Between FG and Domestic Meter Manufacturers

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Peter Uzoho writes on the implication of a recent presidential approval to defer for one year, the 35 per cent levy on imported pre-paid electricity meters

There is an ongoing disquiet among domestic manufacturers of pre-paid electricity meters over the recent approval by President Muhammadu Buhari to defer for one year, the 35 per cent adjustment tax imposed on fully-built unit (FBU) electricity meters HS Code 9028.30.00.00 to enable importers import about three million prepaid meters into the country.

The government said the approval was to enable quick supply of the meters through the Meter Asset Provider (MAP) scheme, so that the wide metering gap in the country could be addressed in the shortest possible time as part of the ongoing efforts to pull the power sector from its current crisis.

The President had given the approval under the 2019 fiscal policy measures for the implementation of Economic Community of West African States (ECOWAS) common external tariff (CET) 2017 – 2022.

The approval for the adjustment followed a request by the Minister of Finance, Budget and National Planning, Mr. Zainab Ahmed, to support the Nigerian Electricity Regulatory Commission (NERC) in rolling out three million electricity meters under the Meter Asset Provider (MAP) framework.

MAP regulation is a gradual up scaling of the patronage of local manufacturers of electricity meters with an initial minimum local content of 30 percent with the potential of significant job creation in the area of meter assembly, installation and maintenance.

However, the decision has not gone down well with the local meter manufactures, who raised concerns on the approval and appealed to the President to rescind his decision, citing a number of consequences it would have on the nation’s ailing economy.
The domestic meter manufacturers under the aegis of Electricity Meter Manufacturers Association (EMMAN) in a statement warned that Nigeria risks loss of over $600 million to capital flight in favour of China in the presidential approval.

The domestic meter manufacturers said such approval was a disincentive and inimical to the development of local capacity in the downstream sector of the country’s power industry and apparently puts a question mark to the federal government’s local content pursuit.

The association said the directive was an incentive for mass importation of pre-paid meters as against upscaling of production capacity of made in Nigeria meters.

According to the association, the local manufacturers are not been patronised by Off-takers at the downstream sector of the power industry value chain because they are not prepared to cut corners, adding that it believes the presidential approval of tax deferment on importation of three million finished electricity meters would have negative effects on the power sector.

They warned that allowing such decision to run for a year would jeopardise government’s efforts at industrialising the country, stressing that the deferment might set back the development that was already on ground while the decision would dampen the hope of the local manufacturers as well as cripple the anticipated growth in the sector.

The association noted that as an in-depth manufacturer in the sector, it takes an average of three months to set up SKD (Semi Knock Down(SKD)/ Complete Knock Down(CKD) factory, advising the government that importers should be encouraged to set up factories so as to create a value chain that would provide employment opportunities to Nigerians.

Advancing the position of the association, a member of the Original Equipment Manufacturer (OEM) in the downstream sector of the power sector and Chairman of Momas Electricity Meters Manufacturing Limited (MEMMCOL), Mr. Kola Balogun, said that the 35 per cent levy was the only protection available to them in the sector which was not peculiar to the sector alone.

Balogun said the removal was an indication that the government was more disposed to favour importation to the detriment of the nation’s local industry.

He said: “The implication of this is that over 600million US dollars would be exported to China to import the approved three million meters. This means we would further be developing another country’s economy and continue to increase unemployment, poverty and underdevelopment in our country.”

He said if the right policy was put in place, his company has the capacity to produce enough prepaid electricity meters to help close the wide metering gap in the country, adding that government could made that possible through some form of financial intervention.

According to him, “We are bold to emphatically say that, we at MEMMCOL, have the local capability to bridge the metering gap if the right policy is put in place. This can be by way of financial intervention by the government whereby certain agreed percentage of the cost of meter supply would be advanced to us like the importers do with the Chinese and upon completion of installation balance payment would be made to us.
“We do not even mind to furnish a bank guarantee as our own commitment in such deal.”

Balogun said the right thing that should have been done by the government was to identify challenges facing local manufacturers and find a way to proffer solutions to them.

He said: “For instance, there is high tariff rates payable to import raw materials that are not readily available in the country, the duty payable on our raw materials ranges from five per cent per to 40 per cent plus other port charges.

“These are like the ETLS of 0.5 per cent, CISS of one cent, VAT of 7.5 per cent and surcharge of seven per cent, whereas it is a one off payment of 10 per cent duty on the finished meters plus other port charges for importers and we sell at the same regulated prices.

“You will agree with me that this is not fair to the manufacturers given the amount of investments manufacturers put in place in terms of technology transfer, plant and machinery, human capital development through training and retraining, research and development.”

