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Foreign Affairs

The Electricity Tariffs, Populism And Smarter Consumption: Some Reflections

pradeep Jeganatan Colombo Telegraph

Dr. Pradeep Jeganathan

In midst of the noise of populist political posturing on the electricity tariff increase, there has also been, as always, a considerable amount substantial discussion on the issue. While a number of OpEds have been edifying, and of our legislators, Harsha de Silva‘s lone, yet richly informed analytical voice has been most stimulating, I do feel there is an aspect of the matter that has still not drawn attention. In the paragraphs below, I will attempt to delineate this.

I will not go over all the numbers here, yet suffice to say that simply throwing out percentages of the increase does not paint a worthwhile picture. For example telling us that a 30 unit consumer’s bill will rise, 52% is a great, factually correct but misleading headline – that may allow the reader to miss, the fact that for nearly half the electrified households in Sri Lanka (0-30), this increase will amount to Rs. 75/=. Consider at this point that a loaf of bread is 60/=, a packet of milk powder 400/=, and the cost of mobile telecommunication perhaps 400/=, to say nothing of other utilities. Tub thumping about a 75/= increase of one utility is neither here nor there. On the other hand, electricity subsidies, unlike many others are beautiful and elegant since they are not easily transferable to an affluent consumer. Comparing this to the old style ration books, which were, and the new style car permits that are, would clinch the case. In any event this small increase comes in at some thing like Rs. 575 million, which again given the CEB short fall of nearly 60 Billion, is neither here nor there.

The brunt of the increase in rupee terms is borne by the lower-middle band 90-180 consumers. A 150 unit household will see its bill rise, from 2850/= to 4515/=. That’s not just 58%, its also Rs. 1,670/= or so. A 180 unit household will see its bill go up to 5130/= an increase of only 33% and rupee addition of 1275/= ( Yes, the rate of increase decreases with consumption. All figures have been rounded off, and are rough).

That’s a lot.  For a family of four, in the urban service sector, living on some thing like 40,000/= a month, spending some thing like 12% of its income on one utility is a heavy burden, given others like cooking gas, water and telecommunications. Transportation while not a household utility is another thicken slice of the families budget.

So what should be done? Indeed one can agitate for a reduction; but unless this cost is recovered, those very households will see price inflation in other segments of their monthly basket of goods.

Promoting energy efficiency is the other way to go. Indeed if we are to accept and live with the form capitalism we have, it seems rather contrary to suggest as some do that the answer is to discourage consumption. That may be one model of using resources, but its silly to impose it in electricity consumption and promote it in other areas.

For example are we to have a sliding scale of pricing for personal miles flown each year? In this model, if you’ve flown 10,000 miles this year your next ticket would be twice the price of your old one. On the contrary, airlines encourage frequent fliers, by giving them perks. At the bottom of this system of capitalism – which is flawed but still viable – is the idea that flying becomes more energy efficient each year. So its not that you fly less. You fly more, at lower energy cost.

Returning to the lower-middle band of 90-180 customers of the CEB, we can make the same kind of argument, which a false, child like populism is masking. What does that mean? Well, we only speak of light blubs when we speak of energy efficiency. Since lighting is so basic, it seems safely populist to speak of moving from incandescent lighting to CFL or LED lighting. Yet is it unclear, if these well known new technologies are supported by duty waivers.

But once we leave lighting behind we will find that a household in the 90-120 band has both a refrigerator and a television. 40% of Sri Lankan households have a fridge, 80% a TV. But in the lower-middle band I speak of ownership of these appliances has to be pretty universal. It stands to reason; or else where would the units go? What is the average energy efficiency of these appliances as used in the lower middle band? I am not sure any one knows – but we can guess estimate that the turnover cycle among this consumer is long – unlike with the affluent who may turn over their appliances every 3-5 years. Older appliances are far more inefficient than new ones.

Let us look at some numbers. Switching from a 17” CRT TV to a 15” LCD TV (which has the equivalent viewing area), will save 13+ units a month, if daily viewing is set at an avarage 8 hours a day. With a refrigerator, switching from a 8 CF model that’s 20-10 years old to a fresh model, will save more than 50 units a month.

