The tussle is going on between the industry (mainly textile) and the federal government on the provisioning of gas to the captive power plants for industry’s own generation. The industry moved to the captive last decade due to acute power shortage back then. Now the grid capacity is higher than the consumption, the government rightly wants the industry to return to the grid. But the industry is resisting. A better move could be to give right price signal for industry to gradually shift; but the transition must take place for larger interest of the country.
Base load increase cannot be consumed without having industry on board. Without consuming newer capacity, circular debt cannot be controlled. Without resolving circular debt, the fiscal house is not sustainable. Without a stable fiscal state, the industrial competitiveness cannot be achieved.
Industry knows that; but they want to enjoy higher profits. That would be at the cost of rest of the country. That cannot continue for long. Industry must come on the same page. The government and industry both want industrialization. They both know the ground realities. It is best to sit on table and get this resolved for the betterment of the country.
The argument that export-oriented industry is using for the availability of energy at regional competitive rates is correct. But 30-40 percent of textile produced is consumed within Pakistan. Why get subsidized energy for that? If textile is getting cheaper energy inputs for domestic consumption, same should happen for the rest of the industries.
The policy should be to give energy subsidy to those who are bringing exports. Link it to the export proceeds. The punch line should be “show the dollars and take the rebate”. Industry claims that not all units are vertically integrated. If incentive is given to exports, yarn (or other input) producers will be wiped out as exporter would import yarn. That can be resolved by passing on the incentive in value chain – just like VAT, this can be sorted.
The other argument made by the industry is against the reliability of the grid electricity. Some say that those units moved to electricity after the government incentive of incremental electricity consumption have moved back to gas despite having cheap electricity for the time being. That argument has merits. But at the same time, the gas supply is not even all the time. Numerous times industry complains of lower pressure of gas.
However, the grid constraints have to be dealt with, and that is one reason why the shift needs to be gradual. One better way is to allow industry to go direct wheeling. Give them dedicated (or portion of) power plants along with the capacity payment. But that would put discos at disadvantage as they cross subsidize consumers from industrial users. Moreover, industry is a bulk customer and better payer. But a good chunk of industry is already on captive.
The third argument is the efficiency of the captive plants. They claim that many captive plants are more efficient than best IPPs after incorporating the transmission and distribution losses. This debate happened a few months back and government decided to perform an audit of captive power plants. But the industry went to courts and didn’t let the audit take place. If the energy efficiency case is so strong, why did the industry not let the audit take place?
The point is that industry (textile) is not as kosher as it claims. Greater resistance was put by the industry when zero rating was abolished in 2019. They claim that industry will be wiped out. Just last month, highest ever textile exports were recorded in the history of Pakistan.
Today, once again news stories are coming that buyers are cancelling the orders or that banks are ending the concessionary finance lines of the exporters. But this is not the first time. For the past many years, APTMA and other textile associations, portrayed doom and gloom scenario for one reason or another. The fact of the matter is the textile exports (or country’s exports) have been largely stagnated for the past 12 years. This may imply that with one action or the other, exports are not moving up or down; but textile players’ profits do.
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