SECTION ONE 1.1 INTRODUCTION One of the pre-requisites of manufacturing is abundance of energy i.e. electricity which is mainly utilized for driving machines for the production of various items.
The manufacturing sector has always emphasized in their public policy advocacy, the need to improve various infrastructure, particularly, electricity which is the primary energy required for production.
The uncompetitiveness of goods produced in Nigeria is largely due to the fact that apart from other facets of the economy which affect the manufacturing environment, electricity has been a largely contributing factor especially the running cost of private generators, rather than diminishing is increasing in leaps and bounds.
The main thrust has been on the cost of spare parts for maintenance of generators and the rising cost of AGO (Diesel).
Industry uses more than 10percent of the energy consumed in the Nigeria (figure 1) - and even more when product transportation is factored in. The escalating costs for natural gas and oil clearly have a major impact for manufacturers in Nigeria that, left unaddressed, could hurt their competitiveness in world markets. Moreover, energy experts predict that global market pressures on oil and gas markets will ensure that high prices will be with us for some time. Being better energy managers is important not only for each company, but is also an essential component in achieving a low-inflation, high-growth economy.
One of the major findings of this report is that the rising costs for energy also offer opportunities for manufacturers. By strategically building energy efficiency decision-making into production, manufacturers will identify new ways to—
• cut costs, raise productivity, and improve shareholder value • improve managerial performance • meet environmental standards • create energy efficient products and market opportunities • improve their competitive position and • ensure better community relations. 1.2 SCOPE OF THIS STUDY This paper shall examine the impact of energy on the manufacturing sector in Nigeria. The manufacturing sector is an integral part of the industrial sector in any economy. The major policies and measures applied to promote their development and the strategies and the policy reforms needed to accelerate the pace of industrialization will be discussed, with emphasis on the capacity and industrial utilization of the manufacturing industries.
Also the perennial problems faced by the power sector in the economy will also be x-rayed 2.1 THE ROLE OF ENERGY IN MANUFACTURING Energy allows manufacturers to transform raw materials into final consumer goods. Raw materials pass through a number of intermediate stages, with these intermediates representing the bulk of industrial energy consumption. In an economic sense, energy performs work that adds value to intermediate products as they are progressively transformed into final consumer goods. The opportunities to improve energy efficiency occur at each step of the manufacturing process. Manufacturing processes vary by industry and are too numerous to list here.
In general, industry’s fuel inputs become energy that performs work. Manufacturers’ energy inputs typically follow this sequence:
• Primary energy input, which is the total volume of energy assembled to serve industrial needs • Central generation, which mainly occurs in powerhouses where fuel is converted to heat and power by a steam plant, power generator
• Distribution, which pipes heat and sends power from central generation to process units • energy conversion, consisting of motors, fans, pumps and heat exchangers that transforms heat and power to useable work and
• Processes, in which converted energy transforms raw materials and intermediates into final products.
2.2 FACTORS THAT INFLUENCE INDUSTRIAL ENERGY DECISIONS The Impact of Technology, Regulation and Market Forces Production decisions are paramount in industry, and all other decisions are usually subordinate to production goals. Given the complexity of manufacturing operations, managers typically seek to ensure that production decisions become as routine as possible. Decisions on energy use are no exception, and may be best understood in a sequence working backward from production goals:
• A facility’s production targets drive its total energy consumption.
• The amount of energy consumed per unit of production is largely dictated by the plant assets themselves. Work procedures and the integrity of equipment also affect per-unit energy requirements.
• A facility’s fuel choices primarily reflect fuel availability and the nature of the facility’s process, as well the capabilities of the facility’s powerhouse.
• Fuel procurement activities represent the front end of industrial energy decision-making. Fuel procurement choices are determined in part by the needs of powerhouse and process combustion technologies. Fuel selection is also influenced by regulations pertaining to combustion emissions and their impact on air quality.
2.3 ENERGY EFFICIENCY Energy efficiency is not just about reducing utility bills. It’s also about boosting revenue through greater productivity. Energy efficiency is an indispensable component of any effort to improve productivity. Ultimately, energy efficiency contributes to wealth.
Energy efficiency provides another option for meeting air quality goals in that combustion volumes are reduced proportionately with fossil fuel consumption. A combination of energy efficient technologies and practices are generally the cheapest, quickest and cleanest way to extend energy supplies and consequently offset high energy prices. Energy efficiency prevails economically when the unit price of fuel purchased exceeds the unit value of fuel wasted. Energy innovations improve the emissions profile of manufactured vehicles as well as the processes that manufacture them. Caterpillar, a manufacturer of construction and mining equipment, diesel and natural gas engines, and industrial gas turbines, has set goals to reduce the emissions of its manufacturing facilities as well as its products.
