Money Matters

Unending energy crisis

Money Matters
By Mansoor Ahmad
Mon, 07, 22

The exporters must cut their margins and improve their efficiencies to stay competitive in the global markets, instead of pressurising the state for subsidies. Power and energy costs have gone high worldwide, and Pakistan is not an exception.

Unending energy crisis

The exporters must cut their margins and improve their efficiencies to stay competitive in the global markets, instead of pressurising the state for subsidies. Power and energy costs have gone high worldwide, and Pakistan is not an exception.

Regionally as well, things are not as rosy as our exporters claim when demanding subsidies from the government citing competitiveness.

The increase in global commodity rates, including all fossil fuels has hit other regional countries as severely as it has hit Pakistan. However, one can of course acknowledge that the power and gas supplies in other countries are better compared to Pakistan.

Given Pakistan’s need for foreign exchange, the state must ensure better power and gas supplies to the exporting sectors. Currently, various power plants having 6,000MW capacity were closed due to unavailability of fuel including coal gas and furnace oil. The country is facing unannounced load shedding of 10-15 hours as the electricity shortfall has reached 7,000MW.

But exporting sectors should not be subjected to power load shedding so as to ensure sustained production. In fact, exporters must have preference over all other consumers when it comes to power supply.

Supply of gas on the other hand is a different matter. Russia’s war on Ukraine has upset the oil, gas and agricultural markets across the world, which has spurred price surges and created an energy crisis. These have also brought on inflationary pressures and economic downturns across the globe.

Pakistan is not different. Pakistan has not been able to procure LNG at any price because the Europeans have booked all Asian supplies of LNG in advance. We are starved of gas and the government is helpless in this regard.

The textile sector recently expressed fear that it would lose exports worth $1 billion in the first 15 days of July due to gas closure and Eidul holidays. It requested the government to restore supplies to exporting industries.

All Pakistan Textile Mills Association (APTMA) said that the textile industry has achieved a new record in terms of exports reaching nearly $20 billion from $12.5 billion just two years ago. This growth was credited to the implementation of the Regionally Competitive Energy Tariff (RCET) by the APTMA.

If one takes a look at the region, including India and Bangladesh. Prices have surged in these countries too. Gas prices in Bangladesh have recently been increased by over 22 percent, but for large industries (exporters) the increase is 12 percent. On March 31, 2022, the Indian government increased the price of domestic gas from $2.9/mmBtu (metric million British thermal units) to $6.10/mmBtu, an increase of over 110 percent. The government also increased the price ceiling for deep water, ultradeep water, high temperature, and high-pressure gas to $9.92/mmBtu from $6.13/mmBtu, an increase of over 61 percent.

The benchmark for Asian spot LNG imports increased to over $35/mmBtu in March 2022, an increase of over 1,650 percent following the crisis in Ukraine and the related natural gas supply risks. If India sourced 25 percent of LNG at a spot price of over $35/mmBtu, it would cost more than $9.8 billion.

The average power purchase price on India’s largest electricity exchange, Indian Energy Exchange Ltd averaged 8.23 Indian rupees ($0.1087) per kilowatt hour (kWh), over double the average price in March 2021. The industries mainly buy power in this exchange. In Pakistani rupees, the rate comes to Rs21.63 per kWh. Every other country in the region is constrained to increase power rates because of the high cost of power generation fuels.

Pakistan is passing through the worst ever economic crisis. Each citizen is bearing an added burden. It is time that our exporters start acting rationally instead of misguiding the government with outdated statistics from competing economies.

Unfortunately, rulers and bureaucrats do not check the facts. They are so naive that they even accept textile millers’ claim that textile machinery worth $5 billion has been imported in the country in one year. The data from Pakistan Bureau of Statistics shows that the actual imports in past four years up to April 2022, were only $211 million.

In the current testing times, these statistics must not be distorted to misguide policymakers. The exporters do need regionally competitive power and gas tariffs. The tariffs must be determined in line with current realities.

A reminder is also needed that the power and gas tariff under the previous subsidised scheme was higher than regional rates. Even then the exports surged. The exporters must accept a little higher tariff like in the past. The current economic situation also demands this.

The massive decline in rupee value has given the exporters an edge over their regional competitors in terms of lower wages they have to pay their workers in dollar terms.

The writer is a staff member