MANUFACTURERS have every right to protest about the extortionate electricity rates that have eroded the competitiveness of their products. Four businessmen have written to the president to demand a reduction of the Electricity Authority’s industrial tariff as this was too high and hurting exports. How could Cypriot manufacturing units compete abroad when they had electricity bills two to three times higher than European competitors?
One of the manufacturers, Muskita Aluminium Industries, had seen its exports contract in the last five years. It exported 60 per cent of its products five years ago but that figure has now dropped to 10 per cent, said a company executive who explained that 40 per cent of its costs were for electricity; for some products it was as high as 80 per cent. Interestingly, the basic cost per Kwh in Cyprus had risen by 60 per cent in the last five years.
“Why should we continue working here,” asked the Muskita executive. Why indeed?
The company could re-locate to a country with much lower electricity rates – that would not be difficult to find – and lower labour costs. It would become competitive again and recapture the export markets it has lost. But this would be a blow for the Cyprus economy as it would cause more job losses.
What does the government do to help the few Cypriot exporters who are earning the country foreign exchange? It cannot just lower the electricity rates of the manufacturers who wrote to the president because this would be unfair on everyone else. Hoteliers, who must also pay very high electricity bills, would also demand a 25 per cent cut in their rates so they could offer more competitive prices. In fact every business would be entitled to demand a discount.
The reduction brought about by the scrapping of the 5.75 per cent ‘Mari’ surcharge on bills and subsequent 4 per cent cut in March were quite clearly not enough.
So what does the government do to help? So far, it has done all the wrong things, putting back by one year the deadline for the privatisation of EAC and promising its overpaid workers, who cost the authority €58,000 per year each, that none would lose their job.
It has secured a pledge from the EAC to formulate a cost-cutting plan, but we doubt this would lead to lower rates, given the Authority’s annual revenue does not cover its monthly loan repayments.
There are no easy answers and certainly none that would be popular, but if the government wants to help businesses it has to stop pandering to the EAC’s unions and the populist parties that support them. Privatisation should be brought forward even if this means redundancies at the Authority and procedures for the approval of applications for establishing power stations speeded up.
It is high time the government understands that by keeping the Authority’s unions happy it is making the survival of thousands of businesses even more difficult.