Friday, November 26, 2010

Consultation Paper on Setting Tariffs for the Period 2011-2015

" reduce tariff by 25 percent to religious places, government hospitals, schools, vocational training institutions and universities"

It is common knowledge that the waste of electricity in these public institutions are immense. The fact remains that by further decreasing the tariff, their would be even more wastage since the institutions will not feel the real cost of electricity.

A proper mechanism should be implemented to force these places to use electricity in a responsible manner.

How should this be done?
A proper mechanism should be implemented to annually check how they have used electricity. If it can be determined that they used electricity in a responsible manner, then concessions should be given. How ever if they have not, then there should be penalties.

Now this will force these huge consumers of electricity to take measures to reduce consumption. Might even force them to implement energy saving policies and even recruit energy mangers.

This can be done in a case by case basis since the state institutions are few.

How ever decreasing the tarifff will not help the country since this subsidy will have to be funded by the whole country. Lets look at the worst affected segment of consumers.

"28. Sri Lanka’s export industry is often hampered by anti competitive practices of
shipping lines. As a result, Sri Lankan exporters are often subject to various charges
imposed by shipping lines. Most of these collections from FOB exporters are not
legally backed by international shipping rules. These charges not only result in anti
competitive practices but also cause a serious drain of foreign exchange and tax
evasions. These charges are also imposed on imports. Consequently Sri Lanka’s trade
oriented SME centric economy is in a disadvantage position. Therefore, I propose to
introduce a new legislation within first 100 days of 2011, towards countering anti
competitive practices in shipping and trade. "
-Budget 2011

SME centric economy
The informal SME sector of our country is the real driving force of our economy. A good example of SMEs creating properity is UK and USA where almost 95% of the indutries are SMEs.

The policy of the Srilankan government is to help the SMEs. However what we see is that the Government is using the informal SMEs to pay for the subsidies to large industries (mostly foreign owned).

An informal SME will use over 600 units of electricity.

So they have to pay 45.50 Rupees per unit. And this cost will make them at cost disadvatage with foreign com[petitors. Apart from this the cost will be reflected in all the services and goods that they are involved in, and this will ultimately be handed over to the general public and the cost of living will increase. This is a paradox since the government wants to help the SME, but the actions of the government hurting not just the SME and domestic sector but also the general public in general.

The Answer

Subsidizing all the customers who use less electricity does not make any sense since consuming less does not always imply that they can not afford electricty. A good example is my house hold where the usage is just 65 units, though i can easily pay the cost of electricity of 21 Rupees. Apart from this, the policy leads to malpractices such as multiple connections (legallly) for single household.

The answer is simple enough,
This subsidy should be stopped immediately. A new subsidy should be introduced for a case by case basis. A mechanism should be implemented where the poor people desperate for concession can apply for concessions. These can be fairly evaluated and the household identified can be subsidized even more than that is done today.


Now this tallies much more with the current government policy of concentrating more on the poor since the subsidies are increased for them.