The Federation of Pakistan Chambers of Commerce and Industry (FPCCI) has shown its dismay and surprise on the government’s decision to discontinue power tariffs for export-oriented sector at 7.5 cents beyond September 2020. The surprise itself is surprising, given that this has been in the works for a good nine months.
The government had earlier attempted to impose higher tariffs on export-oriented industries with retrospect, only to take it back, announcing the same to be continued till end of June 2020. The 7.5 cents tariff continued for two additional months than the plan announced earlier in January 2020. The export-oriented industries will now be paying 9 cents all-inclusive for each unit of electricity.
This is a 20 percent increase in power tariffs in one go, which is no doubt substantial, but surely cannot be termed sudden. It could have been worse, as was attempted earlier in the year, where other surcharges were also added to the base tariff, which took the overall tariff to as high as 13 cents per unit, for a brief while, before being taken down as the textile players threatened to go on an indefinite strike.
The prerogative is government’s. To early to say if the textile players will be as unhappy again as they were earlier this year. But one must not forget that Pakistan’s textile exports are trying to make inroads in the middle of a pandemic, with some interesting trends witnessed, as the garment exports found a higher-end market in the last two months.
It is for everyone to see that Pakistan ramped up textile export quantities in the last six months, and a few categories had witnessed highest ever monthly volumes before Covid hit. Even in the pandemic, baring a couple of months, export volumes have been steady and respectable. The textile industry has maintained that energy price is competitive at 7.5 cents for electricity and $6.5/MMBtu for gas.
Pakistan has had the advantage of opening up faster than most of its regional competitors. It could soon be gone if power tariffs are to go up 20 percent for export sector. The aim is to reduce the hemorrhage in the power sector. Assuming the export-oriented sector constitutes one-quarter of all industrial consumption, that gives 6.5 billion power units.
A 20 percent increase from 7.5 cents would lessen the subsidy burden by Rs16 billion. One has to ask if saving Rs16 billion on account of subsidy is worth the potential loss of exports in valuable foreign exchange. The answer would not be straightforward. That is where the need for evidence-based, research-backed decision making cannot be overemphasized. One industry or the other will cry foul, whenever the input prices go up. It is in the executive’s best interest to back such decisions with solid research, and not whims.
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