Electricity Rate Hike Could Hurt Competitiveness, Raise Consumer Prices

By Kyaw Hsu Mon 24 March 2014

RANGOON — Last week, Parliament approved a government proposal to introduce a long-expected hike in electricity prices per April 1. Business sector representatives now warn that the measures will undercut the competiveness of Burmese industries and lead to a rise consumer prices.

Under the new plan, for households using under 100 kilowatt hours, or units, per month, the price will remain at 35 kyat (less than US$0.04) per unit. The price will rise to 40 kyat per unit for those using between 101 and 200 units in a month, and to 50 kyat for those using more than 200 units.

For businesses, the basic charge for those using less than 500 units per month will remain at the current level of 75 kyat. But large consumers using over 500 units will pay 150 kyat per unit.

The government and MPs said the plan would have little impact on most families and small- and medium-sized businesses.

Maung Maung Lay, vice chairman of the Union of Myanmar Federation of Chambers and Commerce Industry (UMFCCI), said production costs for Burmese industries were set to rise significantly as a result of the plan, thereby undercutting profits and competitiveness of Burmese products.

“Market competition is important for local manufacturers, so if other costs are increasing for local industry, how can they compete with foreign manufacturers [selling goods in Burma]?” he asked.

Maung Maung Lay said Burmese factory operations are generally relatively small and would therefore struggle to cope with the sudden rise in costs, adding, “Here the production rate is less than other countries, manufacturers couldn’t survive this hike in electricity prices.

“Because of the new plan product prices [of Burmese goods] will rise very soon,” he warned. “I am worried that [factories] might also cut product quality due to the higher production costs; they have to consider ways to compete with foreign companies in this situation.”

Myat Thin Aung, chairman of the Hlaing Thayar industrial zone in Rangoon, voiced similar concerns. “All manufacturers will be impacted … they can’t compete with imported [goods], because production costs are increasing here,” he said.

Myat Thin Aung complained that the burden of raising government revenues on electricity supply had been put on the private sector, saying that he believed that the real cost of producing electricity is about 100 kyat per unit, while larger industrial producers will be forced to pay 150 kyat per unit.

Although Burma is rich in energy resources, with large oil and gas reserves, and vast hydropower potential, only a quarter of all Burmese have access to reliable electricity, according to the World Bank. The government has an ambitious plan to more than the double energy supply in the next two years. Burma’s energy demand is set to expand from 2,000 megawatt per day to 4,900 megawatt per day by 2015.

Rangoon represents more than half of the nation’s energy demand. During the hot season, from March to May, a drop in water levels in hydropower dams and increased demand in the city leads to rolling blackouts. Industrial zones are often only supplied with a few hours of power, forcing factories to shift to expensive diesel generators, which produce electricity at around 300 kyat per unit.

So far this hot season, however, supply has been better, according to Myat Thin Aung. “This year, the electricity supply by [the Yangon Electricity Supply Board] is better than last year, we are still receiving 24 hours per day, even in the dry season time,” he said, before adding, “I’m not sure about April.”

Burma’s government has long subsidized electricity and prices were among the lowest in the region, but budget pressures and advice from international financial institutions such as the Asian Development Bank have pointed to the need to raise prices. The plan would reportedly save about US$272 million from the government’s annual spending on supplying power.

According to figures from the Ministry of Electric Power, 56.6 percent of households do not use more than 100 units per month, and 55.6 percent of businesses use less than 500 units.

Tin Htut Paing, a member of Generation Youth who helped organize last year’s candle protests in Rangoon against blackouts and electricity price hikes, said he worried that the new plan would directly impact the poorest families as stores and producers will increase prices on goods such drinking water and tea prices.

“I’ve realized that some commodity prices are already starting to increase even before the electricity price hike is in effect,” he claimed, adding that the energy bills of many households will also increase.

“Normally, a household [without aircon] spends 150 units per month at least, so they have to pay 8,000 kyat, up from 6,000 per month, but their income has yet not increased,” Tin Htut Paing said. “Income and expenditure are not being balanced in Myanmar, so I feel that people are being robbed by the president,” he added.