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ISLAMABAD: The Pakistan Association of Large Steel Producers (PALSP) issues a grave warning to the nation as the steel industry braces for an imminent price surge in steel rebar due to skyrocketing energy costs. The repercussions of this impending crisis could prove catastrophic, jeopardizing the backbone of Pakistan’s economy and potentially leading to widespread layoffs.

The steel sector, a pivotal pillar of Pakistan’s economic infrastructure, relies heavily on electricity as a primary input, with power costs constituting over 50 percent of the production expenses.

The adverse effects of escalating electricity prices have already forced several steel units to shutter their operations, leaving those still operational functioning at a fraction of their capacity. PALSP has repeatedly appealed to the government to provide the steel industry with electricity at reduced rates, fostering maximum capacity utilization instead of incurring payments to independent power producers (IPPs) for unused electricity.

In the fiscal year 2023-24, consumers will collectively shoulder a staggering Rs 2.025 trillion in capacity charges, a burden exacerbated by the presence of idle power plants.

The industry faces the grim reality of poor agreements with these power plants, which stipulate that capacity charges must be paid even if government utilities fail to draw electricity from them. Adding to this crisis, the National Electric Power Regulatory Authority (NEPRA) recently greenlit a Rs3.28 per unit increase in electricity rates for all consumers nationwide.

Currently, the average base tariff stands at Rs 29.78 per unit. When factoring in taxes and additional charges, such as fuel adjustments, quarterly adjustments, and surcharges, the cost of one unit of electricity skyrockets to over Rs 50.

NEPRA had earlier determined a power purchase price of Rs 22.95 per unit, comprising Energy Purchase components of Rs. 6.73 per unit (including fuel and variable operational & maintenance charges) and Capacity Charges of Rs. 16.22 per unit (71%). This translated into a consumer-end tariff of Rs. 29.78 per unit, broken down as Rs. 3.1 for Discos’ Margin, Rs. 17.01 for Capacity Charges, and Rs. 7.62 for Energy Charges, among others.

As a direct consequence of these mounting power tariffs, steel prices are on the verge of a staggering increase of over Rs 10,000 per ton, warns Wajid Bukhari, Secretary General of PALSP. Presently, branded G-60 rebars are priced between Rs 285,000 to Rs 288,000 per ton.

However, impending energy tariff hikes, including fuel and gas surcharges, will place immense pressure on customers to accept higher prices.

PALSP reveals that due to exorbitant energy costs, many steel producers have been forced to reduce their capacities or shut down their plants. This, in turn, has led to power distribution companies imposing exorbitant capacity charges on consumers.

Secretary General Wajid Bukhari emphasizes the severity of the situation, highlighting that petrol prices have soared to Rs 331.38 per liter, electricity costs have surged to Rs 50 per unit, and financial charges have risen to 23.5 percent.

In conclusion, PALSP’s warning is a stark reminder of the impending crisis that could spell disaster for Pakistan’s steel industry and, by extension, its economy. The government’s swift action is urgently needed to mitigate the looming energy tariff increases and secure the stability of this vital sector.

Copyright Business Recorder, 2023

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