Jordan warned of pending tumult if electricity prices rise

Published May 14th, 2012 - 08:10 GMT
With energy accounting for 30 percent of production costs for manufacturers, the raise will directly affect manufacturers
With energy accounting for 30 percent of production costs for manufacturers, the raise will directly affect manufacturers

A planned electricity price hike will have “disastrous” effects on the country’s economy, traders and industrialists claim, warning that the new rates will have far-reaching impacts well beyond citizens’ monthly bills. Although the hike is yet to be endorsed or unveiled by authorities, the private sector is already raising concerns over a proposed tariff that raises electricity rates across all sectors ranging from 8 to 40 percent and marks the second attempt in less than three months to cover a rising national energy bill expected to surpass JD4 billion by the end of the year.

The industrial sector is leading the campaign against the anticipated rise in electricity rates, which comes two months after a previous proposed rise in rates that was later suspended under popular pressure. Industrialists warn that the proposed tariff, which calls for a 40 percent increase for large-scale industrial consumers, will be a “death blow” to thousands of manufacturers and the some 165,000 Jordanians they employ. “If the government approves the tariff as is, we will see mass closures and the loss of thousands of jobs,” claimed Fathi Jaghbir, chairman of the Small- and Medium-sized Enterprises Association.

With energy accounting for 30 percent of production costs for manufacturers, the raise will directly affect manufacturers still reeling from a price hike introduced in 2011. “We are only now beginning to see the effects of last year’s electricity price rise. We will see tough readjustments across the sector over the next year,” Jaghbir added. Industrialists claim their concerns over the price hike go far beyond overhead costs. The price hike places Jordanian industry’s regional competitiveness in jeopardy, said the Jordan Chamber of Industry (JCI), claiming that the new tariffs saddle manufacturers with an additional energy cost their competitors in neighbouring countries do not face. “At the end of the day industry is about competitiveness,” said Musa Saket, a JCI board member. “If we have to carry these extra energy costs, there is simply no way Jordan can compete with the Gulf or other countries in the region.” Industrialists challenge officials’ claims that the new tariff will only impact large-scale heavy industry consumers, a bracket the Electricity Regulatory Commission (ERC) claims comprises some 8 percent of the sector. “Under the government’s definition of large industry, a majority of medium-scale industries will be included,” Saket said, underlining that the sector contributes 24 percent of the Kingdom’s gross domestic product. “We support and accept that everyone has to carry part of the financial burden of rising energy costs, but we should make sure that consumers who can afford it are the ones to shoulder this burden,” he said. ‘Left in the dark’ Although it has not yet been unveiled by the government, the new tariff is already facing stiff resistance from traders, who were the driving force behind the suspension of the previous proposed price hike in March and claim that authorities have failed to live up to their promises to include the private sector in the decision-making process. “This entire time, all we have asked is to be included in a clear and transparent process to set new, reasonable electricity prices,” said Nael Kabariti, president of the Jordan Chamber of Commerce.

“The lack of cooperation led to the failure of the last electricity tariff, and we don’t want to head down the same road again,” he stressed. Representatives of the commercial sector warned that a previously planned 100 percent increase in outlets’ electricity bills would lead to a 15 percent raise in the prices of basic food commodities, a number that could reach 20 percent should the new tariff be enforced. In face of the growing criticism, the ERC insists that the planned rise in monthly rates will exempt 88 percent of consumers across all sectors and comes as a last resort to narrow the National Electric Power Company’s (NEPCO) growing budget deficit, expected to reach JD1.7 billion by the end of the year. “The proposed tariff is a just formula that ensures those who consume the most carry more of the burden,” said ERC Chief Commissioner Ahmad Hiyasat. The decision to raise electricity rates comes amidst an ongoing series of disruptions in Jordan’s Egyptian gas supplies, which have forced the Kingdom’s power stations onto heavy fuel oil and diesel reserves at a cost of some $5 million per day.

According to Hiyasat, the proposed tariff will only shave some 10 percent of NEPCO’s deficit amidst growing costs of electricity generation, which stands at 184 fils per kilowatt-hour (kWh), more than twice the 73 fils/kWh rate the company sells to consumers. If the government fails to raise rates “soon”, the ERC warns that decision makers will have to face “difficult alternatives” such as pre-scheduled blackouts in various regions across the country. Acknowledging the growing energy crisis facing the country, traders and industrialists called on authorities to consider “out-of-the-box” alternatives, such as eliminating ministers’ and lawmakers’ lifetime pensions and restructuring NEPCO’s management, before placing an additional burden on what they claim as “Jordan’s lifeline”. “Even though industrialists and traders will receive the bills, all citizens wAill have to pay the price,” Saket said.

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