The chairman stressed that the major reason most of the industries in the country had closed down was because of high production costs, thereby making manufacturing unviable and not encouraging.

Balogun, therefore, suggested that the way forward was backward integration whereby government would categorise the key local players in the sector and other sectors of the economy, according to their production processes by separating assemblers from manufacturers and issue certificates accordingly.

He listed the certificates to include Semi Knock Down (SKD), Complete Knock Down (CKD), Original Equipment Manufacturer(OEM) and Original Brand/Design Manufacturer(OBM/ODM).

The MEMMCOL boss said all the raw materials needed to manufacture would be made to attract zero per cent import tariff rate for OBM/OEM manufacturers while the relevant government offices would monitor the use of the gains from the import tariff policy to ensure that they plough it back into their investment.

This, he added, would develop the sector and the economy at large as well as encourage the manufacturers of the raw materials to come and set up their factories in the country.

While stressing that there would be no reasons for the country to import anymore, Balogun added that “We wish to use this medium to advise the federal government to send its delegate to verify our capability and replicate this across all our various sectors so as to be well informed before taking industrial decisions.”

Speaking to THISDAY on the matter, the Chief Executive Officer of Mojec Meters Manufacturing Company, Mrs. Chantelle Abdul, who expressed her understanding of government’s aggressive drive to ramp up meter supplies and close the wide metering gap via the MAP scheme, however, said the approval would definitely affect local meter manufacturers negatively.

According to her, “while you understand the structure (the deferment), it absolutely does affect local manufacturers, because it therefore means you are going to be importing than producing in the country.”

She wondered why Nigeria should still be importing meters even with the strong capacity of local manufacturers to meet the number of meters needed, explaining that the combined installed capacity of all meter manufacturers in the country is over six million.

“But we do have enough installed capacity in the country. If the government will get behind the manufacturers, provide the Forex necessary, provide the financing necessary, make it easy to clear goods at the ports, the same meters produced in China can be produced in Nigeria. We can absolutely produce in Nigeria. If you combine the installed capacity of all the manufacturers in the country today, it’s up to six million if not more.

“So, there is no reason why we should even be importing meters. We should however get government to support the manufacturers so that we can be able to produce in-country,” Abdul said.

She explained that supporting local meter manufacturers would not only help in boosting local production capacity, but would also help to improve the economic lives of Nigerians.

“And more importantly, it will create jobs, create livelihood for our people, make them be able to work, be responsible citizens and more importantly, have a disposable income to take care of their family, take care of their day-to-day basic needs.

“But importation does not achieve or aid any of that. So in the desire to ramp up the proliferation of meters you cannot sabotage the economic welfare and the good of your people,” Abdul said.

Also quoted in the EMMAN statement, the President of Nigeria Consumer Protection Network (NCPM), Mr. Kunle Olubiyo, said there is an urgent need for the federal government to put in place a very strict regime of sanctions against Off-takers who have deliberately refused to accept indigenous technology and made-in-Nigeria pre-paid meters or pre-paid meters assembled in Nigeria.

Olubiyo noted that metering devices in the electricity sector provides the end users, the market players, participants and regulatory agencies a spectrum of energy, accountability, efficiency conservation and probity.

He said issues of customer centricity, customer satisfaction, value for money, customer behaviours, short-changing customers, liquidity challenges and prospects for reasonable returns on investments, amongst others, were all linked to effective metering and closures of the embarrassingly huge metering gaps.

Olubiyo said: “As important as the vexed issue of metering is, there are other variables and extraneous factors that if not eradicated or boldly addressed once and for all, the Nigerian electricity market will remained an elusive growth and a vicious circle of stagnation.

“As electricity consumers, we have taken our time to present our position to the Federal Government of Nigeria; we have a five-page document tagged, ‘Conditions Precedent to Increase in Electricity Tariff’.

“As a matter of fact, what we need now is a downward review of the presently discriminatory gas pricing methodology and disparity in the gas pricing business model with different pricing options for different Off-takers.

“Electricity consumers are increasingly being made to pay for fixed cost, padded cost, over bloated indexes of hyper inflated cost of production of each units of electricity measured in kilowatt hour, etc”.

According to him, end users of electricity have been badly battered and impoverished by a cartel of energy cabals fiddling with the economic soul of Nigeria and holding the nation’s jugular down in perpetually counter-productive operations.

“With just political will and sincerity of purposes, Nigerian government could change the narratives and not only make Nigeria great again but make her a more virile, robustly prosperous and globally competitive reindustrialised country,” he noted.