Story Highlights
- The three listed cement manufacturers on the NGX spent a total of N525.78 billion in the first half of the year on energy- an increase of 140% compared to the figure for last year.
- The reason for the hike stems from a hike in electricity tariff by the NERC, an increase in diesel prices during the period, depreciation of the naira and an increase in gas prices to commercial users.
- Dangote cement saw the biggest increase in energy cost while BUA cement’s energy cost as a representation of total production cost crossed 50%.
The energy cost of cement manufacturers listed on the NGX rose by 140.66% in the first half of 2024 compared to the figure for the same period of 2023.
A review of the 2024 half-year financial statement of BUA, Dangote and Lafarge Cements Plc reveals that the companies spent a combined N525.78 billion on energy between January and June 2024 as opposed to the N218.47 billion spent in the corresponding period of last year. This represents an increase of N307.31 billion.
Dangote Cement Plc spent the most on energy, shelling out N374.82 billion in the first six months of the year. When compared to the N157.02 billion in the first half of 2023, the firm’s energy cost soared by 138.7% in the period under review.
Energy cost as a representation of the company’s total production cost in the half year 2024 stood at 44.98%- an increase from 40.99% during the first quarter of 2023.
For BUA Cement Plc, its energy cost increased from N47.9 billion recorded between January and June 2023 to N130.15 billion in the same period of 2024. This indicates an increase of 171.71% during the period.
The company’s energy cost in the first half of the year constitutes 51.1% of its N254.65 billion production cost during the period.
In the first half of the year, Lafarge Plc’s energy cost stood at N20.81 billion- an increase from the N13.55 billion spent in the corresponding period of last year.
It is important to note that for Lafarge Plc, the energy cost comprises of personnel cost as there is no explicit item for energy cost in its financial statement.
Reason for the increase in energy cost
Electricity tariff increase- The spike in energy costs for the country’s cement manufacturers stems from recent government policies relating to energy.
Beginning in April 2024, the federal government through the Nigeria Electricity Regulatory Commission (NERC) hiked electricity tariffs for Band A customers by over 200%. This saw the electricity tariff rise from N66 per kwh to N225/kwh.
The federal government justified its actions by stating that the hike only affected 15% of total electricity customers in the country who enjoy a minimum of 20 hours of electricity per day. It also noted that the subsidy on electricity was becoming an unbearable fiscal burden.
The Vice Chairman of the NERC, Musliu Oseni had earlier stated that the hike in electricity tariffs for Band A customers will reduce subsidy on power by N1.14 trillion.
An earlier analysis by Nairametrics reveals that the country’s electricity subsidy will rise by 170% to N1.67 trillion.
The International Monetary Fund (IMF) has also warned that subsidies on electricity and petrol could cost the country up to 3% of GDP in 2024 and increase its budget deficit.
This policy to increase electricity had irked the manufacturing community who have been lamenting about the increase in operational cost coupled with inflation across the country. The Manufacturers Association of Nigeria (MAN) had asked the NERC to reverse the decision.
79% increase in diesel prices- Beyond the hike in electricity tariff, the increase in the price of diesel is partly responsible for the increase in energy costs being faced by cement manufacturers in the country. According to the National Bureau of Statistics, (NBS), the average price of Automotive Gas Oil (AGO) in Nigeria as of June 2023 stood at N815.83 per litre.
However, in June 2024, the price of diesel soared to N1462.98 per litre indicating an increase of 79.32% year-on-year. This is despite supply from the new Dangote refinery which promised to crash the price of diesel to N1000 during the first half of the year.
NMDPRA increase in natural gas prices- For cement manufacturers who use gas to power their factories, the cost of gas also increased during the first half of the year.
In April, the Nigeria Midstream and Downstream Petroleum Regulatory Authority (NMDPRA) increased the base price of natural gas for commercial users and players in the power sector from $2.42 MMBTU to $2.92 MMBTU– an increase of 20.66%.
Exchange rate weakness- Since the end of the first half of 2023, the naira has significantly weakened against the dollar. On June 30, 2023, the naira traded at N769.25/$. One year later, it closed the first half of the year at N1503 to the dollar, marking a 95% depreciation.
As diesel is imported using USD and gas is priced in dollars, the cost of these products has increased for manufacturers, contributing to the spike in energy costs.
The combination of rising electricity tariffs, increased gas prices, and higher diesel prices has dramatically driven up the energy costs for cement manufacturers.
