Businesses suffocating as fuel energy costs shoot skywards


Businesses suffocating as fuel energy costs shoot skywardsMajor companies in Nigeria spent about N635.2 billion on power generation and utilization in 2023 amidst rising energy costs and its attendant impact on businesses.

This represents a 41.5 per cent Year-on-Year (YoY) increase compared to N448.76 billion spent in the corresponding period in 2022

Details of the cost show that the bulk of the expenditure was on diesel and related cost of independent power generation.

Latest statistics from the National Bureau of Statistics (NBS) showed that the average retail price of Automotive Gas Oil (Diesel) paid by consumers in December 2023 was N1,126.69 per litre in December 2023, an increase of 37.76 percent from N817.86 per litre in December 2022.

On a month-on-month basis, this increased by 6.74 percent from N1,055.57 per litre in November  2022.

Also, the average retail price of Premium Motor Spirit (Petrol) rose by 225.85 per cent to N671.86 within the same period from N206.19 per litre in December 2022, following the removal of fuel subsidy by President Bola Tinubu, which triggered major energy crisis in the country.  Likewise, comparing the average price value with the previous month (November 2023), the average retail price increased by 3.53 percent from N 648.93.

Among the companies reporting sharp rises in power costs are BUA Foods Plc, BUA Cement Plc, Dangote Cement Plc, Fidson Healthcare Plc, Chemical and Allied Products (CAP) Plc, Neimeth Pharmaceuticals Plc, Aluminium Extrusion Industries Plc, Juli Plc, Lafarge Cement Africa Plc, Dangote Sugar Refinery Plc, NASCON Allied Industries Plc and Livestock Feeds Plc, all in the manufacturing sector.

Others are Wema Bank Plc, Fidelity Bank Plc, Cornerstone Insurance, Transcorp Plc, Transcorp Hotels Plc, NPF Microfinance Bank Plc and Abbey Mortgage Bank Plc from the services sector.

Meanwhile, industrialists and financial experts have said that the persistent hike in the prices of petroleum products as well as poor public power supply nationwide, among other factors, have pushed up cost of production and is adversely impacting business competitiveness and sustainability.

They observed that many small businesses have closed shop as a result of this development.

They suggested  decentralization of the grid as well as amendment of the Power Reform Act to remove  encumbrances that deter investors from the power sector.

Increase in energy cost for companies

Financial Vanguard findings from the companies’ financial statements showed that manufacturing firms suffer the most in energy cost. The breakdown shows that while the non-manufacturers recorded 26.4 per cent rise in energy cost, manufacturers recorded 41.8 per cent rise.

Amongst the manufacturers, Livestock Feeds recorded the highest increase in energy cost at 104 per cent followed by BUA Foods Plc with 50 per cent increase, and Dangote Cement rose by 49.8 per cent.

Commentin on the cost of operations, Graham Hefer, Managing Director, Okomu Oil Palm Plc, said: “The high energy cost can be crippling for all of us. The margin you mentioned, that is, the 30 per cent increase could be more. In most cases, If you have been running a generator set, you will be running your activities up to 80 per cent on self-generated power.

“We started the year at a little above N800 per litre for diesel, but, today, the price went up to more than N1,000 per litre. So, you can see the major cost increase; it impacts hugely on our cost of sales.

”If you run your power generator daily at N300 per kilowatt hour, if you are lucky, when at the beginning of the year you budgeted about N160 per kilowatt per hour, you can imagine the implication for all of us.”

He, however, said that while increases in energy cost, especially diesel and PMS have had an inflationary effect on the company (Okomu Oil) because the tractors, lorries and generating sets need the fuel, “we have managed to buffer ourselves partially by installing a 5MW turbine in our oil mill that uses palm biomass through the boilers to generate steam to run the turbine at a fraction of the cost of fuel.”

BUA Foods Plc in its 2023 earnings release noted that the surge in energy cost resulted in increases in cost of sales, selling and distribution expenses as well as total operating cost. According to the company, “67 per cent increase in cost of sales in 2023 to N477.14 billion was driven by an increase in raw materials cost and energy cost.

“Selling and distribution expenses increased by 98 per cent to N28 billion in full year 2023 from N14.1 billion in 2022 due to huge increase in cost of diesel within the period. ‘Total operating expenses increased by 20% to N39.7 billion in 12 months 2023 (12M 2022: N32.9 billion) on the back of increase in selling and distribution cost along the supply chain to customers.”

Speaking in the same vein, Lolu Alade-Akinyemi, CEO of Lafarge Africa, noted that the company’s performance in 2023 was largely impacted by spiraling inflation and unprecedented Naira devaluation, with  attendant pressure on energy and supply chain costs.

Erodes profitability, impedes competitiveness — Stakeholders

Speaking on the operating environment of businesses, Mr. Muda Yusuf, CEO, Centre for the Promotion of Private Enterprise (CPPE) said that the power supply situation is worrisome as it affects companies’ profitability, competitiveness, sustainability and their ability to reinvest and create new jobs.

He, however, said there’s need for companies to be more innovative to ensure energy efficiency to reduce cost.

He stated: “The high and increasing energy cost is perhaps the second biggest problem facing companies across all sectors, especially in the real sector, next only to forex.

“This is essentially a legacy problem following years of sub-optimal performance of the public electricity sector. Most companies generate their own electricity at very exorbitant cost.

Cost of diesel has been soaring.  Cost of gas is benchmarked against the dollar.  It is really a very difficult situation.

“Yet, these additional costs are difficult to pass on to the consumers. It is a major predicament. At the macro level, there is need to accelerate reforms to boost investment in the power sector.

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