Offering regionally competitive energy tariffs (RCETs) would lower the cost of production for the industrial sector, especially the export-oriented businesses, enabling them to offer their products at competitive prices on the global market, enhancing their prospects of securing business deals and market share, reports WealthPK. The power tariffs for industrial consumers have skyrocketed, rising from around 9 cents per kWh for export-oriented businesses and 12 cents per kWh for domestically oriented sectors to 17.5 cents per kWh at present. This is more than twice as much as that of regional economies like Bangladesh, Vietnam, and India, with whom the Pakistani businesses directly compete on the global market. The domestic gas prices were also raised in November 2023 from Rs1,200/MMBtu to Rs2,500/MMBtu for non-export captives and from Rs1,100/MMBtu to Rs2,400/MMBtu for captives in the export sector.

Later in February 2024, the separate tariff category for export sectors was eliminated and gas prices were once again raised to Rs2,750/MMBtu – a 223% increase since January 2023. In an interview with WealthPK, Kaiser Bengali, former economic advisor to the Sindh government, said the manufacturing sector of Pakistan is stagnant, and additional taxation (plus high interest cost) would further shrink it. As the country is facing economic downturn, high taxation and rise in power tariffs is a recipe for economic shutdown, he observed. Mr. Bengali also quoted the Standard Economic Theory that stresses reduction in taxes when an economy is down. Reducing taxes during an economic downturn could stimulate economic growth by increasing the disposable income for individuals and businesses.

He further explained that an increase in power tariffs led to a rise in production costs, which in turn discouraged investment and consumption, thereby retarding the revival of stagnant industries such as the manufacturing sector. He suggested that the government align the power tariffs with the tariff rates of regional countries to help the industrial sector to compete with its counterparts in Bangladesh, India, and Vietnam. He said the regionally competitive tariffs would make the country more attractive to investors, leading to increased foreign and domestic investment. Speaking to WealthPK, Dr Omer Siddique, senior research economist at the Pakistan Institute of Development Economics (PIDE), said Pakistan’s energy-intensive industrial sector, which is the backbone of economy, has been severely impacted by the increased power tariffs.

The cost of electricity directly impacts the production costs, competitiveness, and profitability. He lamented that the manufacturing sector immediately experienced higher operating costs due to a rise in energy tariffs. For most industries, the increase in cost could be fully passed on to consumers without risking a loss of market share to the cheaper imported goods. The local industries find it challenging to compete at national and international levels as a result of squeezed margins. “Immediate action must be taken to rationalize power tariffs for the industrial sector to a regionally competitive level to sustain industrial viability and competitiveness,’’ the PIDE senior research economist emphasized.

Credit: Independent News Pakistan