ISLAMABAD:
The textile industry has cautioned the Special Investment Facilitation Council (SIFC) about the likelihood of further declines in exports due to the absence of a financially viable energy source for the industry. It has proposed a set of measures to enhance the competitiveness of textile exports in the global market.
It pointed out the lack of a financially viable energy source for the industry to sustain manufacturing and compete internationally. According to a presentation made to the SIFC, textile millers have urged for the removal of cross-subsidies to non-productive sectors of the economy.
The textile millers’ body, All Pakistan Textile Mills Association (APTMA), has suggested the operationalization of the Competitive Trading Bilateral Contracts Market (CTBCM) to enable business-to-business (B2B) power contracts with a Use of System/Wheeling Charge of 1-1.5 cents/kWh, excluding cross-subsidies and stranded costs. This move aims to enable the industry to procure green energy at competitive end-use prices through captive generation from geothermal plants in depleted oil fields, hybrid solar/wind plants, or other green power producers. Additionally, it calls for increasing the cap on solar net-metering for industrial consumers from 1MW to 5MW, facilitating the transition towards net-zero by adding over 3000 MW of clean energy at the point of usage, with no investment or guarantees from the government.
All three measures are intended to incentivise a shift away from captive gas generation, thereby freeing up domestic gas resources and reducing the Re-Gasified Liquefied Natural Gas (RLNG) import bill,” APTMA stated. It has also requested to ensure adequate gas supply to cogeneration units and treat them as industrial consumers, given their efficiency of over 60% and the use of gas supply for steam and hot water related processes in addition to power generation.
The export sector enjoyed regionally competitive energy tariffs (RCET) of 9 cents/kWh in 2021-22, leading to record growth in textiles and apparel exports by 54%, from $12.5 billion in FY20 to $19.3 billion in FY22. However, power tariffs for export-oriented firms rose to over 14 cents/kWh, causing a decline in textiles and apparel exports to $16.5 billion in FY23.
Power tariffs for industrial consumers have increased from 14 cents/kWh to approximately 17.5 cents/kWh (Rs46/kWh) due to quarterly tariff adjustments (QTA) driven by falling power consumption, fuel price adjustment (FPA) of Rs7.056/kWh for Jan 2024, and the expectation of higher QTAs for upcoming quarters as power consumption continues to decline. Production is financially unfeasible at these power tariffs, which are more than twice the average faced by competing firms in regional economies such as Bangladesh (8.6 cents/kWh), India (average of 10.3 cents/kWh; 6 cents/kWh for textile and apparel firms in Maharashtra), and Vietnam (7.2 cents/kWh).
Furthermore, gas prices for industrial consumers have increased to Rs2,750/MMBtu—a 223% increase since January 2023—eliminating the financial viability of captive generation, which a significant part of the industry relied on in the absence of competitively priced grid electricity. Consequently, textiles and apparel exports are stagnating around $1.4 billion per month—$600 million below the installed capacity of $2 billion/month. The investment of approximately $5 billion made during the RCET period in upgrading/expanding manufacturing capacity has become idle, negatively impacting investor returns, sentiment, and confidence in the economy.
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