APTMA seeks PM help to avert closure of export industry in Punjab

ISLAMABAD: All Pakistan Textile Mills Association (APTMA) has requested the Prime Minister of Shehbaz Sharif to come forward to safeguard the country’s exports and employment as the country cannot afford deindustrialization in Punjab that will lead more layoffs leading to significant unemployment of more than 10 million workers and further deterioration in the balance of payments in the shape of $10 billion exports per annum, as the government under IMF pressure has taken back regionally competitive energy tariff.

In a letter written on Monday to the Prime Minister, APTMA’s patron-in-chief Gohar Ejaz urged the government to create a level playing field by implementing a uniform gas price of $7 per MMBtu for the export industry across the country, maintaining Rs19.99/kWh for the export sector across the country to retain competitiveness across the country and internationally.

He also asked for the first priority for gas supply to captive power plants of the export-oriented sector. Ejaz built the arguments with graphs and data that the total cost of regionally competitive energy tariff (RCET), if the differential is treated as the subsidy/cost is 2.67 percent in the last 4 years from FY19 to FY22. And with the RCET cost of 2.67 percent (Rs260.59 billion) in 4 years, the exports went up to Rs9761.32 billion. The actual cost of service (excluding cross-subsidy is 9.3 cents/kWh which implies that the government is not providing a subsidy to EOUs (export-oriented units) but indirectly to other sectors primarily the domestic sector.

“So, the narrative that the government subsidizes the textile sector is therefore inaccurate and needs to be revisited.” “Textile exports witnessed a massive increase of over 55 percent in just two years: from $12.5 billion in FY2020 to $19.5 billion in FY2022 as a direct consequence of the competitive energy tariff,” the latter said.

“The industry as a consequence of the improved competitiveness invested a further $5 billion in the expansion and new projects which enhanced the available export capacity by another $5-6 billion. Pakistan was therefore well on the way to achieving $26 billion in textile exports in 2023. Now this momentum is being lost.”

Ejaz also pleaded that it is universally acknowledged that taxes, cross-subsidies and inefficiencies cannot be exported. The regionally competitive electricity tariffs depicted below highlights the cross-subsidy element when comparing to other competing countries’ tariffs and the cost of service for B-3 and B-4 in Pakistan.

“The decision of the government to suspend the regionally competitive energy tariff (RCET) of electricity for EOUs across Pakistan will render the textile industry, especially in Punjab, uncompetitive within the country and the region. This particularly hurts Punjab based industries. The price differential between effective electricity prices in Punjab and Sindh is more than 3.65 times as EOUs in Sindh can generate electricity at Rs.11/kWh from gas being provided at $4/MMBtu while Punjab gets gas/RLNG at $9/MMBtu.

The gas/RLNG being provided to EOUs in Punjab also comes with the caveat that it will not be used for electricity generation. Therefore, the only available energy for EOUs in Punjab after March 1, 2023, will be grid electricity at over Rs40 per kWh. This will necessarily shift available orders to cheaper alternatives internationally and within Pakistan. The grid electricity apart from being uncompetitive is unreliable and substandard, reducing effective production capacity by over 25 percent.

This anomaly is further compounded by the intermittent supply of gas/RLNG to Punjab-based EOUs which has been at times nil supply, 25 percent supply and 50 percent supply based on average consumption of August, September and October 2021. This method also ignores new projects/expansions etc. rendering non-operational, a significantly enhanced capacity through Terf etc. over the last two years. “Under these circumstances, in addition to the jobs already lost in the past few months, there will soon be further major layoffs leading to significant unemployment of more than 10 million workers in Punjab.”