2.4 BARRIERS TO ENERGY EFFICIENCY Human, technical, financial and organizational capacities all contribute to a manufacturer’s ability to build wealth through energy efficiency. Similarly, the barriers to energy efficiency are evident when the manufacturer lacks these capacities. Manufacturers can and do make money despite inefficiencies. However, the burden of energy waste, lost income and increased exposure to operating risk are increasingly hard to bear in a globally competitive economy.
The Alliance to Save Energy has researched the organizational aspects of industrial energy efficiency for more than five years. From this ongoing study, certain barriers to energy efficiency are frequently encountered:
• Misunderstanding of business value: The term “energy efficiency" is easily confused with other concepts.
Having dual-fuel capabilities in the powerhouse, for example, simply means the operator has a choice of fuels. Enlisting an energy marketer to purchase fuel usually helps to even out energy price fluctuations, but has no impact on efficiency of energy use. Consuming renewable energy sources such as wood byproducts is fine as an alternative to fossil fuel, but this consumption is equally susceptible to waste as it is converted to process work. The first hurdle to advancing energy efficiency is to understand that it is a business opportunity to reduce expenses, build revenues and control risk.
• Lack of staff and management awareness: Staff doesn’t always make the connection between energy choices and money. For example, compressed air leaks are often overlooked because “air is free," although this conclusion ignores that fact that five horsepower of electricity are consumed to generate one horsepower of compressed air. Steam system management is susceptible to similar thinking. Plant operators who assumethat scrap rates are of no importance “because scrap can be melted down and used again" are not considering the excess energy consumption that this practice requires.
• Lack of cross-departmental cooperation: The manufacturer’s first priority is to make product and get it out the door, not save energy. Every position on the company’s personnel chart has a job description, accountabilities and incentives—all tied to production.
Departments within a company often compete against each other in the budget process. For example, energy efficiency projects might be expensed from the maintenance budget, but the savings accrue to the production budget. When departments do not cooperate, waste is allowed to continue. Unless top management takes action, energy efficiency is a duty that occupies the blank space on the personnel chart—the space where there are no boxes.
• Outdated accounting techniques: Many industrial facilities still have only one utility meter to measure consumption for an entire plant. In this situation, traditional accounting practices treat plant-wide energy as an overhead cost, which is then allocated across departments according to their numbers of workers or square feet of space. Early 20thcentury accounting techniques can obscure the results of 21stcentury energy use. Moreover, the cost of any one department’s energy waste is distributed to all departments. Even worse, this accounting system is a disincentive to any one department taking the initiative to improve energy efficiency, because that department’s results will be diluted by the artificial allocation of costs. Improper allocation of energy costs may distort financial decisions such as product pricing, income and tax declarations, production mix, compensation and bonuses, and capital investment allocations. But today’s advanced energy metering technologies can monitor actual consumption by substations within a facility, improving department managers’ abilities to control their energy costs.
• Restrictive budget and fiscal criteria: A manufacturer’s budget and finance functions can impose procedural barriers to energy efficiency initiatives. Operating budget strategies may simply trend each line item from year to year. The manager that saves energy this year will risk getting a reduced budget for the coming year. Low-bid or least-cost purchasing requirements may be imposed by front-office procurement personnel without thorough consultation with operations staff. Consequently, this arrangement leads to purchases based solely on upfront costs, ignoring energy and other operating costs over the life of the asset. Restrictive debt covenants can effectively limit corporate borrowing. In an effort to not “waste" borrowing capacity, debt financing may be limited to core process investments.
• Lack of management accountability: The rotation of management within companies often prevents the hard decisions from being made. “Not on my watch" is often the response to improvement proposals that won’t pay off until after the current manager’s tenure is over.
• Lack of resources: Because of limited time, money and skills, and with management accountability sometimes tied to short-term results, deferred maintenance is the order of the day. To “save money," some companies will release well-compensated, skilled workers, especially from non-core activities like energy support. The remaining, less-capable staff is ill-prepared to seek, promote and maintain energy system improvements.
• Complacency: It is easy for top managers to be lulled into complacency about energy and other support functions with which they are not familiar. Management indifference effectively abdicates control to trusted subordinates who know that it is better to report good news than bad. Who is a 35-year-old general manager to question the report of a powerhouse superintendent with 20 years on the job? These territorial relationships are barriers to energy efficiency, especially when tenured staff explains that “this is the way we’ve always done it." The most durable barrier may simply be an organization’s business culture. Few corporate leaders, if any, “save" on their way to the top. Their bias is for short-term revenue making, not cost saving. This thinking is evident in capital budgeting decisions, where growth-oriented projects are favored over expense-reduction initiatives. Decision-makers that dismiss energy efficiency overlook opportunities to grow revenue through the redirection of energy waste to more productive purposes.
