Uproar over new power tariffs
View(s):Unions plan protest; corporate sector divided on passing costs
Trade unions are considering a nationwide agitation campaign over rising power tariffs this month while Sri Lankan companies are divided on whether to absorb the cost or pass it to consumers.
The new tariffs effective from April 12 see power rates up from 5 per cent to a phenomenal 60 per cent, depending on the user. Small and medium-scale industries could be affected by as much as 60 per cent.
The Ceylon National Chamber of Industries (CNCI) was proposing a unified action from all chambers to urge President Mahinda Rajapaksa to re-consider the decision to increase tariffs. However sources at the Ceylon Chamber of Commerce (CCC), which made a joint presentation with other chambers at the April 4 hearings of the Public Utilities Commission of Sri Lanka (PUCSL), said the price hike was inevitable. “At some point because of the burgeoning fiscal deficit, the Government has to recover this money and that could be increased taxes or some other form. We would, anyway, have to pay the price,” one source said.
The joint chamber presentation while acknowledging the inevitability of a price hike, however high it is, focused on the need to chart a roadmap where the Government will prioritise on the sectors that need subsidizes – health, education, SriLankan Airlines, Mihin Air, CEB (Ceylon Electricity Board), CPC, etc, the source said, adding that such a strategy is important.
In a statement issued on Friday, the CCC said on average, the increase is estimated at around 20 – 30 per cent.
“It will be difficult for businesses to absorb such an increase and it will result in a sharp fall in profitability. The tariff increase will acutely affect businesses engaged in producing goods and services for exports, as they are already facing severe competition from other countries and losing their market share,” the chamber said.
Separately several companies were working on improving energy efficiencies by cutting costs, one of the ways being through the installation of solar panels, with industrialists saying alternate energy sources need to be found as power rates were among the highest in the world, making industry uncompetitive.
While the hotel sector is forced to absorb an additional 20-25 per cent cost in operations, some other manufacturing companies said they would be compelled to pass the cost to the consumer. The Tourist Hotels Association of Sri Lanka (THASL) is due to meet next week to discuss options towards cushioning the impact.
Below is a cross section of the views from various sectors compiled by the Business Times reporting team – Bandula Sirimanna, Duruthu Edirimuni Chandrasekera and Sunimalee Dias:
Chambers: Most industries difficult to absorb costs
The new tariffs will result in a 5 to 30 per cent increase based on consumption, said National Chamber of Commerce of Sri Lanka President Sunil Wijesinha who represented the joint business chambers at the public hearing.
He said that most of the industries would find it difficult to absorb this huge cost and that the Government should subsidise small and medium energy consumers without charging more from the industrial sector to ease their burden. “Industries using kilns such as ceramic and cement will be affected by the proposed sharp increase in peak tariff for these segments even after adjustments,” he said.
Mr. Wijesinha pointed out that the PUCSL’s current consultation paper ignored its own roadmap published in 2010 setting tariffs for the period 2011-2015 which showed how the sector would move towards cost reflective tariffs by 2015.
Ceylon National Chamber of Industries President Preethi Jayawardena said they will propose a united action of all chambers to urge the president and the authorities to re-consider the decision on electricity tariff hike.
The chamber sought the views of over 40 industrialists and all these suggestions were included in their presentation to the PUCSL, which were ignored.
Mr. Jayawardena said that it is unfair to charge the industrial sector and high energy consumers to subsidize low and middle level consumers. The average consumer will have to pay an electricity bill more than that of a consumer in a developed country.
Hotels: Industry body to meet next week
The hotel industry is expected to meet next week to discuss the ‘electrici shock’ which is affecting the profitability of some of its members as it is forced to absorb the new hike.
City Hoteliers Association President K. Shanthikumar said they would be meeting up next week as part of THASL in a bid to make further representations to the authorities on the recent electricity price hike.
The price hike has forced the sector to absorb the costs as Sri Lanka continues to be an expensive destination for most tourists and hotels are unable to pass on these ad hoc hikes to their guests as the room rates have already been contracted for the entire year, he explained.
