ISLAMABAD: The government has withdrawn the regionally competitive energy tariff (RCET) previously granted to five export-oriented sectors, resulting in an increase of the liquefied natural gas (RLNG) cost from $9/MMBTU to the full rate of $13.5/MMBTU from May 1, 2023. The government had been providing RLNG/gas at $9 per MMBTU under the RCET to the textile, carpets, leather, surgical and sports sectors. However, from May 1, 2023 onward the price of RLNG/gas for these sectors would be $13.48/MMBTU as notified by the Oil and Gas Regulatory Authority (OGRA). The Sui Northern Gas Pipelines Limited (SNGPL) issued a directive on Saturday to the five export-oriented sectors informing them that the budgeted subsidy allocated for the financial year 2022-23 has been fully exhausted, which was why the gas company was withdrawing RCET. The directive also said that the RLNG/gas supply to the industrial units would remain available at OGRA-notified prices. The government has already withdrawn the subsidised tariff of electricity at Rs19.99/unit and now the export industrial units are paying Rs42/unit. This means that the government has virtually done away with the RCET regime, which would make Pakistan’s export products highly uncompetitive in the global market compared with the products of India, Bangladesh and Vietnam. However, export units in Sindh would continue to receive gas at $3.5/MMBTU. A top official at the Energy Ministry said the government had allocated Rs40 billion for the financial year 2022-23 for the subsidised tariff at $9/MMBTU. In the Rs40 billion, Rs6.5 billion was allocated for gas used in the last financial year 2021-22, while Rs3.5 billion was allocated for Sindh’s export units. The leftover budgeted subsidy of Rs30 billion was for export units in Punjab, which was exhausted by April-end. The official said that the government is currently in talks with the IMF for the restoration of the loan programme and is not in a position to extend
the subsidy for the next financial year 2023-24. Over 50 percent of the export-oriented industries have already closed down. Moreover, the moratorium on the import of raw materials, and essential spare parts, failure of the sales tax refund system, and complete withdrawal of the RECT regime would hasten the closure of the remaining industrial units. Pakistan’s textile sector exports plunged by 21 percent in March 2023 closing in at $1.29 billion compared with $1.63 billion registered in the same month last year. In February alone, textile exports declined by 28.14 percent, in January exports went down 14.14 percent, December 2022 16.05 percent, November 18.39 percent, and in October 15 percent. APTMA’s patron-in-chief, Dr Ejaz Gohar in his latest correspondence requested the prime minister to take steps to reverse the ongoing declining trend of exports by ordering the authorities to clear all imports of export oriented-sectors that have arrived at ports whether against credit letters or cash against the document. He also asked the PM to allow the exporting industries to open letters of credit without hindrance for raw material, machinery, spare parts, and other items to restore the industry’s supply line. APTMA Secretary General Shahid Sattar pointed out the adverse impacts of RCET withdrawal, and argued that the decision has rendered the textile industry, especially in Punjab, uncompetitive within the country and the region.
The price differential between effective electricity prices in Punjab and Sindh is more than $10/MMBTU, as EOUs in Sindh can generate electricity at Rs12/kWh from gas being provided at $3.5/MMBtU. On the other hand, supply of RLNG/gas would be limited in Punjab at $13.48/MMBtU with an added condition that it would not be used for electricity generation. Therefore, the only available energy for EOUs in Punjab afterwards would be grid electricity at over Rs42/kWh. “This will necessarily shift available orders to cheaper alternatives internationally and within Pakistan,” he argued.