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Thursday, July 25, 2024

Textile exports expected to fall further by $5 billion in the absence of competitive energy tariffs

The consequences of non-provision of competitive tariffs will be severe and could result in substantial closure of the industrial sector, widespread unemployment and further depletion of Pakistan's vital export revenue stream.

All Pakistan Textile Mills Association (APTMA) Patron-in-Chief Dr Gohar Ejaz has written to Finance Minister Ishaq Dar, drawing his attention to a matter of utmost urgency regarding the inclusion of appropriate budget for the provision of Regional Competitive Energy Tariffs (RCET) for the export industry.

The consequences of non-provision of competitive tariffs will be severe and could result in substantial closure of the industrial sector, widespread unemployment and further depletion of Pakistan’s vital export revenue stream.

The textile industry, a vital pillar of our nation’s economy, experienced remarkable growth in recent years due to the implementation of competitive energy tariffs. In just two years, from FY 2020 to FY 2022, textile exports witnessed an astonishing increase of over 55%, escalating from $12.5 billion to $19.5 billion. This substantial growth is directly attributed to the competitive energy tariffs, which significantly enhanced our industry’s competitiveness on the global stage.

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Furthermore, as a result of this improved competitiveness, Pakistan’s textile industry made additional investments totaling $5 billion in expansion and new projects. These investments, in turn, augmented available export capacity by an estimated $5-6 billion per annum. With such promising trends, Pakistan was well on track to achieving a remarkable $26 billion in textile exports by FY-23.

However, the withdrawal of RCET, short supply of energy, liquidity and L/C opening issues reversed this momentum. This year alone, Pakistan is experiencing a shortfall of greater than $3 billion, with exports for the year clocking in at only $16 billion. If urgent measures are not taken to reinstate the RCET, this deficit is expected to increase by a further $4-5 billion in the coming fiscal year.

Read more: Textile mills shutting down as govt. fails to restore RCET: APTMA

This decline is clearly not in the interest of Pakistan and can be easily reversed through measures, the most significant of them being competitive energy tariffs which is not a subsidy by any stretch of the imagination, Dr Gohar Ejaz said.

The energy prices and supply shortfall hits the Punjab-based industry the most and is resulting in widespread closure as the price differential between the effective electricity prices in Punjab and Sindh is staggering, with the latter enjoying 3 times lower rates. Export-Oriented Units (EOUs) in Sindh can generate electricity at a rate of ∼Rs.14/kWh, thanks to the gas supply provided at $3.75/MMBtu.

In contrast, Punjab-based industries receive gas/RLNG at rates of $9/MMBtu for EOUs till the end of June 2023 and $13.45/MMBtu from then on. This will inevitably result in a substantial rise in unemployment rates, fostering social unrest, and with significant negative ramifications within the largest province of our country.

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“We emphasize that the perception of RCET as a subsidy is a misnomer. In reality, it represents the cost of service incurred, free from the cross-subsidies that the state utilizes to fulfil its socio-political obligations. Therefore, we urge you to consider the significance of this measure and the perilous consequences that await our export-oriented industry if the RCET is not restored/continued. Without a robust export sector, we would be deprived of an essential revenue stream required to sustain our foreign exchange requirements,” Dr Gohar Ejaz said in the letter to Finance Minister Ishaq Dar.

Read more: APTMA requests govt. to continue RCET tariff policy to sustain rising textile exports

“We urge the government to refrain from imposing excessive energy tariffs on the industry through cross-subsidization of others. Should the government wish to provide subsidies to specific sectors, such as lifeline customers, agriculture etc., we suggest exploring alternative social programs for fulfilling this objective. It is widely recognized that subsidies, taxes, and inefficiencies cannot ever be exported to international markets,” he further added.

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Dr Gohar Ejaz urgently requested that the Finance Minister take immediate action to reinstate the RCET for gas at a rate of $9/MMBtu and for electricity at a rate of 9 cents/kWh in the upcoming budget. Particularly, emphasizing that the reinstatement of the RCET for electricity is crucial for mitigating the challenges faced by Pakistan’s industries and to some extent mitigating the inter-provincial disparity.

By safeguarding exports and employment opportunities, Pakistan can avert the looming threat of deindustrialization in Punjab and prevent a further deterioration in our Balance of Payments. The loss of approximately $10 billion in exports per annum is a consequence Pakistan simply cannot afford to bear.

“We sincerely appreciate your attention to this matter and remain confident in your commitment to the prosperity and growth of our beloved nation,” Gohar Ejaz said.

Read more: APTMA reveals steps for textile sector’s growth at first ever EconFest