MASERU — The power tariff increase proposed by the Lesotho Electricity Company (LEC) could hurt the textile sector which is already battling to recover from the impact of last year’s global economic crisis, the Lesotho Textiles Exporters Association (LTEA) said on Tuesday.
The LTEA was among the three industrial associations that responded to the LEC’s 14 and 17 percent tariff increase application to the Lesotho Electricity Authority, the power sector regulator.
“The request to increase the tariffs comes at a difficult time,” said LTEA vice president Nkopane Monyane on Tuesday.
“The textile industry is in the middle of a huge downturn and from October last year six companies have closed down resulting in over 5 000 job losses in the country.”
He said exporters were already battling with low demand from buyers and stiff competition from textile companies in the Far East.
The proposed increase was too high for the textile sector to manage, he said.
If effected, Monyane said, many textile companies might bleed.
More jobs might be lost, he added.
With about just over 35 000 on its payroll, the textile sector is Lesotho’s second biggest formal employer after the government.
In the past three years the sector has been buffeted by the storms of the global financial crisis.
With customers in the main market — the United States — reeling from the financial crisis, demand for clothing has slumped.
The payment of debts accrued during the years of economic boom and the buying of food has become their priority.
The buying of clothing has become secondary. Faced with low demand buyers have thus cut their orders from Lesotho’s textile firms.
The LEC’s proposed tariff increase spells disaster for the sector which is already fragile, Monyane said.
“The actual competitive costs are already too high so the proposed tariff increase will further increase our operating costs which may result in more closures and job losses,” he said.
“The rand has appreciated against the US dollar and with the World Cup it is expected to appreciate further.”
Trouble in the textile sector could have a ripple effect on other sectors like retail and transport which are supported by the majority of low-income earners from the textile industry.
Monyane said the sector’s two main costs were water and electricity and there was a need to reduce costs to compete with other international companies which already have huge subsidies and incentives from their governments.
The Consumer Protection Association (CPA), a consumer rights lobby group, critisised the LEC on its assessment of the additional monthly costs of around M90 that will be incurred by the low-income earners.
Lehlohonolo Chefa from the CPA said the LEC did not take into account the recent financial crisis as it based its decision on the 2002/2003 Household Budget Survey.
“The tariff increase will affect consumers severely and people are already suffering due to the recession,” Chefa said.
“The LEC did not factor in the effects of the recent recession which affected consumers badly, as they used the 2002 Household Budget Survey.”
Booi Mohapi from the Catholic Commission for Justice and Peace said people should have been notified long before any decision was taken.
“The LEC must at least wait for a period of about 18 months so that people can be ready for such an increase in tariffs,” Mohapi said.
The LEC however said it needs M422 million to improve its infrastructure to support the increase in its customer base.
The electricity company has 89 000 customers and there is a need for more infrastructure development to support increased growth in new electricity connections, the company said.
LEC general commercial manager, Josh Chifamba, said the proposed tariff increases “were the bare minimum requirement that is needed to maintain the additional investment that the company needs to supply electricity”.
“There are certain investments that need to go ahead even though we are just recovering from the recession,” Chifamba said.
“There has been a decline in industry energy sales due to the global recession as evidenced by some company closures.”
He added that the LEC was looking to diversify its income streams and was looking into the mining sector as there are projects that are set to begin this year.
However, he said to support such projects there was need for more investments.
LEC corporate planning manager, Lefa Motlalane, said the proposed tariff increases are expected to cover the cost of sales of M157 million, operational costs expected to be M246 million and return on assets amounting to M19 million.
“Eskom has increased its tariffs by 24.8 percent, EDM by 12 percent and there has been a substantial increase in our operational costs,” said Motlalane.
For domestic customers (households) there is going to be a 12 lisente increase from the current 66 lisente to 78 lisente per kilowatt hour representing an increase of roughly 17 percent should the application succeed.
The industrial sector will see a 15 percent increase for maximum use and 15 percent for commercial use.
The pricing committee from the regulating body, the Lesotho Electricity Authority, said the LEC must look into cost-cutting measures and reduce some of the benefits that some of the employees receive.
The regulating body is expected to make a decision at the end of this month.