PHOTO: HABIBUR RAHMAN

AHSAN HABIB

Entrepreneurs who have been finding it difficult to keep their head above water for the past two years owing to higher prices of energy, raw materials and massive depreciation of the local currency are staring at another blow as their cost of production is set to rise following the hike in electricity tariffs.

In order to lessen its subsidy burden, the government on Thursday increased electricity prices by Tk 0.70 a unit effective from February 1.

Earlier, last week, the authorities increased by Tk 0.75 per cubic metre the price of gas supplied to power plants and for captive power generation.

The spike in energy prices is not new for industries.

For example, electricity tariffs rose roughly 5 percent three times in the last financial year of 2022-23, resulting in a compound increase of around 15.7 percent. Likewise, the price of diesel rose 37 percent and furnace oil 41.4 percent.

Similarly, the price of gas for industries was hiked by 150 percent to 178 percent in FY23.

Besides, driven by a 25 percent fall in the price of the taka against the US dollar in the past couple of years, the overall raw materials price increased by 10 percent to 20 percent. And the shock from the deprecation shows no signs of easing as the foreign currency reserves have plummeted amid higher outflows of US dollars against lower inflows.

“Businesses are already facing hardship because of the higher cost of production and the existing business environment. The price hike of electricity will add insult to their injury,” said Mohammad Hatem, executive president of the Bangladesh Knitwear Manufacturers and Exporters Association.

Despite the rising prices of gas and electricity, entrepreneurs are not getting a credible supply of power and an adequate pressure of natural gas, he alleged.

Industries and businesses face other major challenges as well.

For example, since the country is suffering from a dollar crisis, an adequate volume of US dollars is not available to open letters of credit (LCs).

The interest rate of bank loans has been on the rise after the central bank moved away from the 9 percent lending rate cap in July last year as part of its efforts to tame higher inflation. As a result, the cost of funds has gone up by as high as four percentage points in the first seven months of the current financial year of 2023-24, a development that will raise the expenses for businesses and industries.

The apparel sector has also seen an upward revision in the wages and salaries of workers.

“Under the circumstances, the higher energy price will add to costs and reduce the competitiveness of exporters.

If export earnings fall, the economy will also feel the pinch,” Hatem said.

The spiraled cost of production hit businesses in FY23, which ended in June. For instance, of the 158 listed companies that published financial reports for the last financial year, 99 companies, or 62 percent of the total, saw a drop in profits.