Third and final power tariff revision might sound death knell for industrial sector

Electricity: With the third and the final power tariff revision that will come to effect from July this year, ferrosilicon industries in Pasakha are now facing a question of sustainability.

Tariff revision could hit the industries already aggravated by poor market situation hard.

As ferrosilicon industries are high voltage (HV) consumers, the III schedule of tariff revision could push the electricity bills up by about 3 million in a month.  As per the figures provided by two ferroalloys establishments in Pasakha, the bills would shoot up by 10 percent.

This will happen with the rise in energy charge to Nu 1.96 from the current Nu 1.81.  Demand charge is expected to rise to Nu 180 per KW a month from Nu 155.

For instance, an 18MW plant with a monthly consumption of approximately over 10 million units will have to pay Nu 2.07 (energy charge plus demand charge) per unit in the current tariff cycle and Nu 2.26 per unit after the upcoming revision in July 2015, while the export price would remain at Nu 2.0 per unit.

The above energy charges paid by the industries do not include the contribution by the industries to the government in the form of corporate income tax, dividend tax and other taxes for every units of electricity consumed.

The general secretary with the Association of Bhutanese Industries (ABI), Jochu Thinley, said the competitive edge country’s industries had over their international competitors was cheap electricity.  This is not the case anymore.

“Ferrosilicon industries are going through a bad phase, because of the drop in demand for the ferrosilicon products in the international market, leading to a steep fall in the price,” he said.

During Indo-Bhutan trade and transit meeting held in the capital, the government requested the Indian government to give preference to Bhutanese ferrosilicon.

“ABI appreciates the fact the economic affairs ministry is aware of the issues faced by the ferrosilicon industries and that it has been discussed during the Indo-Bhutan meeting,” Jochu Thinley.

Meanwhile, huge quantities of Chinese steel are being sold in Indian market, because there is no demand in China as its economy has slowed.  India is getting readymade steel at a cheaper rate.

The selling price of ferrosilicon has dropped by Nu 10,000 to Nu 15,000 per metric tonne today.

One of the industries in Pasakha has paid a Nu 83.35M (million) electricity bill from January to April this year, an increase from Nu 72.99M for the same period last year.

Considering stocks, direct and indirect expenses, and other manufacturing expenses, the industry incurred loss of Nu 23.23M this year.

Jochu Thinley attributed this to increased in power tariff and weak market.

“Industries are tightening their belts and running at break-even point today,” said Jochu Thinley. “With the upcoming tariff revision, industries will run at a loss if the market conditions don’t improve.”

Meanwhile, the ABI has submitted a petition to the government requesting a rollback on the final revision of electricity tariff.

Samdrup K Thinley, chief executive officer of Bhutan Electricity Authority (BEA), said that tariff revision is reviewed until 2016.

“The revision will happen,” said Samdrup K Thinley, explaining the authority could not take sides either with supplier or with the consumer.

Samdrup K Thinley said the authority stood between the suppliers and the consumers.  However, it is the authority’s responsibility to validate if the tariff is charged more than required.

“BEA will scrutinise and allow charging accordingly,” said Samdrup K Thinley, elaborating that it was monopoly in the case of the supplier side. “It’s a complex calculation that consumers don’t understand.”

According to figures from reports, the two state-run corporations DGPC and BPC, outperformed the other Bhutanese industries that are privately or publicly owned and operate under high business and market risk conditions prior to the tariff revision in 2013.

DGPC’s profit margin was 37.18 percent and BPC’s was 25.34 percent, while the highest among the industries was Penden Cement Authority limited with 17.16 percent.  There are five other industries making margins above three percent, and the remaining 26 industries across the country made just 3.20 percent.

In the year 2014, about 29 industries paid Nu 613.43M corporate income tax, Nu 679.39M Bhutan Sales Tax, and Nu 40.01M customs duty.  The industries employ a total of 3,287 Bhutanese and 638 expatriates.

By Rajesh Rai, Phuentsholing