Ukatu: Gas Pricing in Dollars is a Huge Challenge for Local Tile Manufacturers

In this interview with Ugo Aliogo, the chief executive, NISPO Porcelain Company Limited, Mallinson Ukatu, highlights the challenges facing the tile industry, especially the pricing of natural gas in US dollars and his company’s growth trajectory, among ot

What line of business is NISPO Porcelain Tiles Company Limited involved in? NISPO Porcelain Company Limited is one of the subsidiaries of Mallinson and Partners Limited. The company is into porcelain tiles. Porcelain tiles are polished tiles of higher standards. We are into ceramics and wall tiles of high standards too. What is obvious in production is technological transformation. Things change with time and you have to upgrade your equipment to meet up with world standard.

Stagnation has caused ceramics tiles not to improve in terms of design. Thus becoming old fashioned than porcelain. We still have ceramics tiles, but it is polished tiles. It has more lasting years and the quality is better. We also have NISPO plastics. We produce plastics and household materials. We are hoping to go into production of pharmaceutical products. At Mallinson and partners, we are looking at going into production of different food items. We are into agro-farming already which is known as NISPO agro farms limited.

Are there special technologies which you use in producing your own tiles or do you follow the conventional way? In tile production, most of the machines we used over the years have been out-dated and new machines are being introduced. This implies that there are innovations in every aspect of production and you have to keep up with the trend of what is obtained in countries such as Italy, Spain, Brazil, and China. Therefore we try to adopt their standards in production as it is important for us to grow. Their standard of tiles is very good.

There is a policy known as anti-dumping, it is an arrangement where some countries don’t want other countries to buy their products because they feel those countries are taking out their production out of the market and also because they don’t want to lose their quality. What this implies is that when you produce you don’t sell because it is coming out from a country where it is cheaper. It is a business politics. For instance, China is into anti-dumping and they sell a lot of tiles to US, Chile, and Argentina, despite the presence of tile manufacturing plants in these countries. As a result of the fact that the cost of labour and materials are cheaper in China, therefore their cost could still be cheaper than goods produced locally. Therefore what countries did to stop the anti-dumping practice was to encourage local manufacturers and discourage the buying of those low quality products from China. We are hoping that soon Africa countries will stop it too.

Tiles from China still flood Nigerian market, despite having indigenous manufacturers producing tiles in the country. What is responsible for this? Nigeria is coming up in tile production; however we have not come to the stage where we will ban tiles importation in Nigeria. We have couple of tile companies that have sprung up in the past six years in the country. It is encouraging because the importation on tiles has gone down close to 60 percent which means that the locally made tiles are taking over which is a success story. In a matter of years to come there will not be any need for us to import tiles into the country.

In the area of raw materials sourcing, where do you get materials? Most of the materials used in production are been sourced in Nigeria. There are some that we import from abroad. It is not easy however to get these materials because of the issues of forex challenges. However, we keep fighting back to remain in business. The materials we source locally are higher than the ones imported. We also have to purchase spare parts to maintain the machinery. It requires forex to purchase these spare parts.

What was the growth projection of NISPO Porcelain Company Limited in 2016, were you able to achieve it? We didn’t achieve our growth projection last year, because the economy was in recession, forex was scarce and the purchasing power was very low. Electric Power Supply was a major challenge. We used natural gas to run the plant which implied that if you are running a tile factory, you must have uninterrupted power supply. Another factor which made the year very tough for us was the vandalism of gas pipelines in the Niger-Delta.

This affected our projection and we hope that this year will be better. We have started well, but we are having a challenge getting gas to run the plant. In 2016, we were doing between 60-65 percent. Therefore our focus was to increase production capacity by 20 percent which will be an 85 percent growth rate.

Then in this year, the focus will be on bringing more machines and increase production capacity by 25 percent again. Production capacity depends on the availability of gas. If our production is 15,000 square metres and we don’t have electricity due to one challenge or the other we cannot achieve that projection very well. It is only when you are sure of the source of your energy that you can make projection or set targets. Non-availability or gas supply interruption can affects production. In tile production, there are series of stages you have to go through. You have to put your furnace for five days to a certain temperature and increase to a certain level to enable you start production. Our plant might be switched on for five days, but we cannot produce anything. We run diesel and we have to pay Shell Petroleum Corporation for the charges. But we cannot produce, except the furnace has been increased to the expected degree required. There are times it takes one week for us to increase our furnace to get to the maximum hitting level where tiles will start coming out.

