Electricity tariff increases hurting industry

Electricity tariff increases which have come into effect from September 1 are negatively impacting the power intensive industries in the country, causing power costs to increase by 40% virtually overnight.

Cement manufacturers, the ceramic industry and the rubber product manufacturers, in particular the tyre industry are the worst hit, industry sources said.

To most people, the Ceylon Electricity Board's (CEB) announcement of the tariff increase might seem trivial or insignificant. After all, the cost of a unit of electricity off peak was Rs.6.10 and after the tariffs came into effect, the additional cost is only Rs.1 per unit. However, this still represents a 16.4% increase. The peak rate has gone up by an astounding 43% from Rs.14 to Rs.20. Industries are further burdened by being required to pay a Maximum Demand Rate anywhere between Rs.360 to Rs.380. In addition, these charges are subjected to a further 20% surcharge on the total bill. When all these numbers are added up, the total increase is 40% in the cost of electricity, the sources said.

For most industries which consume large quantities of power, it is an extremely large component of the cost of conversion, that being the cost of converting raw materials to finished products. For tyre manufacturers for example, power accounts for 24% of the conversion cost. The export industry is also negatively impacted because they cannot bypass the additional costs and they cannot arbitrarily change the price of their product. They have to match a certain price in order to be competitive. The impact of the tariff increase on the cost of production is too great to simply be passed on to the domestic consumers, the sources said.
Several industries have found themselves in a position where their competitiveness and sustainability have changed over the past few months. The three main determinants of competitive advantage in the manufacturing sector, those being power generation costs, fuel prices and interest rates have all become unstable and unpredictable. The public should be aware of the dangerous impact of these tariffs on the manufacturing industry, the sources said. The government will have to urgently consider some sectoral concessions for selected industries or at least exempt selected power-intensive industries from the surcharge.

Business Editor: This article was written before the budget which has concessions for industry.