This is with reference to the letter from Mr. S Dorji, Changangkha titled ‘Tariff Hike to Hit Ordinary Consumers Hard’ regarding power tariffs wherein he states that, “The stand taken by the owner of BPC on this issue, the Druk Holding and Investments (DHI), has also been extremely disappointing.” Though he may be disappointed, we would like to thank him for raising this issue as there is a lot of mis-understanding regarding industrial power tariffs and his letter gives us a good opportunity for creating general awareness about the actual power situation in Bhutan.
Today if you want to set up a manufacturing business, you cannot do so as the firm power (power that is available throughout the year) that is required by industries has already been fully allocated. Based on BPC’s records there are currently about 12 applications from businessmen who require about 200MW to set up new industries. However, they are unable to set up industries, as there is no power available in winter. These businessmen are willing to pay a power tariff that is equivalent to the current export tariff plus additional wheeling charge for use during the lean months if the power could be imported. Unfortunately this has not been possible so far. This clearly indicates that businessmen are willing to pay higher rates if they are provided power.
The willingness of businesses to pay higher rates is further borne out by the PPA between BPC and one of the industries, where the industry was paying about Nu. 2.30/unit, which is about 30% higher compared to about Nu. 1.75/unit, which is the BEA approved rate. This same industry had requested for additional power allotment at the higher rate. Clearly this indicates that the current industrial tariffs are very low. Given the limited firm power supply, the excessive demand and the willingness of industries to pay higher rates, DHI does not see any reason why the industrial rates should remain at the current low rates. It may also be noted that over 70% of the electricity used in Bhutan is consumed by a few large industries.
The writer also mentions about the dire straits of the economy with the rupee crisis and the credit crunch and how these are affecting the industries. However, the data seems to suggest otherwise. Our analysis of the financial performance of the listed industries (BFAL, DWAL, DFAL) shows that they continue to do very well. For these industries the average return on equity for the last three years was 25%, the average dividend was 44%, and the earnings per share was about 60.45. Comparatively, the figures for the financial sector, which is considered to be very profitable, were much lower at 16%, 12% and 46.67 respectively. This shows that these industries are not doing badly at all, and in-fact within the last three years they have more than recouped their investments.
From a national perspective, taking into account the present consumption pattern of the industries and the export tariffs, the direct loss to DGPC is over Nu. 1 billion considering only the opportunity cost and no other factor. And as domestic consumption increases, we can expect DGPC’s revenues to continue declining. This should be a serious concern as the electricity sector is the key revenue earner for the country. DGPC and BPC contribute to over 80% of the government’s income from the corporate sector. Therefore, BEA has a very important role as the electricity tariffs have such a large impact on national revenues. DHI, DGPC and BPC were disappointed when the tariff for the period from 2010-2013 was only increased by an average of 5% per year. This is below the inflation rate and in real terms it translates to an erosion of the government’s revenues.
We certainly don’t want to cripple the industries through un-rational tariff increases, but from the data and the suppressed industrial demand it is clear that the industries can afford to pay much higher tariffs. We are aware that one of DHI’s mandates is to lead and stimulate private sector development, and we have been actively taking many initiatives on this front. Furthermore, another of DHI’s mandates is safeguarding the national wealth that belongs to the people. It is in this context that we have made our submission to the Government on the power tariffs, so that it considers the real picture and accordingly sets the tariffs so that the nation at large benefits.