Just when you thought, there would be some respite in power load shedding during the winters, the Minster for Water and Power Khawaja Asif came up with the spoiler. He informed the other day that the citizens will have to face some extra load shedding due to some unavoidable reasons. It turns out the unavoidable reason stems from the recent ECC decision to divert 85mmcfd gas from power sector towards industry, particularly the textile industry to make full use of the GSP Plus.
Power sector rightly sits second on the gas allocation priority list, two places ahead of industries. The Supreme Court in its most recent decision on the load shedding case had asked the government to abide by the priority. But, apparently, Islamabad thinks otherwise, and not wise! It is no secret that electricity generated from natural gas costs around Rs5/unit, compared to Rs16/unit from furnace oil.
Fuel and power makes roughly 10 percent of the cost of sales for textile manufacturers, with alternates, albeit expensive ones, available. On the other hand, the cost of power generation is entirely dependent on the fuel type used, giving less room for adjustments, unlike the textile players. The case of fertilisers is even stronger, as gas is used as a raw material, with no available alternates. It is thus, no rocket science where textile should fit in the allocation priority list.
Some math would do no harm here. The GSP Plus for which purpose the gas would be diverted to textiles form power, is expected to benefit the export earnings within a range of $600 million to $1 billion. Given that it will be a two-month move, the expected benefit on the higher side would be $170 million, although industry players believe it could actually be much less initially.
On the contrary, the furnace oil imports as a result of lesser gas available would cost roughly around $420 million in two months. Take into account, the change in weighted average power generation cost, which would be inflated as well, and you have a higher tariff awaiting consumers on account of fuel adjustment surcharge.
Yes, the masses are so used to load shedding that seeing that in winters may not be that big a worry for the government. But, when it comes to economic rationale, there is none in this decision. And this is where the critics gain ground and fingers are pointed that, maybe, the government is being nice to its textile sector friends.
The gas allocation episode may fail to gather much eyeballs, given it is the winter season. But a tougher test of character awaits the government, come New Year, when it has to decide on rationalising gas tariffs. One will have to wait and see if economic sense prevails or political imperatives win yet again.
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