Rising cost of industrial utilities

One of the biggest arguments for falling exports given by the local industry is the increased cost of doing business in Pakistan. In a recent statement APTMA has once again highlighted the need to bring the cost of doing business in line with regional competitors including Bangladesh, India and Vietnam.

The textile industry has faced an ever plunging export share in the global markets. Being a largely energy intensive sector, the price of gas and electricity makes a big difference in the final cost of production. The rate for both utilities when it comes to industrial provision is almost 30 percent more than regional competitors with gas prices ranging from approximately $3.1 in Bangladesh to $4.2 in Vietnam and India.

Back home gas is a touchy subject for most textile players especially in Punjab. The province’s industry is mostly being provided Liquefied Natural Gas - LNG which is more expensive than system-based gas. When BR Research spoke recently to Aziz Ullah Goheer, Secretary General at Pakistan Textile Exporters Association, he urged the government to at least make the playing-field level between the provinces.

“The cost of production is already too high and the provision of more expensive LNG gas has only made it more difficult for the industry to compete. System gas is being provided to Sindh and KP at the rate of Rs400/MMBTU while the industry in Punjab is getting LNG at more than Rs1050/MMBTU.

A medium scale processing unit consumes around 15000-20000 MMBTU per month. So the difference comes to more than Rs100 million which is huge! So forget regional competitiveness, when we are being out-competed in our own country due to price discrimination by the government. It has been three year now that we have been getting LNG, so it is no wonder that the industry will start closing.”

Most industry players BR Research has talked to are of the view that ideally a single rate should be adopted throughout the country. At least make the price differential more equitable with a weighted average price formula being adopted between system gas and RLNG. However, there will need to be strong political consensus before the federal government can achieve such an outcome.