Cash Security Deposit
will undermine industrial output in Karachi
By Syed M. Aslam
Jul 17 - 23, 2000
Unmindful to the drastic decrease in the electricity consumption growth
in the 1990s, the killing of the proverbial golden-egg-laying goose continues unabated.
Electricity consumption which registered a healthy growth of 6.5 per cent in the first
half of the '90s slowed down drastically to just 3 per cent in the second half due
primarily to substantial increase in prices.
Increasing the power tariff on one pretext or the other has remained
the favourite past time of policy makers in the last decade. This time around the increase
in the power tariff has come from the imposition of 15 per cent sales tax on the power
bills which are already subjected to surcharge, additional surcharge and income tax.
The heavy toll increased electricity prices have taken on the
industrial sector is obvious from the fact that its percentage share in the total
electricity consumption has fallen from 35.6 per cent in 1990-91 to 27.9 per cent in
1998-99. Industrial sector, which was the top consumer of electricity till 1991-92 (36.3
per cent), started losing its top position soon afterwards and today trails much behind
the household consumption. According to official figures the share of household
consumption increased to 47 per cent while that of the industrial sector slumped to 29.3
per cent during July last year and March this year. In simple language it means that the
bulk of electricity today is consumed for non-productive household comfort at the cost of
the productive industrial activities. Needless to say the cost to economy has been
Talking to PAGE the past chairman of SITE Association, the
biggest industrial area in the country housing thousands of units, Majyd Aziz welcomed the
imposition of sales tax on electricity saying that like everything else it is imperative
for the much-needed documentation of the economy. It's a good system and encourages the
industries to get registered under the sales tax regime by assuring full adjustment of
sales tax not only on electricity but at all other levels, he added.
However, Majyd said that the Karachi Electric Supply Corporation, the
sole power generator and distributor of electricity in Karachi, has started sending not
only the bill but also a cash security deposit equivalent to two-and-half-month of the
bill to the industries. The cash-starved and financially-troubled KESC has obviously taken
the measure to boost its revenue the ultimate sufferer of which will be the industrial
sector and the national economy.
This poses many problems for the industries based in Karachi as it
means that an industrial unit whose monthly electricity bill was Rs 1.2 million is asked
to pay not only the bill but also a security deposit of Rs 3 million in cash. KESC's
seemingly compassionate measure to allow the industrial owners pay the security deposit in
installments over eighteen months helps nothing to lessen the difficulty of the
industrialists to raise the huge cash security deposit nevertheless, Majyd added.
Secondly, the refusal of the KESC to make a name change of many of the
industrial units also poses problems for the units which though registered under the sales
tax regime under the new name could not benefit from the adjustment of the sales tax on
the electricity. This is a catch 22 situation as sales tax adjustment on electricity is
given to only those companies whose bill carry their names. Many companies whose KESC
bills are still delivered under the old names have no legal recourse to claim the
adjustment and the matter is not helped by KESC's refusal to change the name, he added.
Majyd said that though the industrial associations of Karachi have been
pursuing the name-change issue since January the issue remains yet unresolved despite
assurances given by the top government officials. The issue has become all the more
important with the KESC's decision to ask the cash guarantee this month and demands
immediate solution, he said.
Majyd said that the recent imbroglio is started by the vested interests
to destroy Pakistan's industrial base aimed at increasing the country's dependence on
imported and smuggled goods on the one hand and loans from the multi-lateral agencies on
Talking to PAGE the chairman of Council of Karachi Industrial
Associations, Farooq Bakaly, said that the 15 per cent sales tax on electricity imposed in
January has rendered Pakistani exports incompetitive to its major rivals in the region
including India, Bangladesh and Sri Lanka who offer a similar range of products in the
The KESC has seen it fit to demand payment of cash security deposit,
which is not implemented elsewhere in the country, from industries which are facing severe
liquidity and cash crunch due to sluggish economy locally and global recession
internationally could mean a death toll for the local industry, Farooq warned.
Sources informed PAGE that the security deposit scheme will help
KESC raise Rs 35-40 billion in eighteen months, the period allowed to pay the amount in
installments. What's the guarantee that this additional monthly revenue of over Rs 2
billion in cash would not be squandered by the cash-starved Corporation, the sources said.
One thing is, however, certain; the unusual practise of demanding the security deposit in
cash, instead of bank guarantee by other public utilities company such as Sui Southern,
would not offer any benefit to the industrialists in return, the sources added.