How rising electricity tariff will sting Nigerian consumers’ pockets

Manufacturers Association of Nigeria warns: New electricity tariff to increase costs of goods for Nigerian consumers
40% tariff increase would lead to higher production costs, lower profit margins, and manufacturing activities paralysis, says MAN
The burden on manufacturers: Rising electricity costs and unpaid bills impact the sector’s competitiveness and ability to create jobs

The Manufacturers Association of Nigeria has warned that the new electricity tariff will lead to increased costs of goods to the Nigerian consumer.

This was disclosed by Mr Segun Ajayi-Kadir, Director-General, MAN, in an interview with the News Agency of Nigeria (NAN) on Friday in Lagos.

He noted that a 40% tariff increase at this time would engender higher costs of production, lower profit margins, and manufacturing activities paralysis.

No time for Tariff

MAN disclosed that plans to increase electricity tariff from July 1 as outrageous, in the interview, citing that the real sector was currently uncompetitive from the high prices used to generate power from alternative sources.

Ajayi-Kadir said a 40% tariff increase at this time would engender higher costs of production, lower profit margin, manufacturing activities paralysis, and lower revenue remittances to the government among others, the interview added:

“He stated that the absence of a stable, effective and fairly priced electricity supply in Nigeria had been a long-standing challenge for manufacturers which compelled them to supplement with alternative energy sources. Regrettably, he noted that the available alternative energy sources such as diesel had become exorbitantly expensive.
“Manufacturers spent at least N144.5 billion on sourcing alternative energy in 2022, up from N77.22 billion in 2021, translating to an 87% increase in the cost of access to alternative energy sources.”

Increased costs

MAN noted that even the FG was owing N75 billion in unpaid electricity bills was indicative of how burdensome the cost of electricity had become, urging that the new tariff would impact production costs.

“Already, we have power constituting between 28-40 percent in the cost structure of manufacturing industries.
“You can imagine the impact on manufacturing industries that are energy-intensive such as metal processing, heavy machinery, and chemicals manufacturing.
“A spike in the electricity tariff will erode the profit margin of the manufacturers and reduce their ability to expand operations and create new jobs.
“Manufacturers will ultimately pass on the additional cost to the consumers of their products and this will increase the cost of the products in the market and complicate the rising inflation rate in the country.
“Also, the sector’s competitiveness will worsen as the high cost of the products will make locally produced items less competitive when compared with imported alternatives,” he said.

They urged the Federal Government and Nigerian Electricity Regulatory Commission (NERC) to instead, ensure improved electricity generation, transmission, and distribution to meet the revenue needs of the electricity supply industry stakeholders, adding”

He added the Manufacturing sector which is the engine of growth, is still struggling as a result and urged the FG to engage in extensive and intensive consultations with the manufacturers;

“Care should be taken to avoid introducing burdensome measures that will further strangulate the manufacturing sector and the whole economy,”

Backstory

Recall Nairametrics reported earlier that Electricity prices are expected to rise due to the unification of the naira and the depreciation of the currency, coming after

The Central Bank of Nigeria recently consolidated all segments of the forex market, allowing market forces to determine the exchange rate.
The unification of exchange rates may lead to an increase in electricity tariffs, affecting both on-grid and off-grid customers.