Three major cement manufacturers listed on the Nigerian Exchange Group (NGX) spent a staggering N525.78 billion on energy in the first half of 2024, marking a 140% increase from the previous year.
This surge is driven by a combination of rising electricity tariffs, escalating diesel prices, depreciation of the naira, and increased gas costs.
Dangote Cement recorded the highest energy expenditure, while BUA Cement’s energy cost now accounts for over 50% of its total production expenses.
The energy expenses of Nigeria’s leading cement manufacturers listed on the Nigerian Exchange Group (NGX) surged by an astonishing 140.66% in the first half of 2024, compared to the same period in 2023. The companies—BUA Cement, Dangote Cement, and Lafarge Cement—reported a combined expenditure of N525.78 billion on energy between January and June 2024, a significant rise from the N218.47 billion recorded in the corresponding period of the previous year.
Breakdown of Energy Costs:
Dangote Cement Plc emerged as the largest spender, with its energy costs skyrocketing to N374.82 billion in the first six months of 2024, up from N157.02 billion in the same period of 2023. This represents a 138.7% increase. The company’s energy expenses accounted for 44.98% of its total production costs, up from 40.99% in the first quarter of 2023.
BUA Cement Plc also saw a dramatic rise in energy costs, which soared by 171.71% to N130.15 billion, compared to N47.9 billion in the first half of 2023. Energy now constitutes 51.1% of BUA’s total production costs of N254.65 billion, crossing the crucial 50% threshold for the first time.
Lafarge Plc, although spending less than its counterparts, reported an energy expenditure of N20.81 billion in the first half of 2024, an increase from N13.55 billion in the same period of the previous year. Notably, Lafarge’s financial statement combines energy and personnel costs, making direct comparisons more challenging.
Factors Driving the Cost Increase:
Several key factors have contributed to this sharp increase in energy costs:
1. Electricity Tariff Hike: In April 2024, the Nigerian Electricity Regulatory Commission (NERC) increased electricity tariffs for Band A customers by over 200%, raising rates from N66 per kWh to N225 per kWh. This move, part of the government’s strategy to reduce its subsidy burden, disproportionately affected industrial consumers, including cement manufacturers. The Manufacturers Association of Nigeria (MAN) has expressed concern over the impact of this tariff hike on operational costs.
2. Rising Diesel Prices: Diesel prices have also surged, with the average price per liter reaching N1,462.98 in June 2024, up from N815.83 in June 2023—a 79.32% increase. Despite promises of price stabilization from the new Dangote Refinery, diesel costs remain a significant burden on manufacturers who rely on it for power generation.
3. Increased Gas Prices: For manufacturers utilizing natural gas, the Nigeria Midstream and Downstream Petroleum Regulatory Authority (NMDPRA) raised the base price of gas for commercial users from $2.42/MMBTU to $2.92/MMBTU in April 2024, a 20.66% increase. This price adjustment further compounded the energy cost challenges faced by cement producers.
4. Naira Depreciation: The naira’s continued depreciation against the US dollar has exacerbated the situation. By the end of June 2024, the naira had weakened by 95% year-on-year, trading at N1,503 per dollar. Since diesel and gas are priced in dollars, this currency depreciation has significantly inflated energy costs for manufacturers.
In conclusion, the combination of rising electricity tariffs, soaring diesel prices, increased gas costs, and the weakening naira has led to a substantial increase in energy costs for Nigeria’s cement manufacturers. As these companies grapple with these escalating expenses, the broader implications for the manufacturing sector and the Nigerian economy remain a significant concern.
