July 21, 2024
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Nigeria: Why Manufacturers Demanding for Reversal of Electricity Tariff Hike

Manufacturers are still grappling with the recent increase in electricity tariffs for Band A customers. Despite the government’s decision to partially roll back the hike and justify the higher tariff by citing a reduction in electricity subsidies from about N3 trillion to N1 trillion, manufacturers remain unswayed.

They argue that only a complete suspension of the tariff hike will mitigate its negative effects on the economy, particularly the manufacturing sector. Assistant Editor Chikodi Okereocha examines the arguments presented by manufacturers advocating for a reversal.

Even before protesters gathered last Wednesday under the Ikeja Underbridge in Lagos to demand a reversal of the electricity tariff hike, members of the Organised Private Sector (OPS), especially manufacturers, had been vocal in their opposition. They have consistently called for the immediate suspension of the recent tariff increase implemented by the Nigerian Electricity Regulatory Commission (NERC) for Band A customers, according to The Nation.

The manufacturers contend that the over 230 percent increase in electricity tariffs during these challenging times is detrimental to business. They argue that it will worsen the already high-cost operating environment, potentially leading to the closure of many private businesses, increased unemployment, and heightened insecurity in the country. Additionally, they emphasize that the substantial tariff hike amidst inadequate electricity supply undermines the competitiveness of Nigerian products and businesses.

In April, the Federal Government, through NERC, announced a significant increase in electricity tariffs for Band A customers, raising rates from N68 per Kwh to N225 per Kwh. Although the Electricity Distribution Companies (DisCos), backed by NERC, promised a minimum of 20 hours of daily electricity supply to Band A customers in exchange, the 240 percent increase was met with strong opposition from manufacturers and other OPS members.

Sustained opposition from manufacturers and aggrieved Nigerians eventually led the Federal Government to approve a downward revision of the tariff for Band A customers from N225/Kwh to N206.80/Kwh. To justify the initial tariff increase, Minister of Power Adebayo Adelabu stated that the move reduced the electricity subsidy from about N3 trillion to N1 trillion. Adelabu argued that the government could no longer afford the N3 trillion subsidy, emphasizing that even with the tariff increase, electricity remains cheaper compared to Premium Motor Spirit (PMS) and diesel.

Despite Adelabu’s justification, his arguments failed to resonate with many Nigerians, who continued to voice their disapproval. Protests during the 2024 Democracy Day underscored public dissatisfaction with the tariff hike. Manufacturers, particularly affected by the increase, maintained pressure on the government to halt the implementation of the new tariff.

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The Manufacturers Association of Nigeria (MAN) expressed significant concerns regarding the tariff increase. MAN Director General Segun Ajayi-Kadir highlighted that a medium-sized company using 700Kw would now pay approximately N1.4 billion per annum for electricity, compared to around N725.8 million for a similar company in China. He pointed out that the new electricity tariff places Nigeria among the countries with the highest electricity costs, despite the country’s inadequate electricity supply and other economic challenges.

Ajayi-Kadir warned that over 65 percent of private businesses, especially manufacturing concerns and Small and Medium Industries (SMIs), may be forced to shut down due to the high electricity tariff. He argued that the tariff hike, justified by the need to address mounting debt and ensure the power sector’s functionality, would disproportionately affect small businesses, leading to higher utility bills and potential closures.

MAN President Otunba Francis Meshioye called for a pro-manufacturing policy to enhance the sector’s performance, emphasizing the importance of adequate electricity supply for economic growth. He noted that electricity-related expenses constitute a significant portion of production overheads in some sub-sectors, arguing that the tariff hike contradicts the Multi-Year Tariff Order (MYTO) and does not reflect current exchange rate realities.

Meshioye also criticized NERC and DisCos for failing to explain how the tariff increase would lead to substantial improvements in electricity generation and supply. He pointed out that the installed capacity has not been fully utilized due to limitations in the generation and distribution infrastructure, resulting in frequent outages and production losses for manufacturers.

In summary, manufacturers continue to demand a complete suspension of the electricity tariff hike, citing its detrimental impact on the economy and the manufacturing sector. They argue that the high tariff, coupled with inadequate electricity supply, threatens the competitiveness and viability of Nigerian businesses.

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