The increase in electricity tariff may not be welcomed by all, both households and industries, as it means extra expenditure on utilities.
But what we must bear in mind is that we are paying the cheapest tariff in the region. In fact our electricity tariff is much lower than the global average.
Statistics show that electricity prices in the United States was around USD 9.4/unit last year. In West Bengal, Indian consumers in the lifeline block are charged Rs 5.69/unit. Sri Lanka charges consumers Rs 11.72/unit in the lifeline block.
Our rural consumers in the lifeline block (0-100 units) get free electricity and for those in urban areas its just Nu 1.28 /unit. This would also serve as one of the measures to limit rural-urban migration and help the urban poor.
The government subsidies come as an important tool to make electricity affordable. Otherwise, considering the tariff Bhutan Power Corporation pays to Druk Green and the cost involved in supplying power to our homes, we should actually be paying Nu 5.81/unit. In subsidising the consumers in the low and medium voltage blocks, the government spends Nu 1.7 billion, of which it pays Nu 406 million in providing the so called free electricity.
For a country like Bhutan, hydropower is one of the economic jewels to achieve socio-economic development. The revision may hurt individual pockets but we must not forget the larger national goals.
The revision as announced is just three percent in the low voltage and high voltage blocks while the annual inflation the country experiences is about six percent on an average. So the point is authorities have maintained the revision below annual inflation.
Industrialists, for a long time have been complaining of electricity tariffs hurting their business prospects. Bhutanese industries do rely on cheaper electricity for comparative advantage and if the tariff is eating into their profits, the problem has been solved to some extent.
The new domestic electricity tariff policy has incorporated some of the concerns raised by the industrialists. If what officials say are true, there would be price stability, predictability and most importantly there won’t be a sudden spike. Concerns such as the mega projects experiencing huge cost escalations, which could result in tariffs skyrocketing after commissioning has also been addressed through the policy.
We must also understand that companies like Druk Green and Bhutan Power Corporation have availed huge debt to provide electricity to all. It does not make business sense to pull transmission lines to some of the remotest gewogs. As the companies pay off their debts, the tariff is bound to fall.
There is also a captive power policy, wherein power intensive industries are allowed to build their own hydro plants. If industries think the tariff is hurting them, it makes sense to explore this option too in the long run. On the flip side, the government also may reconsider allocating subsidies to the power intensive industries.
For an economy built on the vitality of hydropower projects, we must come up with prudent policies and mechanisms to protect the interest of both consumers and companies. It is imperative that we reconnoitre and dissect the existing polices to adequately address future needs and challenges.
We must also use this opportunity to make efficient use of energy because domestic demand is on the rise. Proposals for some new industries have been shelved, for that matter. It is also time we negotiate the export tariff of some existing projects while also ensuring maximum benefit from the power agreements we may sign for new projects.