Energy costs for cement makers listed on the NGX increased by 140.66% in the first half of 2024 compared to the same time in 2023.
The companies spent a total of N525.78 billion on energy between January and June 2024, according to an examination of the 2024 half-year financial statement of BUA, Dangote, and Lafarge Cements Plc. This is in contrast to the N218.47 billion spent during the same period the previous year. This amounts to a N307.31 billion rise.
Dangote Cement Plc incurred the highest energy expenditure in the first half of the year, amounting to N374.82 billion. The company’s energy costs increased by 138.7% during the reviewed period when compared to N157.02 billion in the first half of 2023.
In the first quarter of 2024, energy costs accounted for 44.98% of the company’s total production costs; this is an increase from 40.99% in the same period the previous year.
In the same time of 2024, BUA Cement Plc’s energy costs climbed from N47.9 billion in January to June of 2023 to N130.15 billion. This shows a 171.71% growth throughout the period.
In the first half of the year, the company’s energy costs accounted for 51.1% of its total production costs of N254.65 billion.
Lafarge Plc’s energy costs for the first half of this year were N20.81 billion, up from N13.55 billion for the same period the previous year.
It is significant to notice that Lafarge Plc’s energy cost includes people costs because its financial statement does not specifically list energy costs.
Reason for the rise in energy costs
Raising the electricity tariff: The recent energy-related policies of the government are to blame for the surge in energy costs for the nation’s cement producers.
The Nigeria Electricity Regulatory Commission (NERC) on behalf of the federal government increased Band A consumers’ electricity rates by more than 200% starting in April 2024. As a result, the price of power increased from N66 to N225 per kilowatt-hour.
In an attempt to defend its actions, the federal government claimed that the increase only impacted 15% of the nation’s electricity users who get at least 20 hours of power each day. It also mentioned how the electricity subsidies were starting to become an intolerable financial strain.
Musliu Oseni, the Vice Chairman of the NERC, has previously declared that the increase in Band A consumers’ electricity rates will result in a N1.14 trillion decrease in power subsidies.
The nation’s budget deficit may rise to 3% of GDP in 2024 as a result of fuel and energy subsidies, the International Monetary Fund (IMF) has also cautioned.
The manufacturing community, which has been complaining about rising operational costs and nationwide inflation, was displeased with this policy of increasing electricity. The Nigerian Manufacturers Association (MAN) has requested that the NERC overrule the ruling.
Diesel prices increased by 79%: Beyond the increase in electricity rates, the nation’s cement producers are bearing an increased portion of the cost of energy due to the rise in diesel prices. As of June 2023, the average cost of Automotive Gas Oil (AGO) in Nigeria was N815.83 per liter, according to the National Bureau of Statistics (NBS).
However, the price of diesel skyrocketed to N1462.98 per litre in June 2024, a year-over-year rise of 79.32%. This is true even though the new Dangote refinery’s supply was supposed to drive down diesel prices to N1000 in the first half of the year.
NMDPRA increase in natural gas prices: During the first half of the year, the cost of gas jumped for cement producers who rely on gas to power their operations.
The base price of natural gas for commercial customers and participants in the power sector was raised by the Nigeria Midstream and Downstream Petroleum Regulatory Authority (NMDPRA) in April from $2.42 MMBTU to $2.92 MMBTU, a 20.66% increase.
Weakness in exchange rates: The value of the naira with the dollar has declined dramatically since the end of the first half of 2023. The value of the naira was N769.25/$ on June 30, 2023. A year later, it depreciated by 95%, ending the first half of the year at N1503 to the dollar.
The cost of these goods has gone up for producers because petrol is priced in dollars and diesel is imported using USD, which has caused an increase in energy expenditures.
The cost of energy has significantly increased for cement makers due to a combination of rising power rates, higher petrol prices, and higher diesel prices.
