If electricity prices drastically increase for businesses, layoffs and company closures will follow

SARAJEVO, (Patria) - The Employers' Association of the Federation of Bosnia and Herzegovina warns that the announced increase in electricity prices for business entities in FBiH would result in unforeseeable consequences for the economy, as well as for the population and society as a whole.

"The private sector is in the grip of the authorities and is only receiving blows from all sides. In addition to the increase in electricity prices, the economy is also facing costs it will incur due to the announced changes to fiscal cash registers and the increase in the minimum wage for workers. The announced increase in electricity prices would be an additional burden of 200 million KM annually for the economy, and the replacement of fiscal cash registers will cost businesses between 75 and 80 million KM. We have so far signed five collective agreements with trade unions, which was an additional blow to the economy of 25 percent. This alone means an additional annual expenditure of about 150 million KM on contributions. All of this is a message to investors that it is not wise to invest here, to businessmen to reduce their businesses and move them to other countries, and to citizens to pack their bags and go abroad," said Smailbegović.

According to Nikhil Mehta, General Director of ArcelorMittal, the company consumes 500,000 megawatt-hours of electricity annually and has now received an offer for a 125 percent price increase.

"If this increase occurs, it will be a major blow to us. In addition to electricity, the price of coal used in steel production has also increased by 500 percent, which we cannot influence. If the announced drastic increase in electricity prices occurs, it will be more profitable for us to send our 2,300 workers home and pay them 55 percent of their salary than to pay this price for electricity," said Mehta.

The increase in electricity prices will also be a strong blow to the automotive industry in FBiH.

"Our company employs 800 workers, and we will certainly have to close it and go bankrupt. Jobs will be lost, and we will not seize the opportunity to develop this area industrially, where we have a better chance than Serbia," said Amed Hanić, director of TMD Group Gradačac.

Kasim Kotorić, advisor to the General Director of the company "Pobjeda" Tešanj, emphasized that the announced drastic increase in electricity prices puts companies in a hopeless situation.

"We cannot simply close companies; we have signed contracts whose non-fulfillment leads to penalties and new difficulties. Those who make decisions do not take all of this into account," said Kotorić.

Sisecam Soda Lukavac is a company that procures 80 percent of its raw materials in the Federation of Bosnia and Herzegovina.

"An increase in electricity prices means that the prices of raw materials from our suppliers would increase, which would also jeopardize our business, as it is known that we are an export-oriented company that exports 99 percent of its production," said Sead Pašić, Executive Director of Supply Chain and Logistics at Sisecam Soda Lukavac.

Although no increase in electricity prices for households has been announced, this drastic price increase for businesses would be a direct blow to citizens as well, as it would lead to a drastic increase in the prices of goods and services on the market. About half of the total electricity consumption in FBiH is for businesses, and the other half is for households. For years, the price of electricity for households has not increased, while the price for businesses has increased. Ultimately, citizens pay for any increase in electricity prices for businesses, as an increase in electricity prices leads to an increase in the prices of goods and services. Such a move by the authorities represents a false concern for the social status of citizens.

Everywhere in the world, except in the countries of the former SFRY, the price of electricity, as well as other energy sources, paid by households is much higher than the prices paid by industry. In this way, states care for the social status of citizens, because an increase in electricity prices for businesses also means a drastic increase in the prices of goods and services, which automatically affects citizens. None of the solutions offered to us so far will prevent catastrophic consequences for the economy and population of FBiH.

The negative consequences of an increase in electricity prices on their business can be best seen through the example of a company operating in the metal sector.

In 2021, the company will pay about 1,200,000.00 KM for electricity costs. The announced increase in electricity prices will bring an additional cost of about 1,450,000.00 KM, which would ultimately amount to 12 percent of the company's total costs. With the announced increase in electricity prices, we would immediately have to lay off about 30 percent of employees, and we would have to increase the price of the main product by 30 percent compared to the current one, which no customer will accept. Due to all of the above, we would reduce production by about 40 percent, which would again lead to sanctions and penalty payments for unfulfilled obligations under signed contracts. These sanctions and penalty payments would push the company into loss-making operations, which would certainly lead to its closure, thus extinguishing hundreds of jobs.

With a drastic increase in electricity prices, the population and the economy would feel unforeseeable consequences. Production facilities in companies or even entire companies would be closed, as well as a reduction in the volume of production, which in turn results in layoffs. The closure of jobs would reduce budget revenues at all levels, as well as extra-budgetary funds. There would be a significant increase in inflation, as the prices of goods and services would increase significantly. The announced drastic increase in electricity prices would lead to a significant decrease in exports and investments, which directly results in a decrease in wages, purchasing power, and a lower standard of living for citizens. The result of such a disastrous decision for the BiH economy would be a slowdown and stagnation, and a decrease in the competitiveness of the BiH economy.

Due to all of the above, we, from the Employers' Association of the Federation of BiH, demand from those responsible in the Government of FBiH and Elektroprivreda BiH that the increase in electricity prices must not exceed a single-digit amount, as a higher price increase would seriously jeopardize economic activities and the standard of living of the population of FBiH.