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Still Mired in the Energy Trap

todayAugust 9, 2022

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A recent report by the United Nation that posited that fossil energy might be priced out of the reach of developing countries raises concern about Nigerian manufacturers that rely on diesel as its major source of energy, writes Dike Onwuamaeze

Last month, most the organisations that in one way or the other represent the interests of the Nigerian manufacturing sector raised their voices in lamentation. They were lamenting the negative impact of the escalating cost of energy on the productive capacity and competitiveness of the Nigerian industrial sector. According to them, the current upsurge in the price of AGO, popularly known as diesel in Nigeria, is threating their businesses with closures, especially those in the small and medium scaled manufacturers. In July, the price of diesel was N720 per litre and is still climbing.

For instance, on July 8, he Director General of the Manufacturers Association of Nigeria (MAN), Mr. Segun Ajayi-Kadir, in a public statement titled, “The Position of MAN on the Recent Increase in the Price of Automotive Gas Oil (AGO),” said that the Nigerian manufacturing sector has been battered by numerous familiar challenges that have plummeted the number of industries in Nigeria and converted industrial hubs in many parts of the country to warehouses of imported goods and event centres.


Top on the list of challenges confronting the sector, according to Ajayi-Kadri, is high operating cost environment occasioned largely by inadequate electricity supply and the high cost of alternative sources amongst others.  

He noted that manufacturers are heavy users of electricity in Nigeria and this naturally necessitates our keen interest in all electricity and alternative energy supply related discourse and development. 

 He said: “The MAN is greatly concerned about the implications of the over 200 per cent increase in the price of AGO on the Nigerian economy and the manufacturing sector.”

He, therefore, asked: “Should manufacturing companies that are already battered with multiple taxes, poor access to foreign exchange and now over 200 per cent increase in price of diesel be advised to shut down operations? Should we fold our arms and allow the economy to slip into the valley of recession again?”

He was not alone in raising concerns about the skyward trend in the cost of diesel. On July 21, the National President of Nigerian Association of Chambers of Commerce, Industry, Mines and Agriculture (NACCIMA), Mr. John C. Udeagbala, added his voice and said that the soaring price of diesel have become prohibitively expensive and forcing a lot of enterprises to shut down or scale down their operations. The situation puts to question the readiness of Nigeria to compete in the global economy especially under trade agreements like the AfCFTA.   


Similarly,the President of the Lagos Chamber of Commerce (LCCI), Dr. Michael Olawale-Cole, projected that in the third quarter of 2022, many factors would weigh on growth such as the rising energy costs with diesel above N800/litre.  

Cole said: “These price levels will continue to aggravate production costs which may lead to restrained manufacturing and eventual job losses. We expect to experience some fiscal constraints because of debt overhang accompanied by a high debt service burden and heavy subsidy costs. There are, therefore, heightened fears of contracting output, constrained production, and recession risks as we navigate the murky waters of 2022.”

However, the Nigerian industrial sector might be assailed with higher energy prices at least in the short term. A recent United Nations’ report said that “energy prices are still high, above pre-war levels, suggesting further turmoil in energy markets, with significant global implications.”

This is contained in the United Nations’ report that titled the “Global Impact of war in Ukraine: Energy crisis – UN Global Response Group on Food, Energy and Finance, August 2022.”  The report, which was released on August 3 by the United Nations Conference on Trade and Development (UNCTD), said that “the world is in the grip of a major energy crisis with countries worldwide affected by extremely high and volatile prices, particularly of fossil fuels as rising energy prices may price out many developing countries, with a high level of impact on the most vulnerable citizens, from energy markets.”


The UN said that the war in Ukraine has further disrupted fossil fuel supplies and the overall market in which the Russian Federation is the leading exporter of natural gas and the second largest exporter of oil.

It said: “Rising energy prices may price out many developing countries, with a high level of impact on the most vulnerable citizens, from energy markets. Such a situation is already impacting hard-won gains in the provision of access to energy and the reduction of energy poverty, and progress had already been set back due to the pandemic.

“A potential ‘scramble for fuel,’ in which only those countries paying the highest price can gain access, would be devastating for a multilateral system based on trust and proportionality. Sky-high prices and growing social discontent are putting many Governments under pressure.”

The UN, therefore, advised governments that the best policies would mix urgency and strategy. “Energy policy measures must balance the need for urgency and long-term sustainable development. Without such policies, there is a risk that some countries, especially those without adequate funding, might, under pressure, set a course for high-emission, expensive energy in future,” it said.

It also tasked the international community to jointly take stock of how to manage the energy crisis in a way that would safeguard meeting the target in the Paris Agreement of not exceeding a global rise of 1.5°C above pre-industrial temperatures. Multilateral action is critical, yet each country and region will need to develop a tailored response, in accordance with current human capacity, infrastructure, access to finance and localized challenges.

