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Tuesday May 21, 2024

APTMA urges finance minister to adopt export-centric policies

APTMA also drew the attention of the finance minister toward high taxes and persistent delays in refunds have squeezed out all liquidity from manufacturing

By Khalid Mustafa
April 18, 2024
In this photo, workers operate a machine at a textile factory. — AFP/File
In this photo, workers operate a machine at a textile factory. — AFP/File

ISLAMABAD: Power tariffs for industrial consumers have skyrocketed to over 17.5 cents per unit, which is over twice the regional average price, while gas prices have also increased by 223pc since January 2023, putting the manufacturing activities in the country in jeopardy.

This has virtually resulted in massive reduction in power consumption by around 70 per cent year-on-year (YoY), showing how fast deindustrialisation is on the rise in the northern part of the country. In the presence of the highest energy tariff, running the industrial units has virtually become financially unviable, says industrialists.

More importantly, the revenue decrease caused by this volumetric decline in consumption has more than offset any gains from higher power tariffs such that the net effect on power sector revenue has been negative.

The power tariffs for industrial consumers must be reduced to a regionally competitive level of 9 cents/kWh by removing cross subsidies worth over Rs220 billion per annum to non-productive sectors of the economy.

According to estimates, power tariffs of 9 cents per unit can inc rease power consumption in just the textile sector by up to 1,530 MW/annum to bring in an additional $1.06 billion in power sector revenue, around $9 billion/annum in additional exports, and an addition of over $513 million to government revenue through various channels.

Additionally, these lower power tariffs will also prompt an automatic shift from captive gas-based generation that currently costs around Rs33/kWh (11.8 cents/kWh) to grid electricity, freeing up domestic gas-based resources as well as reducing the LNG import bill.

This has been disclosed in the letter written on Wednesday by APTMA (All Pakistan Textile Mills Association) to Federal Finance Minister Muhammad Aurangzeb urging that the export-centric policies are need of the hour.

APTMA also drew the attention of the finance minister towards the bitter fact that high taxes and persistent delays in refunds have squeezed out all liquidity from manufacturing sectors that represent only about 20pc of GDP but are responsible for over 60pc of tax revenue with as much as 20 different federal and provincial taxes imposed on manufacturing firms.

And more importantly, power tariffs for industrial consumers have skyrocketed to over 17.5 cents/kWh, over twice the regional average, while gas prices have also increased by 223pc since January 2023, leaving no financially viable source of energy for manufacturing activities in Pakistan.

The letter mentioned that industrial consumers are major contributors to power sector fixed costs. As their consumption declines, the fixed costs need to be spread over a smaller pool of consumption, thus necessitating higher power tariffs for all other consumers as reflected in unusually high quarterly tariff adjustments which stood at Rs7.5/kWh for FY24Q2. These effects then spillover to other sectors of the economy as, for instance, reduced industrial power consumption implies reduced industrial production and therefore lower tax contribution and employment. This then results in supply-side inflationary pressures that necessitate prolonged periods of high interest rates that have burgeoned the government’s debt servicing costs, heightening fiscal sector vulnerabilities, and constrained the private sector of much-needed liquidity and working capital.