Tourism industry fumes over new electricity tariff

The country’s tourism industry has expressed serious reservations over the proposed new electricity tariff, in addition to objecting to it being subjected to a special category.

The industry’s opposition was conveyed by the Tourist Hotels Association (THASL) at a public hearing on the proposed tariffs organised by the Public Utilities Commission.

Speaking on behalf of the industry, THASL’s past-president Srilal Miththapala had said the primary objection was that the hotel industry has been categorised under the special tariff scheme and imposed a separate rate structure, higher than the normal industrial tariff.

“There is no logic whatsoever to consider that hotels are not an industry. In fact, in the current economic climate, tourism is considered to be one of the main thrust industries, driving the post war economic revival,” Miththapala pointed out.

“Just because hotels are perceived to be high-end electricity users, it is wrong to charge us with a higher than the normal punitive tariff,” he told the hearing, and added: “A proper cost-based rate structure was required, than one based on individual consumer categories.”

He also noted that unlike some of the other leading industries, the hotel sector was a very high value-adding industry, where almost 90% of Sri Lankan input is transformed into valuable forex earnings.

“It is also an industry that has one of the highest economic multiplier effects on the informal SME sector. There is a very large informal sector that thrives on the periphery of the tourism industry and it is estimated that for every US$ 1 spent in the formal tourism sector, there is about US$ 2-2.5 spent in the informal sector,” Miththapala told the public hearing.

Furthermore, the tourism industry has a high ‘trickle-down’ effect, through which the informal sector in tourism accounts for about double the employment in the formal sector.

The THASL said that based on the document ‘Decision on Electricity Tariffs’ published by the PUC dated 4 July 2011, it is evident that on an overall basis, it costs less for the CEB to supply the hotel industry than a conventional industry. This is possibly due to a hotel’s steadier load profile and higher monthly and annual load factor, when compared with other industries.

“We believe that this is a grossly unfair classification and that there is no logic or justification whatsoever of categorising hotels under a separate tariff category and charging a premier tariff,” Miththapala opined.

The hotels are also opposing the peak tariff rate. “The proposed peak tariff increase for hotels indicates a very steep increase without any justification whatsoever. When the ‘time-of-use’ tariff was introduced a few years ago, most hotels undertook in-depth load analysis and removed all non-essential loads from the peak time use period. Hotels now find it very difficult to readjust any more of their operations during the peak period because that is one of the busiest periods in hotel operations,” Miththapala pointed out.

“Therefore, this proposed steep rise in the peak tariff should be suspended until a clear justification is available, based on the principal of cost reflectivity,” he added.

The THASL also warned of the dangers of ad hoc electricity rate increases for hotels and other industries, without keeping to a proper, long-term master plan and principles of proper tariff revision based on cost-reflectivity.

“This is a great burden on any industry’s operational margins,” he added. “More seriously, such  ad hoc changes have had a major detrimental effect on strategically forecasting new hotel feasibilities, which may now seriously hinder much needed foreign investment in new hotel development. Therefore, we request an immediate adherence to a clear and transparent cost-reflective tariff methodology, rolled out in a phased out and pre-planned manner over several years,” THASL’s former president told the public hearing on proposed electricity tariffs.