Lets say a savings of 59 units a month. Our 150 unit household is down to 91, and their bill is back down to, 2,225/= or from 4,500/=. A reduction of huge proportions. Our 180 unit household is down to 121 in this simple calculation (the reductions could be higher if the TV and/or fridge was bigger); and their bill is now 3,500 down from 5130. (If 60 units were used as the savings, the drop would even larger, but perhaps misleading, because of the quantum jump at the pricing bands).

No doubt its not that simple; new appliances do have a considerable capital cost. Yet, there is little doubt that home appliance chains sell new low end TVs and fridges by the truck load; the question is how does a consumer learn about her choices?

Shouldn’t we be rating household appliances on an efficiency scale? Shouldn’t such rating be regulated, just as the ingredient listing on a can of fish or packet of sausages is regulated? Shouldn’t there be huge duty concessions for the highest energy band? Shouldn’t consumers be told at the point of purchase, this model will cost you so much a month to run, the other one more?

We don’t seem to doing any of this. At the very top end of things, several retailers advertize energy efficient air conditions. But even they do not actually tell us what the power consumption of the model is. If you walk into one of the large home appliances chains in Sri Lanka  – there are three big ones – and ask casually or other wise (I’ve tried both) – what the power consumption of the reverent appliance is, you will find that the sales staff are clueless. In fact, when recently at the service center to pick up an appliance, I asked the technician in front of me, at the testing table, what was the power consumption of a LCD TV he was testing. He looked blank. I rephrased the question a number of ways; he looked about the back of the TV and said, ’220.’ Yes he did. He was pointing to a white sticker that said, the appliance was rated for 220-240 A/C. For the uninitiated, the rated voltage of an appliance has nothing to do with its power consumption; if a trained repairmen is as clueless as a sales person on these matters, I am very much afraid the consumer may be quite lost. We really need to do better.

My numbers are rough, and I am skeptical, to say the least, about the great project of consumer capitalism. But that’s where we are. Populist protests mask this because consumer capitalism seems dirty, and unworthy of street protests. I think we need to grow up, and for the time being at least, simply consume  smarter.

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Foreign Affairs

On The Not So All-natural Rise Of Electrical energy Prices

Kath Noble

Kath Noble

One of the many conspiracy theories that has emerged with regard to the anti-Muslim campaign of the Bodu Bala Sena and others is that it is an attempt by the Government to distract people from other concerns, primarily the state of the economy.

If so, it isn’t working. Last week’s increase in electricity tariffs hasn’t been overlooked by anybody in Sri Lanka.

However, the Government has succeeded in convincing a fair share of the electorate that it isn’t really its fault. Keheliya Rambukwella summed up its argument at the regular media briefing on Thursday. He explained that the tariff increase was unfortunate but unavoidable, since ‘no administration can subsidise utilities forever’.

This sounds reasonable, but it isn’t actually true.

The concept of ‘breaking even’ doesn’t make sense when discussing a public enterprise. The CEB is not a company. We have come to talk of its ‘losses’, but this is to accept the neo-liberal logic that the Government claims to reject. The Ministries of Health and Education also spend more than they earn, but we don’t consider them to be ‘indebted’.

In that sense, the Opposition is right in pointing out that the Government is neo-liberal, as its economic affairs spokesman Harsha de Silva did in response to the hike. Of course he should have said ‘also neo-liberal’, since the credentials of the UNP as the vanguard of neo-liberalism in Sri Lanka are unquestionable, thanks to Ranil Wickremasinghe. Unfortunately, he combined that accurate observation with a totally misguided suggestion as to what to do about it, saying that if the economy is in so much trouble, what is needed is austerity.

Even the IMF is having second thoughts about ‘cuts’ as a response to a downturn, as its advice to the UK just days ago shows, with that country on the verge of an unprecedented ‘triple dip recession’.

Austerity isn’t the same as tackling waste and corruption. There is a difference between ensuring that expenditure is productive and targeting an overall reduction in expenditure.

In the same way, there is a difference between targeting subsidies so that the right people benefit and reducing the level of subsidies.

This is not to suggest that there is no problem with the amount that the Government spends on the CEB. It comes to 0.8% of GDP, which is an awful lot in comparison with the 1.9% that it allocates for education and the 1.3% that it gives to health.

Efforts should certainly be made to reduce this amount.

