Spike in gas tariffs detrimental to the export-oriented textile industry of Pakistan

All Pakistan Textile Mills Association, Southern Zone has strongly rejected the increase of 223 in gas tariff in the last year and termed it as detrimental to the export-oriented textile industry of Pakistan. The observation was made in the Extra Ordinary General Body Meeting of All Pakistan Textile Mills Association of Southern Zone held today, Thursday, 7th March 2024, which many zone members, including Central Chairman APTMA, attended. The meeting observed that the recent increase in gas tariffs has proven to be disastrous for the export-oriented textile industry, which has the country’s largest share at 60 percent in total exports.

The meeting also observed that due to an increase of 223 percent in gas tariff, the export-oriented textile industry is becoming uncompetitive in the international market and is compelled to shut down due to the unbearable and unsustainable financial losses emanating from the unprecedented cost of doing business; primarily due to highest ever interest rate of 22 percent and an astronomical increase in energy prices – which has made Pakistani exporters uncompetitive in the export markets by a large margin. He said that the gas tariff was Rs. 852/MMBTU till 31st December 2022 and was raised to Rs. 1100/MMBTU from 1st January 2023, then to Rs. 2400/MMBTU in November 2023 and now raised to Rs. 2750/- MMBTU from 1st February 2024, thus the overall increase of Rs. 1892/MMBTU or 223 per cent during a year.

The meeting also observed that the electricity supply companies in Sindh and Balochistan, like KElectric and HESCO, do not have the capacity and capability to provide the required load of uninterrupted electricity to the industry. Therefore, industries in the two provinces are compelled to use their gas-based power plants to generate electricity and operate their mills without interruption. Presently, the government is trying to encourage the use of grid electricity instead of electricity produced by gas-based power generation without realising that this policy is not implementable in Sindh and Balochistan due to poor capacity and supply of grid electricity. Instead of increasing grid electricity consumption, this policy will result only in the closure of mills.

Mr Zahid Mazhar said that due to a 223 percent increase in gas tariff in one year, there is a capacity closure of 30 percent of firms in the textiles and apparel sector. The rest are at high risk of total closure over the coming weeks due to becoming uncompetitive in the international market compared to regional competitors like India, Bangladesh and Vietnam. The export capacity of $600 million/month of the country’s textile industry remains unutilised, mainly due to the high energy cost as we cannot export inflation, he added.

Mr Zahid Mazhar further said that the export-oriented textile industry is dying fast. Pakistan is losing market share in the global marketplace due to the alarming rise in Energy tariffs. The industry is being provided with grid electricity at Rs.52/kWh, i.e. 18 cents/kWh, more than double what the competing countries are charging from their industry. In addition, the gas/RLNG rates for the textile sector are much higher, i.e. over $12/MMBTU, as compared to the regional competing countries like India at $6.5/MMBTU, Bangladesh at $7.5/MMBTU, and Vietnam at $9.80/MMBTU.

He said that the overall hike in gas tariff is 263.85 percent as the industries of Sindh and Balochistan are forced to take RLNG instead of indigenous gas at a ratio of 40 percent of RLNG. Due to this, the cost of gas has risen from Rs. 852 per MMBTU till 31st December 2022 to Rs. 3100 per MMBTU. As a result, the cost of production has also increased tremendously, which is beyond the absorption limit by the industries of the two provinces.

He pointed out that the Supreme Court of Pakistan has declared gas-based power plants for industries producing energy for consumption of their mills as an industry instead of Captive. However, the government is creating discrimination and not treating them as an industry, and their gas tariff is fixed at Rs. 600/MMBTU or 27.91 per cent higher than that of the industry. In addition, there is a discrimination in the blended gas ratio, i.e. 80:20 for general industry, whereas, for captive power plants, the blended gas ratio is 60:40.

Mr Zahid Mazhar further said that the industries of Sindh and Balochistan are asked to take RLNG instead of indigenous gas to run their mills even though the two provinces are producing about 85 percent of the natural gas produced in the country, which is against the spirit of the Article 158 of the Constitution of Pakistan according to which “the Province in which a well-head of natural gas is situated shall have precedence over other parts of Pakistan in meeting the requirements from the well-head”.

APTMA demanded that the federal government reverse its decision to astronomically increase the gas tariff to make textile exports competitive in the international market, continuously eroded by a surge in energy prices during the last year. The meeting further demanded that the industry and their power generation be declared the priority in the gas supply if the government is interested in achieving its target of earning foreign exchange of 50 Billion Dollars through exports, which is the need of the hour.

He requested that the SIFC and the newly elected government take note of the above issues and review the policy regarding gas and electricity.

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