Competitiveness crisis continues to weave havoc through textiles

LAHORE: Though the government has resolved the gas price disparity between five exporting sectors operating in Punjab and other regions of the country, the disparity still exists as gas prices for the most populous province are in dollars, while the rest pay in rupee.

Punjab textile sector and the federal government after lengthy negotiations agreed that the gas tariff for all provinces in the country would be brought at par.

The official gas tariff for Sindh, Khyber Pakhtunkhwa, and Balochistan at that time was Rs650 per unit (mmBtu). This amount at the time of negotiation was equivalent to $6.50 at the value of dollar at the time of negotiation. Both agreed that Punjab-based five exporting sectors would be charged $6.50 per mmBtu. This was a big relief as Punjab industries were paying Rs1350 per mmBtu for the imported regasified liquefied natural gas (RLNG) that they were using.

The federal government agreed to provide Rs44 billion subsidy per year to rationalise gas prices. The government has since released a subsidy of Rs2.5 billion for this purpose.

However the gas price disparity between Punjab and other provinces still exists because of sharp decline in the value of rupee against the dollar. The price has shot up from Rs650 to Rs910 as the current dollar rate is Rs140.

This is much higher than what entrepreneurs in other province pay for gas. The price officially is Rs650/mmBtu but the entrepreneurs in these provinces have obtained stay order against Gas Development Surcharge and increase in gas tariff from high courts and for several years are paying Rs480/mmBtu.

This disparity has again placed Punjab-based industries at disadvantage against their peers operating from other parts of the country.

The textile sector after the acceptance of its demand on bringing the gas and power rates at par with regional rates are now hard-pressed to deliver on their promise to increase exports; but they face another dilemma which is that of declining crude oil rates.

After the decline in crude oil rates from $65 to $50 a barrel the competing economies are set to bring down energy and petroleum products rates. The Punjab-based industries would however continue to get gas at $6.50 per unit irrespective of crude oil rates.

That would again place them at a disadvantage against regional competitors and industries established in other province where they pay unchanged price in rupee that is constantly declining.

Pakistani exports have not picked up in recent months despite high devaluation of rupee. The exports in fact declined in the month of November 2018 by over 6 percent compared with exports achieved in November 2017. The exports are unlikely to surge under the current circumstances. The decline in energy and power rates at best could stem the decline but are unlikely to boost much needed exports. There is gloom is global textile market.

The perception of the country has also not improved and there are reports some US importers are reluctant to place repeat orders with Pakistani exporters probably under the influence of lobbying by forces that be.

The domestic mills consume only 75 percent of yarn and fabric produced in the country while the remaining quantity has to be exported. If the mills throw this exportable surplus in the domestic market for sales then the market crashes to very low prices due to supply glut.

They have to produce carefully so as not to create surplus in the market. Exports of yarn are constantly on decline, while the fabric exports are stagnant, making life difficult for the basic textile sector.

The industry badly needs technology upgrade but the textile crisis in the country occurred at a time when the third generations of textile entrepreneurs were joining their family business. Many of them got disgusted with the turmoil that prevailed in the textile sector for seven years.

They do not want to invest in textiles and are looking for other businesses. Real estate has fascinated them because they earned much more than in it during the last seven years than textiles. The sector would be doomed its technology is not immediately upgraded.

Moreover textile sector is in another fix as it has to import 30 percent of its basic input that have become costly after the devaluation of rupee. The industry fulfills 30 percent of its cotton needs through imports and also imports polyester fiber because of short production of both cotton and manmade fiber.

They have to bear high incidental charges like custom duty, advance income tax and other levies that further increase their cost. They want the incidentals waived for commodities that are short in Pakistan.