Proposed electricity tariff unfair & unrealistic

* Majority of stakeholders tell PUC
* kW wise, MW foolish, says Harsha

By Ifham Nizam

The Public Utilities Commission of Sri Lanka (PUCSL) will take two weeks to study the recommendations of various stakeholders’ oral presentations at yesterday’s public consultation on the proposed electricity tariff for 2013, which concluded yesterday in Colombo, with many taking part saying the proposed tariff was unjust and unrealistic, although conceding some revision had to be made.

Some 80 oral presentations were made yesterday, with many saying the proposed tariff hike by the Ceylon Electricity Board (CEB) was unfair and unrealistic. Prior to yesterday’s presentations, nearly 200 written submissions were made, most of them urged the regulatory body not to recommend the CEB proposals saying that it would burden the already badly hit segment of the population.

Informed sources said that PUCSL would certainly look into ways and means to cut down further the CEB proposed tariff hike. However, officials said that only strong and concrete recommendations would be taken into consideration.

Meanwhile, UNP Colombo District parliamentarian, renowned Economist, Dr. Harsha de Silva termed the proposed 2013 electricity tariff revision unjust. He said that it was ‘kW wise but MW foolish’, adding that a Colombo University study revealing 42 per cent of the CEB and LECO customers are unable to afford even the minimum 48 units per month, they are referred to as electricity poor. If the unelectrified households are also included, this figure gets close to 50 per cent, he added.

Speaking at the presentation, he said the CEB Tariff Proposal (CEBTP) was an unjust attempt to extract Rs. 34.2 billion mainly from the poorest 3.6 million of the total 5.0 million domestic consumers of the CEB and LECO –Lanka Electricity Company.

Citing an example, he said the proposed tariff increases on low income households would be detrimental to their economic welfare given that over 40 per cent of the existing consumers are not able to afford even the minimum household electricity requirement.

He pointed out that even though the expected revenue would cut the losses of CEB in the short term, the long term adverse socio-economic impact on the segment of people here that need to increase their use of electricity, not reduce its use, will be significant.

He believes it will also create negative externalities in the entire economy. Therefore, he urged the Commission to come up with a more equitable tariff mix that shifts more of the burden from the low income households to the richer households.

"The adjustment can theoretically be effected without reducing the expected revenue from domestic customers for 2013,"he stressed.

He also said that if it is not possible to adjust the tariffs and the PUCSL is to propose a direct subsidy from the Treasury, it should be transparent.

The CEB estimated that the total electricity demand for this year would be 10.95 billion KWh. Consequently, to cover this electricity demand the CEB has estimated that its expenses for this year would amount to Rs. 268 billion. Based on CEB’s own estimates the unit cost of electricity would be Rs. 24.47.

In other words, the average per unit cost of supplying electricity to a consumer is Rs. 24.47. The cost estimates filed by the CEB require approval from the Commission. The cost estimate of Rs.268 billion was assessed by the Commission based on the appropriateness (prudency) of the expenditure and further examined whether it was prepared in line with the approved tariff methodology.

These assessments revealed that, Rs. 40 billion could be reduced from CEB cost estimates. Therefore, the Commission has determined that this year’s electricity demand of nearly 11 billion units could be supplied without exceeding Rs.228 billion.

The Commission was able to reduce Rs. 40 billion in expenses from CEB cost estimates, which would have made a direct impact on electricity consumers and Government electricity subsidies. As a result of Commission’s regulatory interventions the per unit cost of electricity supply has been reduced to Rs. 20.83. Consequently, the Commission has been able to bring down the unit cost of electricity by Rs. 3 and 65 cents.

Economists, the Central Bank and even the IMF have urged the government to adopt more realistic pricing mechanisms for fuel and power so as to ease the burdens of fiscal deficits and debt.

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