POWER TARIFF RAISED BY 6 PERCENT

CHINA-INDIA-BANGLADESH ARE TAKING ADVANTAGE OF PRICE DIFFERENTIAL

AMANULLAH BASHAR
Oct 05 - 11, 2009

The government has increased power tariffs by 6 percent from October 1st 2009 despite hue and cry raised not only by the trade and industry but also different segments of the society, which express concern over fast eroding purchase power in the wake of unbearable price inflation.

The government, it may be noted, has already committed to a 24% cumulative increase in tariffs over the next 12 months with the first hike of 6% due on 1st Oct 09.

The increase in power tariff however sounds contradictory to the efforts of the government as well as the central bank to contain inflation as the proposed hike is bound to add to the persisting inflation. It may be mentioned that fuel and lighting articles constitute roughly around 7.29% of the CPI basket. Simple mathematics shows that for every 10% increase these articles contribute 0.7% to headline inflation.

This is in fact only the tangible first round impact where translation into goods prices can ignite further inflationary pressures while the cumulative tariff hike of 24% would impact headline inflation by 150bp on annualized basis and expected YoY inflation would settle at 10% in financial year 2010. This increase would take an average consumer tariff from current Rs6.54/kWh to Rs8.09/kWh almost inline with FY10E estimated Wapda (generation and power purchase) cost of Rs8.21/kWh.

The current tariffs build in significant cross subsidies to residential & agriculture consumers which were subsidized at the expense of commercial and industrial users. Subsidies are now being phased out. The government is however unlikely to completely eliminate cross subsidies at this point, sources said.

The greatest impact of the proposed 24 percent hike will be on agriculture consumers estimated at 45%, followed by residential 31%, and industrial users 19% while commercial users would be least affected at 5%. It is said that the increase of 24 percent in tariff was recommended because of a gap of 25% between cost & tariff at present.

It may be recalled that during financial year 2008-09 the 19% hike in electricity tariff was initially meant to be 31% and current Aug-10 deadline for tariff hikes has been delayed 15Month from June 2009 original target.

EXPORTS

Rejecting the increase in power hike which is rendering the textile exports uncompetitive due to high cost of input, the Chairman Pakistan Readymade Garments Manufacturer and Exporters Association (PRGMEA) Mohsin Ayub Mirza has said that apparel industry of Pakistan is already at the verge of collapse due to non-availability of electricity and 6% further rise in electricity tariffs would put the industry into serious crisis.

The utilities disturbed supply has resulted in a complete catastrophe for the industry but mainly for the small players who don't have their own emergency power generation.

He said that due to power shortages, we are unable to deliver the foreign orders on time thus we are losing credibility in the world and India, China and Bangladesh are fast filling the gap with cheap rates and timely delivery of apparel goods.

The industry has requested the government to cap the electricity prices for two years for textile sector so that we could work out better pricing to compete in international markets.

The government has set the export target of US$25 billion for textile sector. Based on this target, proper marketing strategy has to be defined and implemented. For this we have to set up trade houses world wide like in Korea, Indonesia etc. Local Professional should be hired for this purpose to create an image of Pakistan and promote Pakistani products.

Due to high cost of production and fierce competition by India, China, and Bangladesh the apparel sector in Pakistan is fast becoming uncompetitive and we are losing the business due to inefficiencies.

In fact we need to work hard together for strengthening the image of our country. We need to improve the law and order situation in the country. He said that exposure of our products in the international markets through trade officers should be our government priority while good quality, good compliance and timely delivery could ensure the respect of label "Made in Pakistan".

The readymade garment industry suggested the government to establish training centers across Pakistan to introduce textile as a subject in the curriculum so that our new generation could learn about the potential of this industry. Training of middle management is seriously lacking, we should have institute giving diploma for merchandising since in today's world communication is the most important and the merchandiser should have proper understanding of handling orders.

Awareness of fashion market, the new development and innovation is a key to success like the heart of the body. Generally people in our industry takes sampling as expenditure, the correct approach is to take it as an investment. Every one of us should be well aware of the fashion, styling, processing and the washes along with extra finishing.