Sri Lanka free trade zone manufacturers alarmed by electricity tariff hike

ECONOMYNEXT –  Sri Lanka’s “alarming” and “unprecedented” decision to raise electricity tariffs could have disastrous consequences on export businesses, the Free Trade Zone Manufacturers’ Association (FTZMA)  said.

In a letter to Power & Energy Minister Kanchana WIjesekara on Friday August 10, the FTZMA said the high tariffs which are driving up cost of production would make Sri Lankan products highly uncompetitive in the global market, driving away foreign investment at a time the country is dealing with a debilitating forex crisis.

“We urge you to revisit and reanalyse the price structure once again [bearing in mind] that that foreign direct investors are the future lifeline and backbone of our country’s economy,” the letter said.

The Public Utilities Commission of Sri Lanka (PUCSL) has said that prior to the revision, the average revenue from the Industry category was 4.6 US cents per kiloWatthour (kWh) and the proposed increase would only increase revenue to 8.6 US cents per kiloWatthour.

The PUCSL has also asked that users who generate over 60 percent of revenue by forex would have to pay electricity bills in dollars, and would be given a 1.5 percent discount on their bills.

Chairman of the FTZMA, Dhammika Fernando said the dollar benefit would not be passed down to manufacturers, as rupee costs were increasing rapidly.

The PUCSL and the Ceylon Electricity Board (CEB) has for some time been calling for price hikes, as the previous hike was in 2013. Tariffs were decreased by 25 percent in 2014.

The CEB has been running on losses due to several reasons, inefficient and overpaid staff and selling at subsidised rates, according to Wijesekara.

The PUCSL has argued that it may not be prudent to wait for a revision, as it could further deteriorate the financial position of the Utilities.

The revenue requirement for the CEB to cover estimated costs in 2022 is 505 billion rupees excluding Lanka Electricity Company (LECO) costs. The hiked tariffs will bring in an estimated revenue of 512 billion rupees including LECO sales. Covering costs would require an 82.4% increase in revenue, but even with hikes the estimated revenue is at 79 percent.

Out of 7.8 million electricity consumers, 4.8 million domestic consumers are being given subsidised rates, even with the price hikes, the PUCSL said.

These subsidies are recovered in part by increasing the day rate given to Bulk Consumers in the Industry category.

The FTZMA  said that the approved hikes by PUCSL were unreasonable when compared to the CEB requested rates.

The CEB had requested an average of 78 percent increased rates for the Industry (IP1) sector, while the PUCSL has approved an overall increase of 91 percent.

IP2 had a proposed increase of 78 percent and the approved increase is 117 percent.

IP3 had a proposed increase of 56 percent and the approved increase is 118 percent.

Fernando stated that if costs could not be kept down, small and medium enterprises would have to shut down, and that other businesses would have to increase prices to cover production costs.

Sri Lanka is now in a position where it cannot afford to subsidise and consumers cannot afford to pay up.

The FTZMA has requested a meeting with Wijesekara to discuss the situation.

“It is our fervent hope…to come to an agreement whilst reaching a win win situation…and retaining much needed FDIs.” (Colombo/Aug12/22)