ISLAMABAD: All Pakistan Textile Mills Association (APTMA) has sought resumption of gas and electricity at concessional rates under the scheme - Regionally Competitive Energy Tariffs (RCET) to avert closure of export industry which will lead to significant unemployment, loss of export revenue and further deterioration in the Balance of Payments.
In a letter to Prime Minister Shehbaz Sharif, Pattern in Chief of APTMA Gohar Ijaz has stated that improved competitiveness of Pakistan’s textile industry attracted additional investment of $5 billion in expansion and new projects.
These investments further augmented the available export capacity by an estimated $5-$6 Billion per annum. With such promising trends, Pakistan was on track to achieve a remarkable $22-$24 Billion in textile exports in the current fiscal year.
APTMA urges Dar to reinstate competitive energy tariffs
However, the forex constraints combined with withdrawal of RCET, difficulties in energy supply and a liquidity crisis as a consequence of depreciation, paused this upward momentum. This year alone, Pakistan is experiencing a significant shortfall of over $3.5 billion from the $19.5 billion exports achieved last fiscal year.
Textile exports witnessed an outstanding increase of 55%, increasing from $12.5 billion to $19.5 billion during the FY 2020-22, directly attributable to the time that competitive energy tariffs were applicable. RCET significantly enhanced industry’s competitiveness on the global stage and enabled Pakistani products to compete at par as a consequence of similar energy input costs with competing countries of the region.
According to Ijaz, in spite of the fiscal challenges, the government rightly continued with RCET facility for most of this year, however, withdrawal at a time when the country is in need of foreign exchange is confusing, to say the least. The textile industry plays a critical role in generating foreign exchange, and without the continuation of RCET, our exports will inevitably decline, leading to a much lower than budgeted or expected influx of foreign exchange.
RCET does not, in reality, require any subsidy and is more or less equal to the cost of service. The subsidy arises as a consequence of the NEPRA tariff regime that cross-subsidizes other sectors and underperforming DISCOs. These should in all fairness be funded directly by the Government as part of their socio-political obligation.
However, the difference between the NEPRA tariff (which includes cross-subsidy) and RCET has been 2.56% of the total textile exports during the last 4 years. This compares highly favorably to other methods of generating foreign exchange which incur a cost of 4-8% per annum and repayment of the amount borrowed. This 2.56% is indeed an insignificant cost to pay for the economic and social benefits accruing from a vibrant textile export sector.
In the absence of a viable energy tariff, it is expected that 75% of the industrial establishments based in Punjab, who do not have cheaper domestic gas supply to lower energy costs, will cease operations within the next three months, he added.
APTMA argued that the impact of non-continuation of RCET will not be limited to the large-scale manufacturing (LSM) sector, but will also extend to small and medium enterprises (SMEs) and cottage industry that form clusters, feeding the large-scale manufacturers. These clusters have grown over decades and rebuilding these clusters would require significant time and effort.
Additionally, all the allied industries which are a critical part of the textile supply chain have narrow profit margins and will be forced to cease operations altogether. The resulting unemployment and social unrest pose challenges that our country simply cannot bear at this time. “We request announcement by the Government that the RCET for gas at a rate of $9/MMBtu and for electricity at a rate of 9 cents/kWh will be continued in one form or another for the next financial year.
We request that an appropriate amount may be allocated in the budget to enable these rates to be maintained,“ he said adding that the industry undertakes to maximize exports and minimize any drawdown on the budget through other means available, such as B2B supply of electricity from a dedicated power plant and enhanced installation of solar through net-metering, in the backdrop of the current fiscal situation.
Copyright Business Recorder, 2023
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