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Tuesday March 19, 2024

Upgraded machines to offset impact of energy tariffs

By Mansoor Ahmad
September 23, 2017

LAHORE: Energy and power costs are most critical to the industries around the world. Efficient processes and not just decrease in tariffs, however, offset the impact of both these input costs.

Electricity tariffs in Pakistan stand at $0.11 per kilowatt hour (kWh) as opposed to $0.09 in Bangladesh, $0.09 in India and $0.08 in Vietnam.

Industrial gas tariff is also 173 percent, 44 percent and 12 percent higher in Pakistan than those in Bangladesh, India and Vietnam, respectively. But, Pakistani competitors also use efficient machines that consume less power and energy, while producing more and requiring much less manpower. 

Unfortunately, local industries are reluctant to upgrade technology. So, they are threatened in global markets as well as domestic market because of influx of imported competitive products.  Locals were uncompetitive even before the hike in power and energy rates, while they now feel devastated following the current upward revision in energy prices.

Surprisingly, most of them have never thought of upgrading their technology. Exceptions are cement, home appliances and sugar industries.  Up-to-date industries do protest against any energy price hike, but they smoothly operate after increase in energy tariffs because they regularly upgrade their technologies.

Plastic industry, which also relies on energy as main input, sails steadily.  In contrast, all inefficient industries demand concessions and subsidies from the government but none has specifically asked the state to facilitate them in upgrading technology.

They protest against increase in power tariff but do not go for energy audit that could save them much more than the increase made in tariffs. A decade ago, for instance, it was confirmed that the textile sector had the potential to conserve 350 megawatts of electricity, but it has succeeded in saving only 40MW.

Inefficient use of energy is much higher in small and medium industries. Their power bills would be reduced to half if they operate on efficient technology and take only cost-free measures as recommended after energy audit.

The increase in power tariff, however, cannot be condoned as it is meant to cover up the inefficiencies in government-controlled power sector. Certainly, government should improve its performance instead of banking on higher tariffs.

There is a limit to it and that has been already reached. Three decades back it was the labour cost that mattered most for the industries producing low-value added products.

It was also the main factor in Pakistan that kept its low value products globally competitive. This factor is still important but other factors like efficiency of machines and transport cost are now equally important.

We cannot become globally competitive in low value-added products if we fail to address the transport and machine inefficiencies. For high-tech products, high labour, energy or transport costs do not matter much because such industries cover all these expenses through high value-addition. For manufacturers producing low-valued products, each factor that saves cost matters.