2.5 INDUSTRIAL ENERGY MANAGEMENT: A CRITIQUE OF PREVAILING WISDOM The pinch of today’s high-energy costs prompts many manufacturers to investigate energy management options more thoroughly. Some strategies focus on price control, some pursue capital investment projects and others seek savings through changes in procedure and behavior. It is possible to combine all of these strategies.
The Alliance to Save Energy’s research has identified the range of typical energy management strategies practiced by industry today. These strategies are as follows:
• Do nothing. Ignore energy improvement. Just pay the bill on time.
Operations are business as usual or “that’s the way we’ve always done it." The result is essentially “crisis management," in that energy solutions are undertaken in emergency situations without proper consideration of the true costs and long-term impacts. This strategy is pursued by companies that
(1) Do not understand that energy management is a strategy for boosting productivity and creating value, or
(2) Have management in such turmoil that energy management cannot be sufficiently supported, or
(3) Are extremely profitable and don’t consider energy costs to be a problem.
• Price shopping. Switch fuels, shop for lowest fuel prices. Make no effort to upgrade or improve equipment. Make no effort to add energy-smart behavior to standard operating procedures. Companies take this approach because they “don’t have time" or “don’t have the money" to pursue improvement projects. It is also preferred by companies that truly believe that fuel price is the only variable in controlling energy expense.
• Occasional low-cost, non-capital projects. Make a one-time effort to tune up current equipment, fix leaks, clean heat exchangers, etc. Avoid capital investments. Revert to business-as-usual behavior after one-time projects are completed. Companies that do this are insufficiently organized to initiate procedural changes or make non-process asset investments.
They cannot assign roles and accountabilities for pursuing ongoing energy management. • Capital projects. Acquire big-ticket assets that bring strategic cost savings. But beyond that, daily procedures and behavior are business as usual. This strategy is adopted by companies that believe that advanced hardware is the only way to obtain real, measurable savings. Similarly, they believe that operational and behavioral savings are “weak" and not measurable. Such companies may also lack the ability or willingness to perform energy monitoring, benchmarking, remediation and replication as a part of day-to-day work. However, they have the fiscal flexibility to acquire strategic assets that boost productivity and energy savings.
• Sustained energy management. Merge energy management with standard operating procedures. Diagnose improvement opportunities and pursue these in stages. Procedures and performance metrics drive improvement cycles over time. Manufacturers with corporate commitment to continuous improvement can pursue this strategy. They have well-established engineering and internal communications protocols and an energy program that engages staff with roles and accountabilities. They encourage cooperation among departments.
SECTION THREE
3.1 SURVEYING THE MANUFACTURING SECTOR The manufacturing sector consists of establishments that use mechanical or chemical processes to transform material or substances into new products. An establishment is usually at a single physical location and is often called a plant, factory, or mill. It ordinarily uses power-driven machines and equipment for handling materials. Its products may be final products that consumers will purchase, such as an automobile or a chair, or they may be goods for use by other manufacturers, such as parts for automobile engines or rolls of upholstery fabric. A manufacturing establishment may also assemble parts or perform blending operations.
Manufacturers are in the business of producing physical units of output for consumption by end users or other manufacturers. One goal of production is to consume as few inputs as possible to produce a quality output. Specifically, if energy requirements are reduced relative to output, each unit of output has become less energy intensive. This improvement is an increase in energy efficiency.
3.2 THE NIGERIAN INDUSTRIAL SECTOR Industrialization involves extensive technology-based development of the productive system of an economy. Industrial development, therefore, represents a deliberate and sustained application and combination of suitable technology, management techniques and other resources to move an economy from the traditional low level of production to a more automated and efficient system of mass production of goods and services. Rapid industrial development has become the main focus of economic development because of its potential benefits. Industrialization tends to propel economic growth and quicken the achievement of structural transformation and diversification of economies. It enables a country to utilize fully its sector endowments and to depend less on the external sector for its growth and sustenance. Through industrial development, an economy gains the versatility and resilience that enables it to raise the standard of living of its people and cope better with internal stress and constrains.
