The manufacturers in Punjab are starting to feel the heat of the actual impact of the recent increase in the electricity prices for the industry on their cost of production as they receive their first bills based on the new power tariffs.
Although the government withdrew the Sept 30 notification raising the domestic prices after the apex court found it was issued in violation of the standard procedures of tariff determination by the Nepra, it was not immediately clear the decision also applied to industrial tariff.
Even if it also covers the industry, the government plans to return to Nepra to reconsider the determination of tariff of distribution companies as well as the Karachi Electric Supply Company. The government also made it clear that the determination would be according to the guidelines issued by the government to reduce power ‘subsidies’ to the level targeted in the budget for the current fiscal year.
“The industry in Punjab simply can’t absorb the average increase of 61 per cent from Rs9.18 a unit to Rs14.81 a unit in its cost,” a manufacturer, who did not want to divulge identity for personal reasons, told Dawn last week. “The new tariffs are crippling for the industry. The industry in the entire Punjab will pay an additional Rs86 billion because of this raise,” he added.
Compared with Punjab, the net financial impact of the new electricity prices on the industry in Sindh (excluding the factories on the Karachi Electric Supply Company grid) will be Rs6.61 billion and in Khyber Pakhtunkhwa Rs10.5 billion.
In Punjab the industry consumes 1800 megawatt of electricity and in Sindh (exclusive of KESC grid) 145 megawatts and in Khyber Pakhtunkhwa 227 megawatts.
A young textile manufacturer said the hike in electricity prices would not impact the industry in Sindh and Khyber Pakhtunkhwa because the factories there were getting gas seven days a week to generate captive power for operating their machines. Compared with them, the industry in Punjab is receiving gas only three days a week or 10 hours day.
According to him, the energy bill of an average spinning mill with 20,000-25,000 spindles in Punjab running on electricity and gas both had risen to Rs25 million month after the tariff revision compared with Rs15 million for a factory with the same production capacity in Sindh and Khyber Pakhtunkhwa. The electricity bill of a factory of the same size without captive power in Punjab has risen to Rs32 million a month, he added.
“It has not only raised our cost of production but also made us uncompetitive in comparison with our rivals in the two smaller provinces,” he argued. “Now they can manipulate export prices at our expense,” he complained.
The new industrial tariffs of about 14.5 cents in Pakistan are also highest in the region. The cost of electricity for the industry in India is 11.3 cents, in Sri Lanka 9.2 cents, in China 8.5 cents and in Bangladesh 7.3 cents, according to a regional industrial electricity tariff comparison done by the All Pakistan Textile Mills Association (Aptma).
An executive of a cement manufacturer said the increase in electricity rates had created an anomaly within the sector, making the cement manufacturing more expensive for most cement makers as they do not have self-generation arrangements. “The rise in power prices means the cement manufacturers who have alternate energy arrangement in the shape of gas or coal based generation will become much cheaper than people like us who do not have such setups,” he said.
The young textile manufacturer questioned the rationale behind the steep rise in the prices when governments own average energy purchase price based on the existing fuel mix was less than Rs7 a unit during July and August according to Nepra documents.
Manufacturers feel let down by the new government also because they are being “forced to pay more in spite of minimal distribution losses and 97 per cent bill recovery”. “It is like penalising the honest consumers and giving incentives to those who steal electricity and gas,” said a processor from Faisalabad. “It is unfortunate that a government considered business-friendly is pursuing policies that harmful for the industry. Who will want to invest in such circumstances?,” he asked.
Instead of raising the tariff, he said, the government must focus on bringing down transmission and distribution losses estimated to be around 22 per cent of the total electricity output in the country, check power and gas theft to the tune of 6-8 per cent and recover unpaid bills of around Rs500 billion of distribution companies from their public and private consumers. “This will not only eliminate the need for raising the power prices but also recover electricity to reduce duration of blackouts in the country,” he said.
Some industrialists say the manufacturers in Punjab are facing double whammy. “On the one hand we have to face maximum energy shortages and on the other have to pay higher prices. “In summers we don’t get electricity and in winters we do not receive gas for months,” said an auto part manufacturer who uses LPG to meet his energy requirements. He said the worst hit victims of the tariff hike were small to medium sized enterprises with limited capacity to absorb the additional burden. “This may lead to increase in power theft,” he warned.
“We need continuous supply of electricity and gas at competitive rates if we are to survive competition from our regional rivals in the international markets,” the processor said. “We work in a very competitive market where buyers switch to suppliers in other countries easily. We cannot even pass on the increased in power prices to our buyers.