KARACHI: The business community on Friday slammed a massive Rs4.95 per unit increase in ‘uniform national tariff’ saying it will not only push up the cost of doing business but dent local production and render Pakistani goods uncompetitive on the world markets.

Trade and industry leaders believe that this is one of the IMF conditionalities that the government has met to secure foreign loans to bail out the country from the economic crisis.

The National Electric Power Regulatory Authority (Nepra) in a statement announced that the national average tariff for the FY24 has been revised to Rs29.78 per kWh from Rs24.82 per kWh.

Pakistan Business Council CEO Ehsan Malik said the industry suffers from power tariffs that are significantly higher than the region. The denial of regionally competitive electricity tariffs has rendered exports uncompetitive. High energy cost also thwarts the growth of energy-intensive sectors such as petrochemicals. The net result is continued reliance on imports.

Fear high cost of doing business will render exports uncompetitive

He said the fundamental challenges confronting the management of the circular debt are excess generation capacity, transmission and distribution losses, theft and non-recovery of dues.

The additional issue for industrial and commercial consumers is the cross-subsidy to residential users including lifeline customers. The better solution would be for the government to provide direct subsidies through Benazir Income Support Programme.

Mr Malik said the latest tariff increases would make the industry even less competitive, incentivise theft and do nothing to fix the real problems in the energy sector. “We seem to be content with managing the symptoms rather than curing the cause,” he remarked.

With short-term measures to reduce the fiscal deficit, even the IMF is inclined towards tariff increases. “I believe this is not a sustainable solution,” he added.

Site Association of Industry president Riazuddin said the increase in electricity tariffs is highly deplorable at a time when global energy prices are low and the oil prices have further slid down this week.

The argument of tariff rise on the back of a decrease in demand is irrational because owing to lost competitiveness due to unbearable prices, the local industries are already closing down which is further aggravating the vicious cycle, he said.

Demand from exporting industries had gone down since April due to the abrupt withdrawal of regionally competitive export tariff, Riazuddin said.

“Increasing tariffs with decreasing demand is, unfortunately, proving the economics’ law of diminishing demand,” he said, urging the government not to kill the highest tax-contributing sector but instead plug the black holes in the energy sector, stop capacity payments to generation companies badly-contracted on take-or-pay basis and penalise the distribution companies who do not bring down their T&D losses.

Korangi Association of Trade and Industry (Kati) President Faraz ur Rahman said the electricity base tariff increase will significantly raise the cost of electricity for industrial and commercial consumers. This will directly impact industries that heavily rely on electricity, such as manufacturing and production sectors.

The increased production costs will reduce their competitiveness on the global market, potentially leading to a decline in exports and overall economic growth, he feared.

The Kati chief said a hike of Rs5 per unit will have a cascading effect on the overall cost of living. Higher production costs for industries will lead to an increase in the prices of goods and services. This inflationary pressure will negatively impact consumers, especially those with limited incomes, as their purchasing power decreases. It will contribute to a rise in the cost of essential commodities, further burdening the population.

The increase in electricity tariffs will directly affect households, leading to higher electricity bills. As electricity is a basic necessity, the additional financial burden on families will force them to cut back on other essential expenses, affecting their overall standard of living. This increase will disproportionately impact low-income households, pushing them further into poverty, Faraz said.

It is crucial to explore alternative solutions that can address the financial challenges faced by the energy sector without burdening the industry and the general population, he said, urging the government to come up with a discount financing solar scheme to counter this tariff hike.

Published in Dawn, July 15th, 2023