* Some 70% of Nigerian firms say they use generators - World
* Diesel costs could jump with clean-shipping rules
* Cost spike could hit GDP growth - RenCap
By Libby George
LAGOS, Sept 17 (Reuters) - Nigeria's frenetic commercial
capital, Lagos, is plunged into darkness several times a day.
Then its generators roar, and the lights flood back on.
Nigeria is one of the world's largest economies where
businesses rely so heavily on diesel-powered generators.
More than 70% of its firms own or share the units, while
government data shows generators provide at least 14 gigawatts
of power annually, dwarfing the 4 gigawatts supplied on average
by the country's electricity grid.
The machines guzzle cash and spew pollution, but they are
reliable in a nation where nearly 80 million people - some 40%
of the population - have no access to grid power. Now diesel
costs could spike globally, and many businesses are not
prepared.
Diesel prices are expected to surge as United Nations rules
aimed at cleaning up international shipping come into effect on
Jan. 1, with many ships expected to burn distillates instead of
dirtier fuel oil.
Slowing economic growth and nascent trade wars could blunt a
price spike, and as the shipping industry adapts to the rules,
vessels will likely consume less diesel. But in the short term
their impact could be profound.
Estimates vary widely, but observers warn that prices could
surge by nearly 20%. Higher costs for operating generators that power the
machinery, computer servers and mobile phone towers that run
Nigeria's economy could impair growth in gross domestic product,
already limping along at 1.92% at a time inflation is at 11%.
With the population growing at 2.6% each year, people are
getting poorer.
"In an environment like this, where discretionary spending
is very limited, this could have a big impact," said Temi
Popoola, West Africa chief executive for investment bank
Renaissance Capital.
A 20% price rise could shave 0.2% off GDP growth, he said.
GENERATORS EVERYWHERE
Nigeria and German engineering group Siemens SIEGn.DE
agreed in July to nearly triple the country's "reliable" power
supply to 11,000 megawatts by 2023. But previous such plans have
failed.
While many Nigerian household and small business generators
are powered by price-capped gasoline, the big generators for
larger firms, apartment complexes and more substantial homes can
only run on diesel.
"Businesses may struggle to survive, or in the best case
scenario, would at least downsize," said Tunde Leye, a
Lagos-based analyst with SBM Intelligence. Diesel is the second
or third biggest cost for many Nigerian firms, he said.
The oil industry, the Nigerian economy's biggest driver,
would not take a big hit as it does not rely on Nigerian
consumers being willing to absorb extra costs it has to pass on.
As fuel producers in their own right, its firms can also recoup
costs more easily.
But other heavyweight industries would feel pain. Bank
branches rely on generators, with diesel often accounting for
20-30% of banks' operating expenses, according to Popoola.
Telecommunications companies need them to run their mobile
phone towers across the country. Telecoms giant MTN MTNJ.J
told local media in 2015 that it spends 8 billion naira ($26
million) annually on diesel.
Even bakeries need diesel. At Rehoboth Chops &
Confectioneries Ltd, a bakery in the Ogba district of Lagos,
giant diesel-powered ovens bake hundreds of loaves of bread. The
factory runs 24 hours a day, six-and-a-half days a week.
The lights, mixers and fans that clear the heat are powered
by two large diesel generators outside. The ovens run directly
on diesel, so they never cut out.
Chief operating officer Abayomi Awe said they use cheaper
grid power when they can but rely on generators for around 20
hours per day. Grid power can be down for days.
"It becomes difficult for us to expand if the price of
diesel goes up," he said as bakers scrambled to pull finished
loaves from steaming ovens. "It might result in some companies,
some bakeries like ours, shutting down."
IN CRISIS, AN OPPORTUNITY
Many businesses are already searching for solutions. The
Lagos Chamber of Commerce wants electricity prices revised
upwards so the grid can attract investment - a politically risky
move domestically.
It has also lobbied the government to remove tariffs and
taxes on imported solar panels, which stand at 10%.
Unity Bank and the Bank of Agriculture have already signed
deals with solar firm Daystar Power, while mobile phone tower
firm IHS Towers is trying to power more sites using solar
panels.
Solar power provider Starsight Power Utility Ltd said it is
working with 70% of Nigerian banks, but that cheap diesel has
been one of the biggest hurdles for the development of solar.
"I think an increase in the diesel price would be most
welcome for our business," chief executive Tony Carr said.
"There is no market penetration because diesel is so cheap."
($1 = 305.9000 naira)
Generator Bound https://tmsnrt.rs/305EalK
Global Diesel/Gasoil Use by Industry https://tmsnrt.rs/2ZWlrce
Top Diesel/Gasoil Consuming Nations https://tmsnrt.rs/31jsk53
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