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Concerns about power tariff hike

August 12, 2013
- Illustration by Abro
- Illustration by Abro

The recent increase in electricity prices for industry may be necessary to save the collapsing power sector. But it will make the playing field more uneven for the manufacturing sector in Punjab compared to the other provinces, where the industry, at least the large scale factories, get uninterrupted gas supply to produce captive power for their operations.

The worst hit victims of the whopping rise in industrial power tariffs will be small to medium-sized units, which do not have the leverage to pass the additional cost on to their customers.

“The immediate question facing us after the tariff increase is how to raise our prices to pass on the impact of higher power prices without losing our customers, both in the domestic and foreign markets,” says Syed Nabeel Hashmi, a Lahore-based auto parts vendor and exporter.

“We are working in a very competitive environment, where buyers have the leverage to switch to other suppliers without much difficulty. It is not easy to raise our prices and retain our customers in such a competitive environment,” adds Hashmi, who is also the chairman of the All Pakistan Business Forum, a conglomeration of small to medium-sized businesses. He says that his electricity bill is projected to rise from Rs5 million to Rs7 million a month from next month.

Many fear massive closure of small scale units unless they find a way to transfer the additional burden on to their buyers. “The 10-12 hour power blackouts a day have already affected our production and sales. Now this increase in power prices will crush us,” a small-sized manufacturer of apparels from Sialkot says on condition of anonymity. He adds that he has so far not calculated the additional burden of the increased electricity prices for him. “My guess is it will make me uncompetitive in the market.”

Hashmi agrees that the increase in the electricity prices is necessary, but argues that this should have been done only after putting in place effective measures to stop power theft, improve governance of power companies, and cutting huge transmission and distribution losses.

“The rise in electricity prices without reforming the power sector will only prove to be a bigger incentive for power thieves, who will shift their facilities to areas where it is easier to steal electricity with the help of corrupt power bureaucracy,” claims Hashmi. He laments that the government has detected hundreds of power and gas theft cases in Punjab, but has so far not booked any official of the distribution companies involved in them. “Can you hope to recover the bills from cheaters as long as the corrupt officials continue to help them?”

Others insist that the power tariff increase has put industry in Punjab at a disadvantageous position vis-à-vis industry in Sindh and Khyber Pakhtunkhwa.

“The electricity price increase has made the already uneven playing field even more uneven for industry in Punjab,” argues Gohar Ejaz, former chairman of the All Pakistan Textile Mills Association (Aptma). “The reason being that large-scale industry in Sindh and Khyber Pakhtunkhwa is getting uninterrupted supply of gas seven days a week, so it could produce its own captive power at a much lower cost. On the other hand, captive power plants of the industry — textile, cement, glass, leather etc. — in Punjab are getting gas only three days a week, and have to depend on (unreliable) electricity supplies for running their operation for the rest of the week. It means that our cost of doing business will increase significantly compared with industry from Sindh and KP.”

Ejaz’s calculation shows that Punjab’s industry, which consumes about 1,500 megawatts of electricity, will be required to bear an additional financial burden of around Rs100 billion as a consequence of the new power tariff increase.

The average tariff for the industry has been raised to Rs14.10 a unit from Rs8.50. “This is in spite of the fact that the line losses for the industry on independent feeders using 1,000 megawatts are just three per cent, and bill recovery is 100 per cent,” says Gohar. He adds that the government has promised to change the energy mix to bring down the generation cost and reduce the tariffs to single digit in three years.

“But how will we survive until then, in such a cut-throat competition in the foreign markets, particularly when we will also have to compete with industry in other provinces as well,” he wonders while pointing out that the regional average power price for industry is approximately Rs9 a unit, compared to the new rate of Rs14.10 in Pakistan.

Gohar adds that Aptma is gathering a group of investors from within the textile industry to set up a 1,200 megawatt coal-fired power station in Karachi. The electricity produced by that plant will be used by the textile industry on independent feeders. But this plan will take three years to complete. Hence, he suggests that the government should ensure uninterrupted gas supply to factories with captive power to hold down their costs during the intervening period to help them survive.

Lahore Chamber of Commerce and Industry president Farooq Iftikhar says that the government could not do without raising the tariffs. But it should also find a way to support the industry because the new prices will make many small to medium-sized industries economically unviable.