In terms of costs, Tilak Siyambalapitiya has produced a very succinct analysis (‘Talk sense about electricity costs and prices’, The Island, March 6th). He says that the approved cost of Rs. 2.56 for distributing a unit of electricity, which includes the cost of investment and maintenance of the distribution network and the supply of electricity, including metering and billing, is comparable with international norms, but could be brought down by 1% per year in real terms. A similar conclusion is reached for the transmission of a unit of electricity, with an approved cost of Rs. 0.73. He makes the same assumption as Keheliya Rambukwella that expenditure should be met by income to conclude that a unit of electricity has to be generated for Rs. 10.74, taking into account 12% losses and a total income of Rs. 15.50 per unit (10.74 = 0.88 x [15.50 – 2.56 – 0.73]), which is the case only for the CEB owned hydro and coal power stations.

An equally helpful discussion of prices is needed. The Rs. 15.50 per unit charged by the CEB is an average, and the way in which the burden should be shared is not obvious.

In response to the hike, everybody from bakers to the manufacturers of bathroom tiles have said that they will have to increase the prices of their products to compensate. This has to be taken into account in deciding who should pay how much.

Unfortunately, this is not going to happen by itself.

The Government carefully avoids debate of ‘zero-sum games’. It doesn’t want to admit that it makes choices between different groups in society, since that would mean alienating somebody. It prefers us to believe that all situations are ‘win-win’ or at least ‘lose-lose’.

This is equally true of taxation, and we should remember that the 0.8% of GDP that the Government spends on the CEB is only a problem because the share of taxation is so low and falling.

We may assume that the reason the Government has still not published the report of its Presidential Commission on Taxation, submitted to Mahinda Rajapaksa way back in 2010, is that it doesn’t want to upset people who really ought to be paying more. It thinks that it can get away with collecting almost everything from taxes on goods and services, rather than taxes on incomes, which is very bad news for people with low or no incomes.

High income earners not only pay relatively little in taxes on goods and services, they also pay relatively little for electricity.

The JVP raised another important point with regard to the electricity tariff hike. Its spokesman asked why the Public Utilities Commission bothered to hold a ‘consultation’ when it paid absolutely no attention to the opinions of anybody who participated.

Its report makes amusing reading. An unfortunate employee clearly wasted a very long time summarising the suggestions of the 275 people who either sent a written submission or made a presentation at the public hearing. Every single one of them is marked ‘no’ or ‘no comment’. Even proposals to ‘reduce corruption in the CEB’ are ruled out.

Given that the public has to pay for the opportunity to express their ideas, this is more than a little disappointing.

However, it is hardly surprising.

The Public Utilities Commission was established by the administration of Ranil Wickremasinghe, as part of its effort to privatise the CEB.

By now, everybody knows that this is a policy that has failed in many countries.

Even the Government has accepted that the private sector cannot help with electricity. At the media briefing, Keheliya Rambukwella also confirmed that it would be progressively reducing its purchases from the private sector, in favour of CEB owned power stations. If only it had worked this out earlier!

Also, it doesn’t seem to have understood why, since it is cheerfully pursuing exactly the same policy of privatisation in even less appropriate sectors of the economy.

Most extraordinarily, last week it was reported that the Government is to sign agreements with companies interested in investing in medical equipment such as MRI and CT scanners to be installed in public hospitals. The Secretary to the Ministry of Health was careful to explain that these services would continue to be free at the point of use – the Government will pay the owners of the machines according to the number of patients treated. How on earth they can’t see that this will end up in the Government spending more than if it had bought the machines itself is a mystery.

It may not be long before the Government thinks that the country’s health needs can just as well be met in private hospitals, in much the same way as it is so eager to have private universities cater to its education needs.

A little more attention to the state of the economy is therefore most certainly needed.

That doesn’t mean that the Bodu Bala Sena and others can be neglected, since they present a very serious immediate danger to society. However, what could very easily be ignored are the rest of the conspiracy theories that surround the anti-Muslim campaign. Far more likely than it being the work of Norway or Israel or India or the United States or any other country is that Sri Lankans have created this problem all by themselves. In any case, nobody else is going to solve it.

*Kath Noble’s column may be accessed via http://kathnoble.wordpress.com/. She may be contacted at [email protected]

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