The nails just don’t stop being driven in the coffin when it comes to the textile sector. As if the already high cost of doing business coupled with the overvalued rupees were not enough, SNGPL has reportedly announced its failure to supply 150 MMCFD system gas to Punjab’s textile industry for at least two and a half months starting from the start of December, 2017.
Criticism has been unanimous when it comes to the announcement by all textile stakeholders based in the province. The All Pakistan Textile Manufacturers Association (APTMA) believes the step might very well dampen the export growth of almost 8 percent witnessed in the first quarter of FY18.
Textile industry in Punjab will have to resort to using imported R-LNG, which is much more expensive than system-based gas and that is precisely where the shoe pinches. In the most recent R-LNG price notification by the Oil and Gas Regulatory Authority (OGRA), the price is $9.58/MMBTU, which approximately translates into Rs1000/MMBTU.
Compare that to system-based gas that is available at Rs600/MMBTU in other provinces and the disparity is clear. This column has already written about the almost 30 percent higher cost of doing business for Pakistani textile exporters as compared to their competitors in Vietnam, Bangladesh and China. So forget achieving cost-competitiveness in the international market when there isn’t even a level playing field available at home.
However, a solution is also tricky precisely because the 18th Amendment allows for provinces first right over natural resources before supplying the surplus to other provinces. Recall that the Ministry of Petroleum and Natural Resources (MP&NR) supplied almost a quarter of the overall system gas quota to Punjab last year, which managed to reduce the disparity to some extent.
Most industry players BR Research has talked to are of the view that ideally a single rate should be adopted throughout the country. The demand is to make the price differential more equitable with a weighted average price formula being adopted between system gas and RLNG. However, there will need to be strong political consensus before the federal government can achieve such an outcome.
Other issues also need to be taken into account. The first preference of the governments both at the federal and provincial level is consumers when it comes to reliable supply of system gas. This column is not against that, but the consumption pattern of gas is not ideal when it comes to all gas consumers in the country because of high wastage and theft.
The world has moved on to efficient means of heating whereas in Pakistan the use of extremely ineffective heating mechanisms such as gas heaters and hot water geysers those are still being used rampantly. In fact, there is still a great majority of consumers who are also using gas-based generators, which is already illegal in Punjab. Even industrial and commercial users are culprits when it comes to inefficient utilization of the precious natural resource that has always been taken for granted.
Considering that there are always trade-offs and in this case with the ever rising current account deficit, supply of more expensive gas to industrial users especially the textile sector might not be the best policymaking decision to go by. For once an export order is lost; it is almost next to impossible to recover that market share in today’s cut-throat competition.