Letters of credit: Banks asked to facilitate: Export-oriented sectors find favour with Dar

ISLAMABAD: Finance Minister Ishaq Dar has directed commercial banks to facilitate export-oriented sectors to open LCs for raw material, machinery, spare parts and other items to restore the industry’s supply line without any reference to SBP, well informed sources told Business Recorder.

Last month, Finance Minister held a meeting with a delegation of All Pakistan Textile Mills Association (APTMA) which was attended by Syed Naveed Qmar, Minister for Commerce, S M Tanveer, Minister for Energy (Punjab), Governor SBP, SAPM on Revenue, Secretary Finance, Chairman FBR, Secretary Power Division, Additional Secretary Petroleum, Additional Secretary Commerce and other senior officers of the relevant Ministries.

According to the Record Note, the Finance Minister highlighted the economic and financial outlook of the country. He reiterated the government’s resolve to overcome the challenges and set the economy towards growth.

Textile industry to be backed for achieving export-led growth: Dar

Patron-in-Chief of APTMA Gohar Ijaz and other representatives of the Association highlighted their issues.

According to APTMA, import of approximately 10 million cotton bales would be required to retain exports at the same level as last year of $19.3 billion, but import of cotton and other raw materials has been restricted and banks are not opening LCs or retiring cotton or PSF imports through cash against documents.

It was highlighted that import restrictions and problems are affecting function of factories and the industry is running out of stock.

APTMA further informed that the price differential between effective electricity prices in Punjab and Sindh is more than 3.65 times, with Export Oriented Units (EOUs) in Sindh generating electricity at Rs. 11/ kWH from gas provided at $ 4/ MMBtu while Punjab gets limited availability of gas/ RLNG at $ 9/MMBtu. It was stated that the cross-subsidies make Pakistan’s textile sector less competitive and impact the export potential of the country.

It was highlighted that after March 1, 2023, the only available energy for EOUs in Punjab is grid electricity at over Rs. 40/kWh, which will shift available orders to cheaper alternatives internationally and within Pakistan.

APTMA proposed dedicated power plant exclusively for textile sector, with sufficient gas allocation to meet energy requirements of this sector and a feasible wheeling/ open access charge that excludes cross-subsidy and stranded costs.

It was also suggested that uniform gas price based on Weighted Average Cost (WACOG) is essential for any scheme to work and stressed creating a level playing field within the country by implementing a uniform gas price policy for the export industry across the country.

It was highlighted that export industries located in industrial estates are being denied regionally competitive energy tariffs for the past three years.

APTMA representatives maintained that export sector is currently facing a severe liquidity crisis due to the prolonged wait times for sales tax refunds, which can take up to 8 months, compounded by the high 24% interest rate.

The Finance Minister acknowledged that it is time to take proactive measures to address the challenges faced by this vital sector.

He appreciated the contribution of APTMA in economic growth of the country and committed to provide maximum support of the government to the textile industry in order to boost the export-led growth of Pakistan. Moreover, the Finance Minister directed the relevant authorities to address and resolve their issues on a priority basis for the textile sector.

Following decisions were taken: (i) Secretary Power to work with APTMA on the proposal of a dedicated Power Plant for supply of electricity to the power sector; (ii) consideration of cotton imports as a separate category to ensure its expeditious clearance and facilitating clearance of imports of Export Oriented Sectors/Zero-Rated Industries which have arrived at ports on priority; and (iii) prioritize the export-oriented sectors to open LCs for raw material machinery, spare parts and other items to restore the industry’s supply line without any reference to SBP - all banks to be informed accordingly.

Copyright Business Recorder, 2023