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August 10, 2020

High energy tariffs: SMEs on verge of collapse

Top Story

August 10, 2020

ISLAMABAD: Hundreds of small and medium enterprises (SMEs) – acting as indirect exporters – are virtually on the verge of collapse because of the highest energy tariff.

These SMEs are in extreme distress due to the exorbitant power tariffs. If the government failed to extend regionally competitive power tariff at 7.5 cents per unit and RLNG at $6.5 per MMBTU, they will surely be shut down, a senior official at the Commerce and Textile Ministry told The News.

“We are receiving reports that many small industrial units (SMEs) are getting closed just because of the high tariffs.”

The official said if the government extended to the SMEs the regionally competitive tariff, then exports with this decision alone would increase by $3 billion in a year.

Prime Minister Imran Khan trying from pillar to post to put the economy on track wants to generate maximum jobs in the country, but delay in issuance of regionally competitive tariff will cause a huge dent to the exports.

The official said some days back, Prime Minister Imran Khan phoned the respective ministers of the divisions and ministry concerned with regard to expediting the process to ensure as soon as possible the notification of regionally competitive tariff for export industry to give jump start in exports, but the Power Division and commerce ministry were yet to submit their summaries to the Economic Coordination Committee for notification of regionally competitive tariff for export industry.

The government extended in last financial year the regionally competitive electricity tariff of 7.5 cents per unit and RLNG at 6.5 cents per unit for the export-oriented sector, but for the current finical year the notification has not yet been issued despite announcement in the budget 2020-21 for continuation of regionally competitive tariff.

The official also disclosed that the Power Division did not factually sustain any loss by extending the competitive tariff to export industry, as the true cost of service to industrial consumers as per CPPA (Central Power Purchase Agency) and NEPRA stands at 7.5 cents per unit which is equal to Rs11.91 unit, but right now export industry is getting the electricity bills based on Rs24 per unit against the agreed tariff at 7.5 cents per unit and this is being done because of no notification issued by the government about tariff at 7.5 cents per unit for current financial year.

As far as the propaganda that there is no increase in exports despite giving the regionally competitive tariff to export sector is concerned, the official said pre-COVID-19 textile exports increased by 4.2 percent to $10.413 billion in 2019-20 during July-March period if compared with the exports of $ 9.989 billion in same period of 2018-19, but Bangladesh showed negative growth of 5.09 percent in exports in the same period, India came up with negative 8.5 percent growth in exports in the same period. However Vietnam showed positive growth in exports of just 0.75 percent.

This shows that the regionally competitive tariff worked well. The official further said the declining worldwide electricity tariff implies that Pakistan’s industry and economy will further face a relatively higher cost of production even if our electricity rates remain the same as today.

Similarly, due to the current COVID-19 crisis, electricity prices in India have dropped by 16 percent, reduction from 8 cents to 6.7 cents, whereas Vietnamese government has given a 10 percent electricity price discount from 8 cents to 7.2 cents.