Electric shock

STEEL millers are crying foul over the constant changes in the country’s electricity tariff.

Come March next year, the government is expected to introduce a new tariff surcharge from current 1.35 sen per kiloWatt hour (kWh) to 2.55 sen per kWh. Steel millers, the most affected, are saying that it is not the right time to impose such tariff surcharge given the slowdown in Malaysia’s gross domestic product growth as well as the uncertainties in global demand.

In Malaysia, energy cost is the second highest cost component for energy-intensive industries such as steel, petroleum and petrochemicals, electrical and electronics and tiles products.

For the steel industry, the cost impact from the new tariff surcharge will significantly push up the players’ cost of production. Should the new tariff surcharge gets to be implemented next year, it is envisaged that the steel industry would see a rise of 17.3% in annual electricity cost to RM1bil.

Furthermore, it will be difficult for steel millers to pass on the cost to their buyers in view of the current weak domestic market environment. If one were to include other manufacturing industries,the cost effect would also have a spiralling effect that could even accelerate the inflation impact on consumers because the affected businesses would not be able to fully absorb the increase in the electricity cost.

The cost push effect could also reduced Malaysia’s export competitiveness, especially with the deterioration in demand across the world markets.

Hence, the government should take heed of the predicament faced by the domestic manufacturing sector including steel in a thorough manner. One option is to impose a two-year moratorium that there will be no further hike in energy cost while another option is to put on hold the implementation until the global and domestic markets have finally stabilised.