OLAJIDE FABAMISE (Lagos), writes that the plight of manufacturers in the country is increasingly being compounded by high cost of Liquefied Petroleum Gas, diesel and Low-Pour Fuel Oil (LPFO).
The sudden high cost of Liquefied Petroleum Gas (LPG), has made operators in the real sector, who have been struggling with higher operational costs amidst drop in capacity utilisation levels switch to other sources of energy for production.
Gas and Low-Pour Fuel Oil (LPFO) are largely used to power production machines, but its supply has been irregular and the irregular supply has negatively impacted the retail price. The operators spend $8 each per square metre of gas, which is now expensive on the back of dollar scarcity.
Cost-cutting measures by some firms will lead to job losses and slow down economic recovery. Having explored options of downsizing in the 2016 financial year as part of measures to stay afloat, many operators are considering further reduction in staff profile as they are having difficulty paying existing staff while rationing industrial fuel consumption to cut down on operational costs and saves such as solar while those dependent on diesel and gas are cutting back on production hours.
It can be recalled that the communiqué issued at the end of the last monetary policy committee meeting of the Central Bank of Nigeria noted that the structural factors driving the sustained pressure on consumer prices, such as the high cost of power and energy, transport, production factors, as well as rising prices of imports are yet to abate.
Also the latest data released by the National Bureau of Statistics (NBS) showed that there was cross-cutting price increase in all divisions and sectors nationwide, just as it said prices in communications and restaurant, hotels and hospitality sector recorded slowest pace of growth as at the end of 2016, many of whom are dependent on diesel and gas to drive their operations.
Currently, capacity utilization is below 40 per cent while cost of providing alternative power, both for gas and diesel hit about N100 billion in 2016 compared toN58 billion in 2015.
With rising energy costs, president, Manufacturers Association of Nigeria (MAN), Dr. Frank Jacobs told LEADERSHIP Sunday that the productive sector remained troubled due to various challenges in the operating environment.
“The absence of conducive manufacturing environment and basic infrastructure would continue to draw back the sector, except something urgent is done to reverse the situation. Power is a major cost for manufacturers and they will explore opportunities where it is cheaper to produce their goods,” Jacobs said.
Jacob noted that domestic, onshore LPG production must be accelerated. “Certain companies have LPG projects that have stalled over the years. It’s time for the Petroleum Ministry to get interested. Onshore, domestic-focused LPG production would eliminate the huge marine costs that continue to impact prices,” he observed.
According to him, the government plans to spend one third of the budget on capital projects including building roads, rail, and improving power supply in order to enhance the business environment, boost agriculture and factory output. The power, works and housing ministry was allocated the biggest share of N529 billion, followed by N262 billion for transport.
“Spending more on infrastructure to boost manufacturing is good, but that will be determined by how well they implement the projects,” Jacobs said. According to him, “Increasing manufacturing output “will however mainly depend on government genuinely implementing an appropriate foreign-currency policy so as to attract investments.
“Conversion of diesel generators to gas is a viable alternative but it is not cheap for small scale industries, while gas supply has equally been hampered by continued destruction of oil and gas facilities by militants,” Jacobs added.
The chairman, MAN Gas Users Group of the Association, Dr. Michael Ola Adebayo, stated that the association has drawn the attention of the federal government and the general public to the problem of persistent increase in the price of natural gas used by manufacturers to power their plants and machineries by the gas franchisers.
He said that this has reached a crisis dimension as most factories have stopped production and are about to shut their operations due to non-supply of gas to power their operations as well as the current exorbitant and dollarization of the available ones.
“In fact, some of our factories have been threatened with disconnection on account of their inability to pay for the increased prices,” he revealed.
He recalled that in the year 2010 an infringement was perpetrated by all the franchisers with the demand for an increase in price without any amendment of the GSPA, adding that the disagreement and the controversy that followed the action created a prolonged industrial dispute in which manufacturing was almost grounded to a halt.
Adebayo noted that the National Gas Pricing Mechanism was released and circulated by the minister of Petroleum Resources, and became effective from October 2010 and expired on December 31, 2014. The gas pricing policy released by the ministry then benchmarked the price of natural gas to the movement of foreign exchange as published by the Central Bank of Nigeria.
The chairman explained that the association considered the present situation as regards the actions by the franchisers as unacceptable, given that for the past one year, manufacturers have been confronted with a number of increases in the price of natural gas due to the unstable rate of exchange of dollars to the naira.
”Determining gas price based on exchange rate is total flagrance to the directive of the CBN, that all transactions in Nigeria must be in local currency,” he said.
Adebayo disclosed that there is need for Nigerians to know that the price of gas in Nigeria is now far higher than the international price which is at an average of $2.5, whereas, the average price of gas in Nigeria is currently at $7.65 per scm. “Since we operate in a global market, it will only make sense to adopt the global pricing, instead of indulging in the habit of exploiting our manufacturers and innocent citizenry,” Adebayo said.
He urged the federal government to enhance good governance and sustenance of the economy. “Government must ensure that effective mechanism is put in place to checkmate the powerful moguls who are always bent on breaking the rules,” Adebayo said.
He equally urged the Senate and House committees on Oil and Gas to intervene as was done in the past to prevent a possible collapse of the economy and manufacturing sector in particular.
On the plight of operators in the services sector, the director-general of the Lagos Chamber of Commerce and Industry (LCCI), Muda Yusuf explained that the federal government is caught between managing the joy of rising oil prices and the negative effects of such on the productive sector.
According to him, government must be creative in tackling these challenges. Yusuf noted that businesses are being killed every day through poor power supply and low purchasing power from consumers.
“Businesses are complaining. Petrol and diesel costs are unbearable at the current rates. It is a suffocating situation and I hope the issues of ease of doing business are addressed before opening markets to other economies,” he said.
Yusuf, said that the cost of energy remains a challenge yet to be addressed by the federal government There is acute scarcity of gas, and when available the cost is prohibitive. The story is the same for diesel and LPFO, which are used as sources of fuel by many manufacturers. The high energy cost naturally impacted on production and operating cost.
National president, Nigerian Association of Chambers of Commerce, Industry, Mines and Agriculture (NACCIMA), Dr. Bassey Edem, noted that while the efforts of the federal government in addressing the challenges can be acknowledged, the efforts have not translated into measurable positive indicators; rather it has led to a thing of worry to private sector operators.
He noted that the business operators and Nigerians are patiently looking forward to the promised “change” that will bring about the economic turn-around of the country, adding that the real sector is reeling under the burden of rising costs of production in a state of near-economic stagnation, even as government seeks tax revenue from the sector to finance the economy.
Source : Leadership