The UN said that “the world needs to double down on the use of renewable energy sources to achieve the net zero goal, tackle energy poverty and boost and diversify the global energy mix. Renewable energy production is often the least-cost source with the shortest installation time, with some variation by source and geography.

“The International Renewable Energy Agency, in a recent report, highlighted that in 2021, over two thirds of newly installed renewable energy power was cheaper than the cheapest fossil fuel alternative in member countries of the Group of 20. Renewable energy sources also enable the greatest reduction in exposure to fossil fuel prices, especially in countries with a high level of import dependence.

“Renewable energy projects, especially decentralized installations, can be implemented much faster than conventional energy projects. This is true in both energy-intensive and energy-poor countries, yet while advanced economies can continue to fund renewable energy production, developing economies need domestic and international finance frameworks that can support investments in this sector or will be at risk of being left further behind. The crisis is an opportunity to bolster support to developing economies for the rapid growth of renewable energy production, rather than permitting the gap to widen.”


It, therefore, urged governments to identify and address bottlenecks in renewable energy supply to foster clean energy and economic growth and leverage opportunities for a just transition. It said: “Renewable energy scale-up depends on a stable policy environment, providing long-term revenue certainty and the transparent granting of permits. National energy plans, or equivalent economy-wide energy planning to achieve de-carbonisation goals, enable long-term political commitment and policy signaling to the private sector, the public and the world.  

“Governments can accelerate private sector investment and implementation by sending clear policy signals, through robust and detailed country-level renewable and high-efficiency energy transition plans and policy mandates; binding de-carbonisation targets; and a clear trajectory for achieving such targets by supporting infrastructure planning and investment, such as with regard to an enabling infrastructure for renewable energy sources. (e.g. smart grids and electric vehicle charging stations).”

It also recommended that developing countries should be provided with technical and capacity support in developing evidence-based paths to emissions reduction goals, with sectorial plans and investment requirements, including through economic models that gauge positive and negative externalities that a changing energy mix might have on food production costs, especially in terms of fertilizer prices.

The MAN has called on federal government to licence its members to import diesel from nearby Republic of Niger and the Chad Republic while the LCCI championed the resuscitation of Nigeria’s local refining capability.

Similarly, national president of NACCIMA has said that the association is keen to see the progress of the Presidential Power Initiative (PPI) formed between Nigeria and Germany during the visit of the then German Chancellor, Mrs. Angela Merkel and her business delegation which included Mr. Joe Kaeser, Siemens AG CEO and signed as an agreement in July 2019, to among other things, to increase operational capacity of Nigeria’s national grid.

He added that “as the private sector awaits the progress of the PPI, immediate intervention is required in the oil and gas sector for which we depend on for our production and transportation needs.  

It also called for “urgent action in terms of fixing the domestic refineries, which we continue to harp on at every press briefing, or the implementation of the Petroleum Industry Act which is currently hobbled by the petroleum subsidy regime.”

An Economist and the Chief Executive Officer of the Centre for the Promotion of Private Enterprises (CPPE), Dr. Muda Yusuf, identified high and increasing energy cost as one of the biggest concerns of economic players in the first half of 2022.  

Yusuf said that investors across sectors in the economy are concerned about the high and increasing energy costs especially the cost of diesel, which has gone up by over 300 per cent, the cost of gas which has increased by over 100 per cent while the cost of PMS (petrol) is still moderately tolerable because of the subsidy regime that is still currently being provided by government.

He noted that the frequent collapse of the national grid has made it even more difficult for many businesses to continue to sustain their operations, creating serious business sustainability concerns among investors.

He said: “Costs have become elevated, profit margins are being eroded, purchasing power has been weakened and business sustainability is at risk. The cost of transportation has reached unprecedented levels especially the cost of haulage because of the escalating cost of diesel.”


Yusuf, however, commended the federal government for its decision to make the Nigerian National Petroleum Corporation (NNPC) an independent, autonomous organisation. This proposition would unlock the huge investment opportunities in the oil and gas sector for the benefit of all Nigerians.

 He hoped that the models of Saudi Arabian Oil Company [Saudi Aramco] and the Petrobras of Brazil would be replicated with this transformation.

“This is a good initiative which deserves the support of all Nigerians. The take-off may not be perfect, but we should see it as a work in progress. We should see the initiative as a major step in the transformation of our oil and gas sector.

“We propose a business model that would dilute the ownership of the NNPC with the onboarding of institutional and individual investors and decoupling of the management from political interference and controls.

“The company should ultimately be listed on domestic and international stock markets.  This is the vision that we should have and we should support the NNPC to achieve this goal,” Yusuf said.

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