JAAF condemns PUCSL-approved 66% electricity tariff hike

• Says perplexed by PUCSL overlooking industry’s submissions and cautions 
• Points out current tariff increase is based on speculative higher demand, despite trends showcasing reduced demand 

Sri Lanka’s apparel sector denounced the 66 percent electricity tariff hike that came into effect last week, as the decision will lead to an exponential increase in costs, which in turn threatens the continuity of operations, competitiveness, and sustainability of the US$ 5.5 billion industry.

The sector which continues to be the backbone of the economy is slapped with an overall 165 percent increase in tariff since June 2022, which translates to an increase in manufacturing costs of close to 5 percent on electricity alone. In a statement to the media, the Joint Apparel Association Forum (JAAF) said it is perplexed and surprised that the written and oral submissions presented by the industry on tariff hikes to the Public Utilities Commission of Sri Lanka (PUCSL) public consultation have simply been overlooked. 

“It discerns that the approved tariff hike was effected devoid of stakeholder consensus and done simply as a tick-box exercise to concede to legal processes,” the Forum said.

At the PUCSL public consultation held earlier this month, JAAF put forward five key industry-relevant cautions and proposals.
The first is the overestimation of demand by CEB. As highlighted by JAAF many times, 4Q of 2022 experienced a 15-20 percent decline in orders (reduction in demand) due to the continuing global recession. JAAF estimated this downturn of economic activity to continue into the 2H of 2023. With this abrupt fall in demand, the industry faced shorter working hours and decreased demand for electricity. 

PUCSL’s documentation too acknowledged that electricity generation in January 2022 was much higher than in January 2023. However, the then-proposed tariff increase was based on an increased electricity demand as estimated by the Ceylon Electricity Board (CEB), which was not quantified taking the January 2023 pattern into account.

JAAF raised caution stating that the overestimation of electricity demand will result in higher projected costs and requested the CEB and PUCSL to hold off on electricity tariff revisions until an accurate assessment of electricity demand was made. It further requested the CEB to lower its own generation costs before tariff adjustments. 

“With the country’s single biggest industrial exporter facing a reduction in demand, an electricity tariff increase based on an unsubstantiated increased electricity demand makes limited sense,” said JAAF. The second is the impact of increased tariffs on the competition. As it is vital that Sri Lanka apparel remains competitive with other apparel manufacturing nations and in the international market, the increases made in electricity tariff leave Sri Lanka with a tariff of around 12cts per kwh, which will undoubtedly make the island nation uncompetitive and unattractive to investors, noted JAAF. With last year’s electricity tariff increases, Sri Lanka stood on par in US dollar terms with regional giants like India, Bangladesh, Vietnam, Indonesia, and Thailand offering US$ 9 to 10 cents per kwh.   Meanwhile, African countries including Benin and Togo which are aggressively pushing for foreign investments offer a much lower rate of US$ 8 cents per kWh. 

The third is the impact of repetitive off-peak tariff increases on Sri Lanka apparel. Off-peak tariff increases defeat the very purpose of having an off-peak tariff slab, which is to incentivize businesses to operate during off-peak hours.  The off-peak tariff was increased from Rs. 6.58 / kWh to Rs. 15 in 2022. The new PUCSL document suggested an off-peak increase of Rs. 34 / kWh from Rs 15. This denotes a 400 percent increase in less than 12 months. “Sri Lanka needs to grow a dedicated textile sector, especially with the government investing heavily in the Eravur textile zone. Fabric mills must operate 24 hours a day to attract investors. Therefore a 400 percent increase in off-peak tariffs is counter-productive to the objective of growing a textile base in Sri Lanka,” said the Forum.

It added that the increase will discourage companies from moving to off-peak operations creating an unnecessary incentive to sustain peak production and thereby increase electricity generation, which is in stark contrast to any basic economic rationale.  To ensure the availability of affordable electricity, the fourth proposal submitted was on scaling up the commissioning of renewable energy including rooftop solar, aligned with the government’s commitments to generate 70 percent of the country’s energy requirements from renewables. The endeavour falls under the purview of the Ceylon Electricity Board (CEB).

While the apparel industry has installations of about 200 MW of solar power, these companies have not been paid for the last seven to eight months. In the event, CEB is unable to honour delayed and future payments, JAAF urged the existing companies to be permitted to move to Net Metering. 

“This will immediately eliminate a cash flow burden from the CEB, allowing the increase of the solar footprint, which will, in turn, reduce demand on the burdened national grid allowing the CEB to generate electricity at a lower cost,” said JAAF. Further, the forum has been lobbying for power wheeling for an extended period of time as it is recognized to be the single biggest catalyst in the move to renewable energy and a conduit for investment in the sector.  Given that increased private investment in renewables will reduce the load on the CEB allowing the SOE to reduce its pricing given to the consumer, JAAF urged the amendment of the CEB Act to be expedited to allow for power wheeling.   JAAF urged the government to consider facts and data when making policy decisions of this scale and nature.  “At a juncture where the apparel industry is confronting a decrease in demand, electricity tariff increases based on speculative increased demand is blatantly inessential and will only burden an already embattled industry that binds the country’s economy in these unprecedented times,” stressed the Forum.