ISLAMABAD: The textile industry has warned the Special Investment Facilitation Council (SIFC) of the likelihood of further decline in exports due to the absence of a financially viable source of energy for the industry. It proposed a set of measures to increase the competitiveness of textile exports on the world market.
She pointed to the lack of a financially viable source of energy for the industry to sustain production and international competitiveness. According to a presentation made to SIFC, the textile millers pressed for the removal of cross-subsidies to non-manufacturing sectors of the economy.
The All Pakistan Textile Mills Association (APTMA) has proposed the launch of a Competitive Trade Bilateral Contracts Market (CTBCM) to enable business-to-business (B2B) contracts using a system/round fee of 1-1.5 cents/kWh , without cross-subsidies and stranded costs. The aim of the move is to enable industry to obtain green energy at competitive prices for end-uses through self-generation from geothermal plants in depleted oil fields, hybrid solar/wind plants or other green energy producers. In addition, it calls for increasing the solar net metering cap for industrial consumers from 1 MW to 5 MW, which will facilitate the transition to net zero by adding more than 3,000 MW of clean energy at the point of use, without any investment or guarantees from the government. .
All three measures are intended to encourage a shift away from captive production of natural gas, thereby freeing up domestic gas resources and reducing the cost of importing liquefied natural gas (RLNG),” APTMA said. It also requested to ensure adequate gas supplies to cogeneration units and treat them as industrial consumers due to their efficiency of more than 60% and use the gas supplies for steam and hot water related processes in addition to electricity generation.
The export sector benefited from Regionally Competitive Energy Tariffs (RCET) of 9 cents/kWh in 2021-22, leading to a record 54% growth in textile and apparel exports, from US$12.5 billion in FY20 to US$19.3 billion $ in FY22. However, electricity tariffs for export-oriented firms rose to more than 14 cents/kWh, causing textile and apparel exports to drop to $16.5 billion in FY23.
Electricity tariffs for industrial consumers increased from 14 cents/kWh to around 17.5 cents/kWh (Rs 46/kWh) due to quarterly tariff adjustments (QTA) driven by falling power consumption, fuel price adjustment (FPA) of Rs 7,056 /kWh for January 2024 and expectations of higher QTAs for the coming quarters as energy consumption continues to decline. Manufacturing is financially unfeasible at these electricity tariffs, which is more than double the average of competing firms in regional economies such as Bangladesh (8.6 cents/kWh), India (average 10.3 cents/kWh; 6 cents/kWh for textiles and apparel company in Maharashtra) and Vietnam (7.2 cents/kWh).
In addition, gas prices for industrial consumers have increased to Rs 2,750/MMBtu – a 223% increase from January 2023 – eliminating the financial viability of self-generation, which a large part of the industry relied on in the absence of competitively priced grid electricity. As a result, textile and apparel exports are stagnant at around $1.4 billion per month – $600 million below installed capacity of $2 billion per month. Investment of around USD 5 billion made during the RCET period to modernize/expand production capacity became idle, adversely affecting investor returns, sentiment and confidence in the economy.
