KUALA LUMPUR: The Malaysian Plastics Manufacturers Association (MPMA) has expressed concerns that the 16.85% increase in electricity tariff for the industrial category from Jan 1, 2014 will hurt the industry.
“Given that electricity is the second largest cost component in the manufacture of a plastic product, the drastic increase in electricity cost will cause plastic products made in Malaysia to be less competitive and, consequently, exports will be adversely affected,” MPMA's president Lim Kok Boon said.
“In 2012, Malaysia exported RM10bil’s of plastic products, which represent 62% of the total industry sales of RM16.1bil. Electricity cost is the second largest cost component for the manufacture of plastic products meant for export, after the cost of resins (raw materials),” elaborated Mr Lim.
The 16.85% increase in electricity cost would translate into approximately 30% reduction in profit margin for the exporters of plastic products. The export sector is so competitive that exporters are operating at net profit margins of between 3% and 4%.
“Other export-oriented and energy-intensive manufacturing industries in the country would also be expected to be similarly affected," he added.
Lim also pointed out that the proposed increase in valuation of property and assessment rates by the Kuala Lumpur City Hall and Ipoh City Council was excessive and unreasonable.
“Some of our members are hit by a 600% increase, which is far too drastic,” he stressed.
Many residents had voiced their concerns and objections to the assessment rate increase for their houses but the business sector has been silent so far. This is probably because they are not aware of such increase as many of them are just tenants in a business premise and they do not own the building.
“But when the landlords are forced to pay a higher assessment fee, they will pass it on to the tenants,” elaborated Lim.
According to Lim, plastics manufacturers are already facing drastic cost increase following the increase in minimum wages which would be fully implemented effective from Jan 1, 2014.
“While we understand the Government's need to rationalise subsidies and increase assessment rate, a sudden and huge increase would have serious adverse effect on the manufacturers. The recent announcement on the proposed toll increase will be further a burden to our members," added Mr Lim.
He said that the Government should look at gradually increasing the electricity tariff increases over a reasonable period and any rate increase should not exceed 10%.
In addition, Mr Lim said that over the years, MPMA has been requesting the Government, as well as Tenaga Nasional Berhad (TNB), to extend the off-peak rates to all the plastics manufacturing companies as this would assist in mitigating the impact.
SME users would be worst affected as they are not eligible for any off-peak period tariff discount under the Tariff D (low voltage users) category, unlike the medium and large users which are eligible under the Tariff E category.
“We have submitted memoranda to the authorities several times, requesting TNB to extend its off-peak rates to all the plastics manufacturing companies in the Tariff D category, and extend the off-peak electricity tariff to cover full days of Saturdays and Sundays for all categories of TNB users, but unfortunately they were all rejected," said the MPMA President.
Lim Kok Boon called on all the relevant authorities to seriously consider our appeal on extending the off-peak rates to all the plastics manufacturing companies.
The plastics industry is a capital-intensive industry. The investments for production lines can cost up to several million ringgit. There is therefore a high fixed cost attached to a machine in the form of depreciation amortisation and the financing cost of acquiring the machine.
Such costs are fixed, which means that the costs are incurred regardless of whether the machine is in operation or left idle. Consequently, it is necessary to operate such machines on a 24 hours/seven days basis in order to absorb and amortise the fixed cost over a higher output so as to reduce unit cost.
“As such, they are “ideal” customers for TNB due to their consistent consumption pattern throughout the whole day, which would help to utilise TNB’s capacity in a more efficient manner,” Lim explained.
He warned that the increase in electricity cost would cause the export of plastic products to shrink.
In addition, exporters are beginning to feel the adverse impact of the withdrawal of the Generalised System of Preferences (GST) status by the European Union for Malaysia effective Jan 1, 2014,” he added.
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