Hike in cost of doing business continues to haunt textile sector

ISLAMABAD: The hike in cost of doing business continues to haunt the textile sector as the package of Rs180 billion meant to give impetus to textile exports has served no purpose except surge in miseries.

More importantly, the textile package announced by the government is not only unworkable, rather it is more an electioneering stunt. This was the essence of the presentation about the textile sector that was given in the meeting of the Senate Committee on Textile held here with Senator Mohsin Aziz in the chair. “More or less the observations made by the meeting participants are also the same,” reveals the presentation and the minutes of the meetings of which the copy is available with The News.

The committee observed that in Phase II, 10 percent per year increase in exports was required to avail the package, but no refunds on account of the package could be possible till the end of period i.e. July 2018 and that this makes the package unworkable.

The presentation unfolds that the textile industry in Punjab is in jeopardy as 70 textile units in Punjab alone have so far shut down and it is feared that half of the industry will get closed down in the next summer season triggering new surge in unemployment and social unrest in the country if energy prices for the industry were not contained at affordable level.

The RLNG cost has emerged as headache for the textile industry which has exposed it to the huge competitive disadvantage as the cost of re-gasified LNG is too much at higher side. More shockingly, the textile industry would be wiped out completely when Chinese products to be prepared in the Xinjiang province equipped with huge incentives bordering Pakistan for export to CPEC will start coming in Pakistan and it is strongly feared that Pakistan's textile industry will not be able to compete with Chinese textiles given the robust textile package given by Xinjiang.

This will mean a loss of the bulk of jobs, 4.5 million direct and another 12 million indirect, exposing the country to social and political unrest. It is therefore essential that Pakistan’s textile industry be rejuvenated through a textile revival package.

The primary reason for competitive disadvantage and dismal performance is the much higher energy prices for Pakistani exporters and especially Punjab whereas 70 percent of capacity is located in Punjab.

As per the presentation, the industry pleaded that disparity in energy pricing both within Pakistan and regionally is seriously retarding Pakistan’s bid to accelerate economic development as a major exporting sector of the economy is crashing. The textile industry wants government of Pakistan to exempt it from all surcharges in electricity bills pertaining to cross subsidisation and inefficiencies, arguing this would entail a cost of Rs3 billion which cost can be spread by reducing the negative fuel adjustment surcharge by less than 22 paisas per kwh This very small adjustment in fuel adjustment surcharge would put the textile export industry back on its competitive feet and as a result Pakistan will be able to regain lost imports and expand.

The textile industry in its presentation also said, “Energy is an important element of cost of production, particularly for spinning, weaving and processing industry. Its availability at regionally competitive price is important. In this respect, five exporting sectors zero rated by FBR be also zero rated from different tariff equalisation surcharges worth Rs3.63/kwh to bring the tariff in line with regional competitors.”

It said that the current electricity tariff is Rs11/kwh which should be reduced to Rs7/kwh. It also demanded that RLNG should be merged with system natural gas to reach a weighted average cost of gas (WACOG) to provide uniform pricing to industrial consumers both for captive and processing use across the country. “Rate should not be more than Rs600 per mmbtu,” it added.