The Joint Apparel Association Forum (JAAF) delivered written and oral submissions to the Public Utilities Commission of Sri Lanka (PUCSL) highlighting significant threat to the competitiveness of Sri Lanka’s apparel and the wider industrial sector and calling for urgent reductions in industrial electricity tariffs ahead of a final July 15 decision.
JAAF noted that Sri Lanka currently has one of the highest industrial electricity tariffs in the region and, standing at approximately $0.13 per kWh, significantly higher than competitor nations such as Indonesia, India, Jordan, Bangladesh and Vietnam.
“Sri Lankan apparel sector has fought hard to create a unique value proposition for itself by moving up the global value chain, and driving leadership in sustainable apparel manufacturing. However, electricity costs remain one of the largest overhead costs for apparel and textile manufacturers.
“This is a sector which accounts for nearly half of Sri Lanka’s export earnings. A progressive approach to industrial tariffs and the overall energy policy of the nation is critical to sustaining Sri Lanka’s economic recovery. Conversely, if the PUCSL decides to continue such high tariffs, it will threaten export competitiveness and deter investment in backward linkage industries such as textile mills.” JAAF Secretary General, Yohan Lawrence said.
Like the rest of the Sri Lankan economy, the apparel industry has faced major challenges during its post-COVID recovery. Apparel export revenue plummeted from $ 5,591.5 million in 2022 to $ 4,535.5 million in 2023. Just as the industry began to stabilize, off-peak electricity rate for the apparel industry soared from Rs.6.58/kWh to Rs.15/kWh in 2022, and early 2023 saw another dramatic increase to Rs.34/kWh—a staggering 400% rise in just one year. While JAAF had hailed the subsequent reduction in July 2023 a step in the right direction, they also maintained that it was totally insufficient to address the industry’s needs, and was in itself, a higher than necessary tariff.
Currently, the CEB has proposed a reduction of 25% on domestic tariff and an overall reduction of13.8%. Yet there has been no consideration given to a reduction for industrial tariffs. JAAF submissions to the PUCSL highlighted this discrepancy as being deeply unfair and extremely challenging for the apparel export sector and called for similar reduction to be given on the industrial tariff moving forward.
Systemic flaws in CEB tariff forecasting and power generation plans
In its submissions, JAAF further noted that consistent and wide overestimation in the tariff forecasting for cost recovery submitted by the Ceylon Electricity Board (CEB) has also driven retail and industrial tariffs unnecessarily higher. In addition to placing a direct and undue burden on average citizens of Sri Lanka, JAAF noted that these major inaccuracies in the tariff forecasting model were further eroding the competitiveness of Sri Lanka’s apparel exports.
“Accuracy in the tariff forecasting model is an absolute must. The tariff increase in October 2023 was based on inaccurate forecasting and has resulted in the CEB making substantial profits of 61 billion in Q3 2023 and 58 billion in Q1 2024. . Moreover, it proves that there is clear room now for tariffs to be rationalized for both retail and industrial customers. Failure to do so would be totally unfair to all customers, and significantly hamper economic recovery,” Lawrence cautioned.
JAAF also issued a unified call from all of its members for the rigorous implementation of a least cost generation plan to align with competitor regions.
“We believe the rigorous implementation of a least cost generation plan is a must to catch up with our competitor regions who are adopting low-cost generation and offering much lower tariffs without any subsidization. We urge the regulator to ensure that all power purchase agreements are based on the best-in-class technology and price discovery is done via a transparent competitive bidding process.
“For example: the Mannar basin wind resource which can be harnessed for around US Cents 4.0 per kWh was in an unsolicited bid, being considered at rates which are double on a long-term basis. We see this as a major threat to our sustainability that will erode the competitiveness of the industry. Therefore, we urge that the natural advantages in the country in terms of wind and solar should harnessed at lowest cost to bring our generation cost in line with current international best costs,” he asserted.
JAAF has consistently called for policies supportive to the scaling up of renewable energy, including rooftop solar, aligned with the government’s objective of producing 70% of the country’s energy from renewable sources by 2030. With growing pressure from brands for the decarbonization of their supply base, Sri Lanka needs to move fast here, but at the right price.