Business groups reject gas tariff hike, warn of industrial shutdown

KARACHI: The Karachi Chamber of Commerce & Industry (KCCI) and all seven industrial town associations of the city on Wednesday denounced the steep hike in gas tariffs for export-oriented and general industries, calling it "unviable, unacceptable, and unfeasible."

In a joint statement, the business groups appealed to the government not to accept the decision of the Economic Coordination Committee (ECC), a top economic body, to raise gas tariffs by up to 127 percent for the industries and consider bringing them to a level where they become viable and absorbable for the industries.

They termed the hike in gas tariffs as "the last nail in the coffin" for more than 90 percent of export-oriented and general industries in Karachi, which would not be able to bear the shock and close down, resulting in a sharp decline in exports and local production.

"Gas tariff for export-oriented industries has been raised by 86 percent to Rs2,050 per MMBtu, while for general industries, it has been enhanced by 117 percent to Rs2,600 per MMBtu. But this is not the end of the story. As a blended cost of RLNG, 10 percent more will be added to the gas tariff, which would take gas tariff for export-oriented industries to around Rs2,300 per MMBtu. This would lead to a huge downward revision in Pakistan's exports by rendering our goods uncompetitive in the world markets," the statement said.

"There is absolutely no possibility that the industries in Karachi would be able to carry on their production activities with such exorbitant gas tariffs. Therefore, policymakers must realize the gravity of the situation and shun the ECC's decision so that the industries and the economy can be saved from plunging into further crises and reaching a point of no return."

The statement said that the value-added textile industries and many other industries in Karachi are tuned to gas and there is absolutely no room for any other fuel except gas. In SNGPL's territory, on the other hand, industries have huge spaces available where they can easily store fuels in large quantities other than gas.

"In this scenario, the industries in Karachi would be the greatest sufferers as an unabsorbable hike in gas tariffs would put their survival at stake in addition to threatening 54 percent of the country's exports being done by the business community of Karachi alone."

They also noted that although lawmakers have repeatedly said that the gas tariff would be charged according to cost, it is beyond the understanding of the business community why they are burdened with other front-loading charges such as cross-subsidy, unaccounted for gas (UFG), pilferages, and line losses.

They said that it is impossible for export-oriented industries to pass on the impact of the gas tariff hike from Rs1,150 to Rs2,300 to international buyers of Pakistani goods. International buyers will not even bother to look at our expensive products and will quickly switch to our regional competitors who are offering similar products at much cheaper prices. This means that Pakistani exporters will soon be kicked out of the international export arena.

Highlighting the hardships that would be faced by general industries that have been endangered by the Rs2,600 gas tariff, the statement said that it seems that the government has completely forgotten that import-substitution industries are also very important for reducing imports in the country.

"General industries are suppliers of semi-finished goods to exporters. They are already burdened with an 82 percent increase in the cost of electricity. Now, the surge in gas tariff would lead to the closure of 90 percent of non-export industries, resulting in massive unemployment and an increase in imports."

They feared that the alarming situation triggered by the hike in energy tariffs would prove detrimental to several initiatives taken by the government to attract investments and promote industrialization, particularly the most recent Special Investment Facilitation Council (SIFC). This is a very good initiative, but it may not prove successful because it is actually the local industries that may opt to diversify their businesses under SIFC. But if they see their existing businesses going down the drain, why would anyone even think of diversifying their businesses? It would be totally unviable and problematic to enter into any other businesses under SIFC.

The statement was jointly issued by the KCCI, Site Association of Industry, Korangi Association of Trade & Industry, North Karachi Association of Trade & Industry, Landhi Association of Trade & Industry, Federal B. Area Association of Trade & Industry, Bin Qasim Association of Trade & Industry, and Site Superhighway Association of Trade & Industry.