…plant to enhance Nigeria’s energy security, say PwC, FDC
…as firms’ energy costs rise by 29% in third quarter
Manufacturers and Small and Medium Enterprises (SMEs) in Nigeria are set to record improved margins in their operations as Africa’s biggest refinery, the Dangote Refinery Complex based in Lagos State, commenced the refining of crude oil last week.
For a start, the $18.5 billion 650,000 barrels-per-day complex started processing crude oil into diesel and aviation fuel after receiving the sixth tranche of one million barrels of crude oil from the Nigerian National Petroleum Company Limited which the President of the Dangote Group, Aliko Dangote, said would be the final trigger to activate production within the complex, while assuring that refined products would be available in the Nigerian market this January.
“We have started the production of diesel and aviation fuel and the products will be in the market within this month (January) once we receive regulatory approvals,” Dangote said on Friday.
The Nigerian Observer analysed the energy costs of a few companies listed on the Nigerian Exchange Group (NGX) with a view to evaluating the impact of subsidy removal on their operations. According to our findings, the energy costs, captured differently as either fuel, power, energy, petrol, among others, increased on the average and across the sample of selected firms by 28.5 per cent during the nine months that ended 30 September 2023.
Collectively, the selected firms incurred energy costs to the tune of N441.62 billion as at the end of the third quarter of 2023, representing an increase of 28.5 per cent over N342.71 billion incurred during the corresponding period of 2022.
Cement giants Dangote Cement and BUA Cement, financial heavyweights including Zenith Bank, UBA, and FBN Holdings, as well as Transcorp, Dangote Sugar, Fidson Healthcare and Livestock Feeds saw their energy costs rise by at least 30 per cent at the end of the third quarter of 2023.
On a company-by-company basis, Dangote Cement incurred N255.45 billion as cost of fuel and power consumed during the period, representing 28.9 per cent increase over N198.15 billion incurred in the corresponding period of 2022.
BUA Cement’s third quarter energy cost rose by 26.7 per cent to N82.34 billion as of September 2023 compared to N65.01 billion during the comparable period of 2022. United Bank of Africa’s fuel cost, captured in its financials as fuel, repairs and maintenance, rose by 30.9 per cent to N45.67 billion in nine months ended September 30, 2023, as against N34.88 billion incurred during the corresponding period of 2022.
Fuel and maintenance cost of Zenith Bank increased by 11.5 per cent to N25.57 billion in September 2023 as against N22.92 billion as of September 2022. FBN Holdings communication, light and power cost rose by 24.2 per cent during the period to N15.01 billion compared to N12.08 billion in the corresponding period of 2022.
BUA Foods’ energy cost rose by 74.9 per cent to N14.42 billion as against N8.24 billion as of September 2022.
Transcorp’s electricity and diesel cost rose by 20.6 per cent to N2.09 billion as of September 2023 compared to N1.73 billion in the corresponding period of 2022.
Dangote Sugar, Fidson Healthcare and Livestock Feeds recorded 36.1 per cent, 71.7 per cent and 317.9 per cent in their energy-related costs, respectively, as at the end of the third quarter of 2023, compared to the corresponding period in 2022.
“Although five years behind schedule, it demonstrates how private business can drive energy security and contribute to the Nigerian energy sector. This mega refinery will do that and reduce the amount of imported refined product from 80% to below 20% and produce fertilisers that can supply the entire region. The refinery can potentially reduce petroleum imports across the continent by 36% and benefit the Nigeria economy by between $20 and$30 bn,” PwC said in its Africa Energy Review 2023.
“Energy security will be enhanced with the commencement of production from the Dangote Refinery,” it said.
On its part, Lagos-based investment cum research firm, Financial Derivatives Company (FDC), regards the coming on stream of Dangote Refinery as one of the game changers in 2024, noting that the increased product supply will enhance Nigeria’s energy security and sector productivity.
Following the removal of fuel subsidies in Africa’s biggest economy, Nigeria, energy costs doubled with direct impact on manufacturing and firms operating in the transport and logistics sub-sectors.
Diesel price rose by 30.50 per cent on a year-on-year basis as of November 2023 to N1,055.57 per litre as against N808.87 per litre as of November 2022. By geopolitical zone, it rose by 32.68 per cent in the South-West, 25.59 per cent in the South-South, 17.33 per cent in the South-East, 36.88 per cent in the North-West, 30.29 per cent in North-East, and 36.25 per cent in the North-Central.
Power cost accounts for about 50 percent of manufacturing production cost in Nigeria as against 10 per cent in some other countries, according to the Manufacturers Association of Nigeria (MAN), making output of most Nigerian manufacturers, especially SMEs, uncompetitive locally and internationally.
“Diesel and petrol generators and inverters are a common source of electricity as the electrical system has failed. Most businesses and affluent families can afford to resort to using their own generators due to the instability and lack of capacity on the national grid even though the cost of running diesel generators is 4 times that of the electrical tariff per KWh,” PwC noted.
In the third quarter of 2023, Nigeria imported N1.92 trillion worth of Premium Motor Spirit (PMS), otherwise known as petrol, which accounted for 22.7 per cent of the nation’s total import for that quarter. Gas oil imported during the same quarter amounted to N736.7 billion, representing 8.71 per cent of total import, and aviation fuel worth N135.82 billion, representing 1.61 per cent of that quarter’s total import.
