ISLAMABAD: The country's textile industry has rejected "gas moratorium" decision of Cabinet Committee on Energy (CCoE) fearing that the "obsolete" power sector will not be able to ensure electricity supply to the industry on sustainable basis.
All Pakistan Textile Mills Association (APTMA) has written a letter to the Federal Government stating that with this decision, nearly 300,000 newly hired individuals by the textile industry will lose their jobs.
The Association further stated that keeping in view the shortage of gas in the country, an abrupt decision has been taken by CCoE to suspend supply of gas/RLNG to users having Captive Generation, and the industry is encouraged to shift from gas-based Captive Power Generation to the national power grid to save merely 485 MMCFD of gas (300 for South and 185 for North) which roughly translates to 1,500 MW of electricity.
"Suspending gas supply to industry, at this stage where there has been an unprecedented growth in exports, will hurt Pakistan’s economy severely," said the letter.
The long-term expectation/view is that 3,000 MW load will be shifted to power grid, which will help reduce the cost and curb circular debt, and large power plants are 30% more efficient than CPPs. Although cutting off gas supply on such expectation is unsubstantiated.
There are line losses of nearly 17-18 percent of Discos, and around 2-2.5 percent NTDC line losses on top of that. Additionally, there is an impact on cost contributed from non- recovery of bills. All of this has not only led to regionally uncompetitive tariffs but also added to the miseries of industry by supplying inconsistent, irregular, unstable grid electricity.
In order to maintain competitiveness, many of the companies are already installing new energy efficient generation and machinery and around $ 2 billion investment is in pipeline. The electricity from the grid has been inconsistent and unstable. Industry is experiencing significant production losses as a direct consequence of irregular supply of grid electricity. The latest machinery being used in the industry is equipped with electronics (electronic cards/chips) which are highly sensitive to electricity fluctuations. The cards/chips installed in the machinery burnout or trip if there are variations in frequency /voltage/supply of electricity, halting the entire production line. The industry experience of utilizing grid electricity hasn’t been productive so far. Apart from production losses, the capacity and performance of installed machinery is also compromised – adding further maintenance and repair costs.
Apart from production losses that will compromise industry and eventually Pakistan’s credibility in performing orders, there will be adverse consequences from reduced exports, unemployment and loss on already made investments. The negative impact of moratorium on supply of gas will be far greater than making 150 MMCFD natural gas available for utilization to the power sector. The industries falling in the jurisdiction of KPK and Sindh will obtain a stay-order under Article 158 against the decision and will continue availing the gas supply, however, consumers in Punjab, having the greatest number of mills, will suffer.
APTMA further states that the integrated textile units (very few in numbers) will continue to get gas/RLNG while the entire SME sector which employs 70% of the industrial labor will not.
This action which will result in 40% enhanced cost of conversion as the SMEs will be forced out of business. Sindh and KPK based mills will obtain stay orders on the basis of Article 158 of the Constitution and in the end will only Punjab’s captive connections will be cut off. Grid electricity is not of the quality that can run highly sensitive electronic equipment.
The recent example of gains by a number of units switching from gas/RLNG to grid to avail the incentive of lower marginal rates has been reversed in nearly all units as the loss of production due to the variation in the electricity has been a far heavier cost than the lower electricity rates.
Major expansion of the textile sector has been jeopardized as all the new equipment and feasibility was based on sustained gas/RLNG supply at regionally competitive rates to provide stable and reliable power.
The bigger groups/industries have coal and HFO based CPPs installed and even if gas/RLNG is denied they will continue to operate on captive generation, which will further exacerbate the divide between the integrated/big- boys and the SME sector.
The Association further maintained that there is ample room for misuse/corruption in this policy as pick and choose on who is eligible or not will be judgmental – the fact that some mills can claim that they are generating power but use the waste heat for steam can be interpreted in many shades and a further grey area is that mills can claim that they cannot get power connections for exemptions from gas/RLNG disconnection. This will invite corruption both at the Discos and SSGC/SNGPL level.
"We have been repeatedly writing to the Power Ministry that their policy of limiting connection to 5MW’s or else required to construct a new grid station is not feasible and that the limit should be enhanced. A lot of textile units are consuming 5 - 10 MW and only partial loads are met through the grid as a consequence," the Association maintained.
The Ministry although repeatedly promising to change the rules to allow load enhancement has not responded in over two years to our letters regarding this concern, the letter further claims.
A very significant number of mills have recently invested millions of rupees in new gas/RLNG generation equipment based on meeting efficiency criteria as espoused by government. The abrupt and ill-conceived change in policy will bankrupt these companies.
The previous decision of CCOE to reduce the price of power to 7.5 cents to encourage mills to shift to the grid was not implemented, and the decision impose a gas supply moratorium for Captive Power of Export Oriented Units (EOUs) will result in an increase of over 10% in the costs of export orders.
Mills have started receiving calls from banks to verify how they will fulfill the orders based on gas/RLNG supply and pay back of refinance facilities. New financing facilities for investment and refinance have been abruptly put on hold by the financing institutions.
"Given the past performance of the power sector and the frequent breakdowns /variation industry does not have faith that the power sector will be able to deliver on a sustained stable and competitive basis,” the letter concluded.
Copyright Business Recorder, 2021
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