Massive hike in power tariff spells trouble for steel industry

Massive hikes in the electricity tariff have affected all segments of the society with the steel sector in Sindh’s provincial capital reporting a crisis-like situation due to rapidly rising input costs, Profit learnt on Sunday.

According to a letter written by the Pakistan Association of Large Steel Producers (PALSP) to a ministry concerned with the matter, NEPRA’S decision of issuing a Rs11.10 per unit hike in the energy tariff of June for K-electric consumers under the head of Fuel Charges Adjustment (FCA) has created a crisis like situation for the sector.

The letter states that the recent hikes have dealt another blow to the steel industry which was already burdened by decade-high interest rates. “The industry has been receiving record high energy prices for material that was sold months ago under the garb of unjustified FCA surcharges,” it adds.

As per details, the overall electricity tariff has increased by 53.68% in a year from PKR18.20/KWH to PKR27.97/KWH and 39.16% in comparison to the past six months during which it increased from PKR20.10/KWH to PKR27.97/KWH. Additionally, FCAS increased almost 10 times in a year; the average FCA amount last year was around PKR1/KWH which is now around PKR10/KWH.

Through the letter, PALSP has lamented that electricity is becoming increasingly unaffordable for the steel industry. “One of the major causes of higher FCAS are increased input cost of oil and RLNG, however, the fact is that KE’S FCAS are higher due to RLNG cost charges on central power plants which should be partially charged at indigenous gas rates that will give relief to all domestic, commercial and industrial consumers of Karachi.”

LNG is approximately three to four times expensive than normal gas at the moment. According to the gas management and allocation policy 2005, the power sector is mandated as second priority to receive indigenous gas after domestic and commercial consumers, the letter stated, noting that a select number of blue-eyed industries are being prioritised against evidenced government orders as corrupt elements keep up mafia like activities.

According to Bukhari, Secretary General PALSP, businesses have to pay for FCA on goods that were already sold into the market months ago. During the manufacturing process, they have no clarity on what FCA they will receive in the future for products already sold. Unjust policies will lead to a massive decline in much needed industrialization for our Nation.

At present, the share of industrial sector in GDP stood at 21%, while it paid almost 70% of the total taxes collected. Shutting industries down today makes zero sense when our country needs maximum tax collection and jobs creation. The long steel manufacturers of Pakistan save our Nation with 3.8B USD import substitution through local manufacturing of rebars, a much needed saving for our dwindling reserves.