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FINANCIAL CHRONICLE™ » DAILY CHRONICLE™ » Hotels hit?

Hotels hit?

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1Hotels hit? Empty Hotels hit? Mon Mar 25, 2013 9:10 pm

Redbulls

Redbulls
Director - Equity Analytics
Director - Equity Analytics

The proposed upward revision of domestic electricity tariffs by government authorities from April 2013 will have a major negative impact on the country’s hotel sector, Asia Wealth Management warned in its latest weekly report.

“… hotels segment will see their cost of electricity increasing by circa 20%, due to unit costs on all three slots being revised upwards along with the fixed charges,” cautioned the report.

This might pose a threat to the already-strained margins of the sector it added.

“… as hotels have energy costs in a more fixed form, there is a tendency that margins could be affected. However, the overall impact depends on the percentage of electricity cost in the total cost structure, where on average it would be at a lower range of eight per cent to 10%.”

However, moves by large players in industry that had adopted greener technologies by switching to renewable energy sources, are likely to be affected to a lesser extent.

“… most of the large-scale hotels also have adopted energy saving systems so that the revised rates would not have a drastic charge on its cost structure.”

The proposed upward revision of domestic electricity tariffs by government authorities from April 2013 onwards stirred discussion across a wide-range of public circles in Sri Lanka.

However, Sri Lanka’s equity and foreign exchange markets responded positively to the proposed electricity tariff hikes.

“The rupee strengthened against a basket of internationally traded currencies, and foreign interest in Sri Lanka’s equity trade picked up amidst concern on the proposed tariff revisions. These developments were mainly caused by the fact that tariff increases are likely to strengthen the balance of payments (BoP) and infuse further stability to the external position of the economy by curtailing consumer imports in general and oil imports for electricity generation purposes in particular,” the report added.

However, this tariff hike would not have a major cascading effect or ‘second round’ price increases it opined.

“… Due to the fact that proposed tariff plan subjects the middle income groups more than the corporate sector to upward tariff revisions, it is less likely to increase the economy’s overall production costs and may not create second round price increases. However, the proposed tariff increases for small businesses that fall under the groups GP1, GP2, IP1, and IP2 range between 10% - 20% which may in turn bear a slight impact on the cost structure of large scale corporates.”
http://www.ceylontoday.lk/22-28059-news-detail-hotels-hit.html

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