Dangote Cement Plc has turned to palm kernel and rice husk to substitute gas and coal to power its plants, as high energy cost eats into profit.
On Friday, the Acting Chief Executive Officer of Dangote Cement, Dr Gbenga Fapohunda, said that the decision became necessary due to the skyrocketing cost of powering its plants.
Politics Nigeria learnt that the cement maker spent N157 billion on fuel and power in the half year of 2023 as against the N129bn spent in 2022, annualised.
Fapohunda said: “Power is a key part of our business, so that is one factor that contributed to the increase in the cost of production. The second fact that affected it as well as the cost of coal. So, the cost of coal actually increased as well significantly across our major markets.
“In our Nigerian market, by this time last year, we were buying local coal at about N13,000 -N14,000 per ton, but now, we buy about N28,000 per ton.
“So, you see a form of hike. Gas is another form of power that is actually key to our business, so, basically, we buy gas billed in dollars, and we pay in naira.”
He explained that the depreciation of the naira due to the new Central Bank of Nigeria’s foreign exchange policy has worsened the situation as they pay more for gas priced in dollars.
The cement maker, which is the largest in Africa, recorded a revenue of N950.8 billion in the first six months of 2023, but production cost was N383.1 billion, up from N322.5 billion recorded same period last year.
The production cost and other costs led to a slight fall in its profit to N 239.86bn from N264.9bn in 2022 first half.
“So, the dollar was N465; now the dollar is N756, so we are now paying more naira for the dollars.
“For us as management, what is important to us is what we are doing about it. So, for us, we have invested heavily in what we call alternative fuel,” the CFO said.
Fapohunda revealed that the company has adopted a new strategy for cutting energy costs using biomass.
He said, “Alternative fuel is mainly biomass using palm kernel shell to power our plant instead of expensive coal.
“We are using rice husk to power our plant instead of using expensive diesel. So, we have invested heavily in this, and we have gotten serious mileage.
“We call it thermal substitution. It has really helped, and we have doubled our investment in it even before this.”