Room rates islandwide have risen from 35-40 per cent since 2009, leaving no room for further increases as more hotels continue to come up in the already competitive market.
“We can’t tell the guests that a price revision has to be paid,” Mr. Shanthikumar said adding that they were compelled to absorb costs thereby eating into profitability while increasing the burden for other, already loss-making units.
THASL President Jayantissa Kehelpannala said they want to request the authorities to stop ad hoc electricity tariff hikes.
The industry that is singled out as the hotel industry for which a specific tariff hike with a ‘fairly significant increase especially in the peak season’ has been imposed compared to the rest of the sectors, said Mr. Kehelpannala, who is also John Keells Hotels Group Sector Head – Sri Lankan Resorts.
“Our stance was that we should be a part of the industry and not be singled out,” he said.
Costs were bound to be impacted ‘significantly’, Mr. Kehelpannala said.
Anura Lokuhetty, Deputy Chairman at Serene Pavilions, a boutique hotel, explained that the new tariffs worsened Sri Lanka’s situation of being an ‘expensive destination’.
He pointed out that if the country has already identified the hotel sector as a major industry to develop then achieving the targets of 2.5 million in 2016 might be a compelling task in the light of these new cost increases as the industry is already fighting hard to be competitive to its neighbours Thailand, Malaysia and Indonesia.
Unions: Agitation campaign planned
Trade unions are to mobilize the masses through a joint national protest campaign with civil and non-governmental organizations against the CEB price hike.
A meeting to arrive at a decision on joint action to be taken will be held in Colombo on Wednesday, General Secretary of the Free Trade Zones & General Services Employees’ Union (FTZ&GSEU) Anton Marcus said.
He said that workers of apparel factories at free trade zones will face severe difficulties as the owners of their boarding places will definitely increase the fee pushing them into further financial difficulties.
Earning low wages most workers cannot afford to pay an additional sum for their present boarding fees and they would have to leave factories and go back to their villages.
Factory owners will not increase wages as they are also burdened with the electricity tariff hike, Mr. Marcus said adding that the PUCSL failed to consider the trade union proposal on this matter at the public hearings.
Inter Company Employees Union (ICEU) President Wasantha Samarasinghe slammed price hike saying the PUCSL has not addressed the issues of corruption in generating, transmitting and distributing electricity and wastage at the power authority.
Industry: Impact being assessed
Brandix Lanka Ltd, the country’s top garments’ manufacturer, says the price hike will result in a 15 per cent hike in costs.
According to Hasitha Premaratne, Chief Financial Officer – Brandix, the group is working on different steps to reduce the electricity bill.
As an example, he said that in a bid to mitigate escalating energy costs Brandix through its subsidiary Textured Jersey Lanka (TJL) is building a multi fuel boiler power plant in Avissawella. “When this becomes operational by the end of this financial year, the impact from the electricity tariff hikes for TJL will be nominal,” Mr. Premaratne added. Better air conditioning systems, skylights to secure natural lighting, etc, is also on the cards.
Hayleys PLC said its manufacturing and hotels sectors would be badly impacted by the tariff increases. “We will assess the exact cost implications by next week,” a Hayleys official said. As an immediate measure Hayleys will cut down on energy consumption wherever and whenever possible. The company uses more than 60 per cent electricity from the national grid while the balance power comes from alternate energy sources such as Dendro power, saw dust and woodchips. “Already subsidiaries like Hayleys MGT, Dipped Products and Haycarb use some of these energy sources,” the official said, adding that usage of solar power will be looked at.
He said that in time they will adjust the selling prices, adding, “We also have a limit to passing the costs down as most businesses that we are in are subject to world prices (e.g.; rubber).”
Business analysts said that sectors such as manufacturing will be impacted by electricity tariff increases. “Cost of production in firms in tile manufacturing, glass manufacturing, ceramics, rubber, etc and also to a certain extent some tea plantation confirms will be affected,” one analyst said.
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