Before independence in 1960, the Nigerian economy was mainly agrarian, both in production for domestic consumption and exports. Industrialization was not part of the colonial economic policy, which was anchored on making the colonies producers of primary raw materials for foreign industries and importers of manufactured goods. Therefore, the task of the first indigenous administration set for itself on attaining political independence was the transformation of the country into a modern industrial economy. The post-independence government of Nigeria embraces this same aspiration
From the first national development plan 1962 - 1968, rapid industrialization received priority consideration in Nigeria's development objectives. The process may be categorized into three phases, phase one being the pre-independence to the end of the civil war 1954-1970, when there was minimal national industrial planning and the momentum of industrial planning and the momentum of industrial development was higher in the regions as the regional governments competed with one another to establish industries mostly in collaboration with foreign technical partners. Phase two started at the end of the civil war to the beginning of the structural adjustment programme (SAP) (1970 - 1986). This period was marked by centralization of industrial planning and excessive involvement of the federal government in industrial activity through the establishment of heavy capital-intensive industries meant to produce intermediate and capital goods. Phase three was the structural adjustment period (1986 - 1998), in which government sought to rationalize its role by reducing its direct participation in industrial enterprises.
Since the First Republic in 1960, the Government has been playing active role in promoting core/strategic industries in the country. This policy was predicated on the premise that industrialization contributes directly to economic growth, effective use of available resources, employment generation and reduction of dependence on imports. Unfortunately, the country lacked the political will to execute formulated policies, the supportive enabling investment climate, technological and managerial capability and infrastructural facilities to attract investments and sustain industrial growth.
By the 1970s, a clear picture of the structure of the manufacturing sector had emerged. The sector was characterized by:
(a) high geographical concentration
(b) high production cost
(c) low value-added
(d) serious under utilisation of capacity
(e) high import content of industrial output and
(f) low level of foreign investment in manufacturing.
During the period 1960 - 1980, the manufacturing share of Gross Domestic
Product (GDP) increased from 5 per cent to 8 per cent. In order to correct the observed problems, which militate against the performance of the industrial sector during that period, Government pursued the development of a more diversified and integrated industrial sector, financed with the rapidly rising oil income and anchored on the relatively large domestic market as the prerequisites for industrial take-off.
In the early 1980s, the industrial development objectives of the late seventies were continued. Among these were provisions of greater employment opportunities, increased export of manufactured goods, dispersal of industries, improving technological skills and capabilities, increased local content of industrial output, attracting foreign capital, etc. As the country's foreign exchange earnings declined due to high import dependence, weak political and economic institutions, lack of research and development efforts and absence of technological skills in the manufacturing sector, the structural weaknesses in the sector became visible.
SECTION FOUR
SUMMARY OF FINDINGS
United Nations Industrial Development Organization (UNIDO) survey in 2001 showed that poor or near absence of physical infrastructure was identified as number one problem of manufacturers.
Surveys conducted showed that manufacturers generated about 72% of total power required to run their factories.
In the course of this study, the following were also discovered
· In extreme cases, some companies operate independent of NEPA that is they use their own generator sets
· Inadequate generation capacity in the power sector to promote industrialization. Poor equipment selection and rationalization increase the cost of maintenance and spare parts.
· Inadequate Transmission capacity.
· Inadequate Distribution capacity
· Inefficient bill collection system
· Vandalization of facilities
· High level of suppressed demand.
· NEPA is too big to manage · Low water levels during dry seasons
· Disruption in fuel supply to power stations
RECOMMENDATION
The key elements of the Nigerian Power Sector Reform can be summarized as follows:
Meet current and prospective demand for electricity
o Modernize and expand service
o Support national economic and social development
o Attract private investment
o Government interest in the sector as partner with the private sector is still required
o Develop transparent regulatory framework
o Promote competition
o Develop and enhance indigenous capacities in electric power sector technology
o Provision of necessary training for all levels of manpower
o Liberalization of power production
o Domestic production of electric equipment
o Meet targets for rural electrification
o Ensure minimum adverse environment impact.
o Ensure leadership role in the West African Power Pool (WAPP)
PERSPECTIVES ON FUTURE ELECTRICAL ENERGY DEMAND AND CAPACITY EXPANSION PLANS
Studies conducted by the Manufacturers Association of Nigeria aimed at analyzing various options of power achievement up to 2020 indicates the following:
A) 1.0 thousand kWh / capita in 2020, will still be below the 2001 level for some developing countries including Iran, Malaysia, Venezuela, Argentina, Mexico, Botswana, South Africa, Libya etc.
B) 2.0 thousand kWh / capital in 2020, will still be below the 2001 level for some developing countries such as Malaysia, Venezuela, South Africa, Libya, Chile, etc.
C) 2.19 thousand kWh / capital in 2020, will represent the world average in 2001.
CONCLUSION
We need to add that the present administration deserves commendation for the passage of the Electricity sector Power Reform Bill.
The will to implement policies such as the Needs Reform Agenda had been a bane of earlier regimes.
Thus, in order to be a real player in the world economy, We must find smarter ways to meet our energy needs, and we must encourage Nigerians to make better choices about energy consumption. We must also continue to invest in research, so we will develop the technologies that would allow us to conserve more energy and be better stewards of the environment.
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