ISSN: 1391 - 0531
Sunday March 02, 2008
Vol. 42 - No 40
Financial Times  

Higher electricity rates may force local industries to shift overseas

Several sectors of the Sri Lankan industry are tottering due to high cost of electricity, while some others are finding it difficult to be cost effective and any increase in power costs would worsen the situation, a top industrialist has said.

A.K. Ratnarajah, Chairman of the Ceylon National Chamber of Industries (CNCI) said the proposed 25-30% increase in power rates would seriously affect export industries and many of them would jeopardize their markets if they attempt to pass these costs over or gradually fade away due to erosion of their margins. “This equally applies to industries which cater to the local market as they too have to compete with imported goods and therefore cannot pass on the increased cost risking their sales,” he said, in comments made on the proposed change in tariffs which has triggered all-round protests from industry.

He said the industrial sector has been expressing its concern about the uncompetitive Industrial Tariff Electricity for a considerable period of time.

The existing tariff itself is much higher than those in other countries with whom Sri Lankan industries have to compete, and besides the tariff, the quality of the power supply too is much to be desired and continues to be a burden for the industry.

He said the high cost of interest, restriction of the movement due to security situation, increasing cost of transport and services, numerous holidays, impact of spiraling inflation, numerous taxes and levies are additional burdens on the industry.

Instead of taking steps to lessen these impediments and help enhance the competitiveness in a free market economy, adding further hardships on the industry by way of increased power tariff would certainly destabilize industry with disastrous consequences on the national economy, the CNCI chief added.

He said the cumulative effect of all these will be the loss of export revenue, increase volumes of imports to the country, lower tax revenue to the state, reduced wages or loss of employment and gradual disintegration of the industrial base of the country.
“More and more local industries would explore the possibility of relocating in other countries and thus instead of attracting Foreign Direct Investment, industries will move away from Sri Lanka,” he said.

The reasons for proposed increase in tariff is attributed to the increase in cost of fuel and withdrawal of the subsidy granted hitherto to Ceylon Electricity Board by the Treasury and this may be justified from the perspective of the Ceylon Electricity Board. But Ratnarajah said the CNCI which has played a prominent role in canvassing for the commencement of the Coal Power Plant and Upper Kotmale Hydro Project for over five years is “reluctantly compelled to say that the Ceylon Electricity Board and the country as a whole is called upon to bear this burden due to shortsighted policies of successive governments.”

He said the political leaders of recent times who did not take the decision that had to be taken at the appropriate time for fear of losing the ballot should bear the responsibility for the current debacle.

“We are also told that by 2011 when the Coal Power Plant and Upper Kotmale Hydro Power Projects are up and running, the competitive tariff could be made available. Assuming that the two new power generation projects are commissioned as scheduled one would wonder how the industrial sector could sustain itself in the intervening period,” he added.

The industrial sector accounts for 17% of the GDP, provides employment for over 1.5 million people and earns valuable foreign exchange through export income in the region of 80% of the external trade.

“Therefore our (CNCI) contention is that this sector cannot be sacrificed to salvage the Ceylon Electricity Board which is a bane in the country’s development efforts due to shortsighted policies of successive governments and mismanagement of affairs by the Ceylon Electricity Board. It is not possible to destroy the Industrial Base now and then rejuvenate it in 2011,” he warned.

Industries are not seeking subsidies but quality power at competitive rates, if not completive rates at least to maintain the current Tariff rates. He said the CNCI was urging the government to intervene and pick up the increased cost, which the industrial sector is being called upon to pay and to relieve them of this proposed burden.

The CNCI also made the following suggestions:

1. Reveal at what price level of oil the proposed tariff has been computed at.

2. Allow those who generate alternative forms of power such as mini hydro etc and feed to the CEB grid in one location be afforded the facility to buy it back in another location at a lower cost, what is termed as wheeling, which is successfully operated in India.

3.Impose a CESS on incandescent electric bulbs and use the CESS income to promote and subsidize the CFL bulbs, which would substantially reduce the usage of power.

4.Remove all forms of import duties and taxes including VAT on the import of equipment and accessories, which are used in Energy Saving Projects.

5.CEB to take steps on priority basis to reduce the transmission losses at least by 1% within one year. CNCI is of the view that the saving would help in recouping a substantial amount from what is to be collected by the increased tariff from the industrial sector.

6 Involve the Chamber in the progress monitoring of the implementation of the Coal Power Plant and Upper Kotmale Hydro Power Project.

7.Earlier attempts to restructure the CEB failed and the consumer is called upon to pay for the inefficiency of the board too. Therefore the CNCI proposes that new power generation projects such as the Coal Power Plant and UKHP be commissioned and managed by a new government owned company distinct from the CEB which finds even the current size of its operations unwieldy.

NCE on proposed hike in electricity tariff

The National Chamber of Exporters (NCE) of Sri Lanka says that the proposed hike in electricity tariff of around 43% if implemented would have disastrous consequences on Sri Lankan export enterprises, a NCE statement said.

Members of the NCE Council which met to discuss this issue, made the following observations among others:

-The existing electricity tariff of Sri Lanka is known to be the highest among competitor countries in the region.

-India provides subsidised power to vital sectors of her exporters. Furthermore power is provided free to certain sectors especially in the state of Tamil Nadu.

-In Sri Lanka cost of electricity is high, due to inefficiencies and mismanagement of the power sector. This includes a 20% loss in the transmission of power while the norm for transmission losses is not more than 12%, and power piracy.

- Industries which serve the domestic market will be able to pass on the cost of increased tariff to local consumers. However export enterprises cannot do so as they will be priced out of international markets in which they already face severe competition to sustain themselves.

- There is a need for a vital energy plan as well as policies for alternative energy sources to be worked out to overcome any need to increase prevailing electricity tariff.
Council members said they were of the view that any proposal to increase the tariff should be at least differed till the end of the year to enable the stakeholders specially in the export sector, to plan and propose for implementation alternative strategies to prevent any hike in electricity tariff.

“The Council was further of the view that failure to do so would have severe repercussions on the vital export sector which could result in the closure of many enterprises which would not be able to remain competitive in international markets resulting in the loss of foreign exchange earnings to the country as well as loss of employment to many,” the statement said.



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