- JAAF is perplexed by PUCSL overlooking the industry’s submissions and cautions.
- Current tariff increase based on speculative increasing demand, despite trends showcasing reduced demand
The Public Utilities Commission (PUCSL) granted approval to a 66% electricity tariff hike effective 15th February 2023, resulting in exponential increases in costs in the apparel industry, which in turn threatens the continuity of operations, competitiveness and sustainability of a USD 5.5 billion industry, which remains the backbone of Sri Lanka’s economy. The current increase is a further 31% with overall increase of 165% since June 2022. This translates to an increase in manufacturing costs of close to 5% just on electricity.
The Joint Apparel Association Forum (JAAF) is perplexed and surprised that the written and oral submissions presented by the industry on tariff hikes to the PUCSL public consultation have simply been overlooked. It discerns that the approved tariff hike was effected devoid of stakeholder consensus and done simply as a tick-box exercise to concede to legal processes.
The following are the industry-relevant cautions and proposals submitted by the Secretary General of JAAF Yohan Lawrence at the PUCSL public consultation:
- Overestimation of demand by CEB – As highlighted by JAAF numerous times, Q4 of 2022 experienced a 15-20% decline in orders (reduction in demand) due to the continuing global recession. JAAF estimated this downturn of economic activity to continue into the 2H of 2023. With this abrupt fall in demand, the industry faced shorter working hours and decreased demand for electricity. PUCSL’s documentation too acknowledged that electricity generation in January 2022 was much higher than in January 2023. However, the then-proposed tariff increase was based on an increased electricity demand as estimated by the Ceylon Electricity Board (CEB), which was not quantified taking the January 2023 pattern into account.
JAAF raised caution stating that the overestimation of electricity demand will result in higher projected costs and requested the CEB and PUCSL to hold off on electricity tariff revisions until an accurate assessment of electricity demand was made. JAAF further requested the CEB to lower its own generation costs before tariff adjustments.
JAAF iterated that with the country’s single biggest industrial exporter facing a reduction in demand, an electricity tariff increase based on an unsubstantiated increased electricity demand makes limited sense.
- The impact of increased tariffs on competition – It is vital that Sri Lanka apparel remains competitive with other apparel manufacturing nations and in the international market. With last year’s electricity tariff increases, Sri Lanka stood on par in US dollar terms with regional giants like India, Bangladesh, Vietnam, Indonesia and Thailand offering USD 9 to10 cents per kWh. Meanwhile, African countries including Benin and Togo which are aggressively pushing for foreign investments offer a much lower rate of USD 8 cents per kWh.
With the increases that have gone through, this will leave Sri Lanka with a tariff of around 12cts per kWh, which will undoubtedly make Sri Lanka uncompetitive and unattractive to investors.
- Impact of repetitive off-peak tariff increases on Sri Lanka apparel – As highlighted by JAAF during the previous tariff hike, off-peak tariff increases defeat the very purpose of having an off-peak tariff slab, which is to incentivize businesses to operate during off-peak hours.
The off-peak tariff was increased from LIKR 6.58 / kWh to LKR 15 in 2022. The new PUCSL document suggested an off-peak increase of LKR 34 / kWh from LKR 15. This denotes a 400% increase in less than 12 months.
JAAF highlighted that Sri Lanka needs to grow a dedicated textile sector, especially with the government investing heavily in the Eravur textile zone. Fabric mills must operate 24 hours a day to attract investors. Therefore a 400% increase in off-peak tariffs is counter-productive to the objective of growing a textile base in Sri Lanka. JAAF further stressed that this increase will discourage companies moving to off-peak operations creating an unnecessary incentive to sustain peak production and thereby increased electricity generation, which is in stark contrast to any basic economic rationale.
- Renewable energy and rooftop solar– JAAF urged the CEB to urgently scale up the commissioning of renewable energy including rooftop solar, aligned with the government’s commitments to generate 70% of the country’s energy requirements from renewables.
JAAF emphasized that Sri Lanka needs a commercially viable tariff for Net Plus. The apparel industry has installations of about 200 MW of solar power. However, these companies have not been paid for the last 7 to 8 months. In the event CEB is unable to honour delayed and future payments, JAAF urged the existing companies to be permitted to move to Net Metering. JAAF illustrated that this will immediately eliminate a cash flow burden from the CEB, allowing the increase of the solar footprint, which will in turn reduce demand on the burdened national grid allowing the CEB to generate electricity at a lower cost.
- Power wheeling – JAAF has been lobbying for power wheeling for an extended period of time. This is the single biggest catalyst in the move to renewable energy and will undoubtedly be a conduit for investment in the sector. Increased private investment in renewables will reduce the load on the CEB allowing the SOE to reduce its pricing given to the consumer.
JAAF urged the amendment of the CEB Act to be expedited to allow for power wheeling.
Taking these facts into consideration, JAAF would like to express deep concern on the government’s decision to increase the industry electricity tariff rates by 30%. JAAF urges the government to consider facts and data when making policy decisions of this scale and nature. At a juncture where the apparel industry is confronting a decrease in demand, electricity tariff increases based on speculative increased demand is blatantly inessential and will only burden an already embattled industry that binds the country’s economy in these unprecedented times.