ISLAMABAD: The All Pakistan Textile Mills Association (APTMA) has asked Prime Minister Shehbaz Sharif to restore the regionally competitive energy tariff (RCET) regime with gas price at $9/MMBtu and electricity tariff at 9 cents/unit for FY24.
In a letter written to the PM on Wednesday, APTMA said that the discontinuation of RCET would result in the closure of a significant portion of the export industry, which could cause unemployment, loss of export revenue and further deterioration in the balance of payments.
“In the absence of a viable energy tariff, it is expected that 75 percent of the industrial establishments based in Punjab, which do not have a cheaper domestic gas supply to lower energy costs, will cease operations within the next three months,” it warned.
APTMA’s Patron-in-chief Dr Gohar Ejaz said textile exports increased 55 percent, from $12.5 billion to $19.5 billion during FY22 because of RCET. “Furthermore, the improved competitiveness of Pakistan's textile industry attracted additional investment of $5 billion in expansion and new projects. These investments further augmented the available export capacity by an estimated $5-$6 billion per annum.”
He claimed that with such promising trends, Pakistan was on track to achieve a remarkable $22-$24 billion in textile exports in the current fiscal year.
However, forex constraints combined with the withdrawal of RCET, difficulties in energy supply, and a liquidity crisis as a consequence of devaluation, paused, this upward momentum. This year alone, Pakistan is experiencing a significant shortfall of over $3.5 billion from the $19.5 billion exports achieved last fiscal. Ejaz argued that RCET did not require any subsidy and was more or less equal to the cost of service, and the subsidy arises as a consequence of the NEPRA tariff regime that cross-subsidises other sectors and underperforming DISCOs.
The difference between the NEPRA tariff (which includes cross-subsidy) and RCET has been 2.56 percent of the total textile exports during the last 4 years. This compares highly favourably, to other methods of generating foreign exchange, which incur a cost of 4-8 percent per annum and repayment of the amount borrowed.
The letter also said that the impact of discontinuing RCET would not remain limited to the large-scale manufacturing (LSM) sector, but would extend to small and medium enterprises (SMEs) and cottage industry that form clusters, feeding the large-scale manufacturers.
APTMA requested the government to restart RCET, with gas rate at $9/MMBtu and electricity at 9 cents/kWh for the next fiscal. It also asked for an appropriate allocation in the budget to enable the maintenance of these rates.
“The industry undertakes to maximise exports and minimise any drawdown on the budget through other means available, such as B2B supply of electricity from a dedicated power plant and enhanced installation of solar through net-metering, in the backdrop of the current fiscal situation,” concluded the letter.
