The Karachi Chamber of Commerce of Industry (KCCI), on Monday, called upon the government to immediately rescind the unprecedented hike in electricity rates because of fuel adjustment costs and fixed charges, warning that the hike would force closures.
KCCI leadership, rejecting the unprecedented 80% hike in electricity tariff, stated that the upsurge in electricity tariff has created an unbearable situation not only for the public but also the business and industrial community. Many businesses and industrial units will close down as it is impossible to absorb such exorbitant electricity tariffs, they warned.
Addressing a press conference, Businessmen Group (BMG) Chairman of KCCI, Zubair Motiwala demanded the government “immediately withdraw the hike in electricity tariff and fuel adjustment charges (FAC) so industries can survive in an extremely competitive environment and the hardships being faced by the common man can also be reduced in this period of inflation.”
“The substantial hike in the cost of electricity has taken its toll on commercial and trading activities in Karachi leading to huge losses to the national exchequer and economy,” said All Karachi Tajir Ittehad (AKTI) Chairman, Atif Mir.
“Electricity bills have surged by more than 60% in the brief period of the last two months, eroding the earnings of traders and shopkeepers in the local markets and shopping centres. Weather conditions did not help either and low sales forced small traders to make cost-cutting measures including retrenchment of staff,” he added.
In the press conference, KCCI President, Muhammad Idrees stated that it was a matter of grave concern that the base tariff had been raised by Rs9.89 per unit, jacking up the per unit cost from Rs19 to around Rs30 per unit. This reflects an unprecedented hike of 50%.
“This is not the end of the story as this increased electricity base tariff of Rs30 per unit will be subject to 17% sales tax, excise duty and income tax as well. When all these components are combined, an unbearable impact between 65% to 80%, will appear in electricity bills. If electricity tariffs continue to go up at the same pace, the per unit tariff may reach somewhere between Rs55 to Rs65 in the next couple of months,” lamented Idrees.
Analysts, however, disagree arguing that this was the need of the hour.
“There is no choice for the government but to increase the price,” AKD Securities CEO, Farid Alam told the Express Tribune. Adding that “Our fellow traders will continue to pass this cost onwards for the time being. The issue will come when there is some sizable dent in demand.”
“If we continue with subsidies, we are going to go bankrupt. We have to face reality when it comes to energy generation and distribution. KCCI should propose a solution, instead of outrightly rejecting as done in the past,” said Alam.
Reiterating the same, Taurus Securities Head of Research, Mustafa Mustansir said, “We have to increase tariffs in order to contain circular debt as there is not much room for subsidies”.
Savings could be generated by improving transportation and distributing losses but that would only be possible in the long-term, he added.
Energy sector analyst Sunny Kumar at Topline Securities highlighted that, “In order to meet IMF conditions, the government has no option than to increase base tariff and pass fuel charge adjustments.”
“Along with higher fuel costs and surging capacity payments with the addition of new power plants, there is no option left but to increase power tariffs,” said Tahir Abbas, Head of Research at Arif Habib Limited (AHL).
Abbas added, however, that given the uptick in hydel and nuclear generation in the coming months, it is expected that fuel costs will decline providing much needed relief to industrial and residential consumers.
Published in The Express Tribune, August 30th, 2022.