If we don’t have gas for three months or just a day cut off of gas, it will affect the next one week or ten days production. These are sensitive issues that people are not concerned about. We don’t have alternative power to address this challenge. We would have preferred coal to gas as an alternative source of energy, but getting coal from Enugu State is a huge challenge because of the transportation system. We depend solely on gas and we cannot use black oil to produce because it cannot be easily found. Therefore, there are a lot of challenges, however we are optimistic that things will improve.

What have been the efforts of Manufacturers Association of Nigeria (MAN) to address the gas shortage faced by manufacturers? MAN on its part has been doing so much in addressing the issue of gas cut offs in Agbara, Ota and other areas where most factories are situated. They are doing their best to ensure that the issues are addressed, but the issues are beyond their powers. There have written a letter to the Minister for Trade and Industry, on the need to have legal supply of gas.

How were you able to cope with the forex scarcity in 2016? It was really tough getting forex to run some of the plants we have in the company. We were able to buy two black markets to finance some of our spare parts and raw materials because we couldn’t get it right waiting for three to four months to be able to get foreign exchange to do what we wanted. One of the serious issues we have been clamouring; for is that gas purchase is being charged in dollar in Nigeria. It happens only in Nigeria. This happens because they check the cost of gas per cubic feet according to prevailing rate of foreign exchange. That has been the standard used. There is no country where gas is charged on foreign exchange rate. If you want to charge it on a foreign rate, it should be based on what you are exporting. When there was devaluation of the naira, manufacturers were affected because if the official rate moves up to 400, the price of gas comes to 25 percent, many manufacturers will close down. We have been clamouring for this excess charge as manufacturers.

They charge the manufacturer in dollars which is usually in Central Bank of Nigeria (CBN) official rate then convert to Naira and tell the manufacturer to pay in naira. In other countries the practice charged is according to what you are producing. The price increased by 59 percent when exchange rate moved from 181. The price increased immediately by 200 percent. So if you are paying 5 million naira for gas, automatically you will pay 15 million. If you are paying 20 million, you have to be paying 45 million.

What is the focus for NISPO Porcelain Company Limited in 2017? We cannot lose focus, because we still need to increase our production capacity to be in the market. Bank of Industry (BOI) is trying its best in assisting manufacturers. If what we are seeing now in foreign exchange is been sustained, there might likely be increase in production because we will be able to access money at official rate to bring raw materials and machinery.

Are there likely hopes that the gas charges will improve? We have been clamouring for this in the past seven years. On personal grounds, I have frown on the charging of gas in dollars. This is not obtainable internationally.

Under the current administration, how would you assess the ease of doing business when compared with the past administration as it affects the manufacturing industry? For the manufacturing industry, the administration has given attention to industrialisation of the economy. Under the current administration; most people are going into farming. While some are trying to bring machinery to do exportation. As a result of the high foreign exchange rate, most people have moved from what they were doing to something else, not because the scenario has changed or the atmosphere is better.

We have not seen any renewed effort in the ease of doing business apart from what Bank of Industry (BOI) is doing to support entrepreneurs and Small Medium Scale Enterprises (SMEs). The present government through BOI is supporting the manufacturing sector. We also heard of Development Bank of Nigeria (DBN), we have not gotten the full details of what the bank is all about. This shows that the administration is thinking in right direction, but they should put their plans into implementation.

What advice will you give President Muhammadu administration to ensure that the manufacturing especially the tile industry moves forward? The two important things we are asking are having a steady gas supply that can increase your projection. For instance, there is a term called 7.5 bars which implies a full gas supply for 30 days. Let us have full gas supply for 30 days, not when we are given five bars that cannot take enough machines to work. What this means in simple details is that the voltage is low. It is not proper that you are paying for a service and you are not getting the service.

Government should improve and hold these regulatory authorities to task. The Nigeria Liquefied Natural Gas Company (NLNG) should be out to checkmate the activities of those companies that have the franchise to sell the natural gas. For instance in Ikorodu area, a different company has been given the franchise to sell gas to that area, while in Agbara area, there is another company that has the franchise to sell in that area. The question here is if NLNG is monitoring the activities of these companies to ensure that they are doing what they are supposed to do.