker, producer of paracetamol tablets for headaches, spends N20 million ($119,047) each month on diesels, said Nnamdi Okafor, its managing director.

In 2011, the Manufacturers Association of Nigeria (MAN) conducted a survey among 850 members to ascertain which among electricity, cost of funds, sourcing of raw materials and regulatory pressure was the greatest business impediment. At the end of the survey, 85 percent reported that electricity remained the greatest impediment.

Gas shortages, resulting from oil theft, lack of finance by the new electricity managers and non-passage of the Petroleum Industry Bill (PIB), which could give international oil firms the leeway to move into the deepwater investments to get sufficient gas, have become big impediments.

However, analysts are worried that the country is too dependent on gas. They say no serious efforts are being made to exploit coal and other alternative power sources.

“Tell me, why is Nigeria exporting coal when it is having power failures? Why is it so dependent on gas?” queried Knut Ulvmoen, deputy president, Lagos Chamber of Commerce and Industry (LCCI), at a presentation.

Odinaka Anudu