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The rift between the textile industry (particularly APTMA – All Pakistan Textile Mills Association) and government (mainly, ministry of energy) is fast unraveling. Both sides have engaged in mudslinging. Energy ministry claims that APTMA is attempting to blackmail, and is in fact itself at fault. One must wonder why the industry had not raised concerns prior to 15th December 2021. There is no doubt that the textile industry exaggerates its issues or complaints. And the government questions its credibility. In the process, the substance (core of the problem) is not being well debated, and sufferer is Pakistan’s economy.

One needs to see the issue holistically by having historic, industrial, and regional contexts. One needs to discount the APTMA claims, as the body has perception issues, and it lacks credibility. Then there is nothing to take home about the structural reforms in the ministry of energy in the past three years. One needs to keep this in mind while analyzing the situation. There are good players in the industry and due to lack of reliable energy, they are suffering too. And in turn, there are production losses in the exporting industry.

The problem started with gas shortages in the winters. The gas supply to the exporting industry in Pakistan was stopped. In the backdrop, APTMA has been squeezing for low pricing. The government wanted to lower its unfunded subsidy. Then the government wants industry to move from captive power generation (not in case of cogeneration) to grid. The issue has been under discussion for very long. Some industry players moved the court against the price hike and against energy audits.

Scratching the surface, the main issue is availability of reliable energy supply. In early 2000s, when the electric supply was running short and there was sufficient domestic gas, the then government allowed the industry to install its own captive power plants (CPP). Prior to that, the industry was on the national grid. The industry moved away from the grid, and the investment in transmission and distribution did not happen. And now the grid (especially in Punjab’s industrial areas) is not of quality to supply uninterrupted electricity to the industry. Now, when the industry is being asked to move back to the grid, the system is not ready to accommodate the load.

For example, one industrial player in the Lahore region went to the grid. But the interruptions caused by fog and rains have resulted in production losses. The player went back to its CPP on furnace oil as there was no gas and started producing power at the rate of around Rs20 per unit. The player has orders and hopes to meet timely production; and for doing so, this industrialist went to most expensive but a reliable source. Hence, the key is uninterrupted supply. That is missing.

The pro-government people may argue that if domestic industries such as cement and steel are not facing any problem then how come textile players are facing the issue. For any load less than 5MW, electricity connection is of B3 category. While for bigger clients the connection is B4. In this case, the industry is directly connected to the NTDC system (240KV or 132KV lines), and the industrial units have their own grids. There is no issue of reliability. However, textile industrial plants need relatively less power, and for their B3 connections, they must rely on discos’ grids of 11 KV lines. After 2004, when the industry started moving out form the grid, the investment in upgradation and maintenance of grids remained suboptimal, and now, the supply has interruptions. Due to stoppages, there are production losses.

If the grid supply is reliable, then it is not a problem. There are examples in KE network where the supplier ensures proper grids and industry is not unhappy. There are no fluctuations and interruptions in KE network. One reason is that KE does long-term contracts with industrial players where the latter must commit certain load, and in turn KE ensures smooth supply. That is not the case in discos, where the industry must share grid with domestic consumers and load fluctuation is a norm. The solution is privatization of discos. The government has failed to move in this direction.

In a nutshell, the bigger problem is of uninterrupted supply while pricing is a secondary issue. Since APTMA and some players (in quest for seeking rent) argue for lower prices and not agreeing to audit (perhaps due to their misuse of gas), efficient players are also suffering. Some textile players have confirmed that. They are fine with $9 per mmbtu gas or electricity at reduced rates. However, over-smartness of APTMA is making them to suffer.

APTMA and textile industry in general are infamous for shedding crocodile tears for subsidies. But in essence, textile is not much different from other industrial players in Pakistan. Moreover, iIf textile players are rent seekers, others are no angels.

The difference is that textile industry exports while many others are in import substituting. Textile asks for subsides. The others demand for duty protection. Textile competes with the world, mainly regional competitors. Textile forms bodies to demand subsidies while others make cartels to ensure certain profits. Textile gets subsidies directly from the government and indirectly from consumers. Others extract surpluses directly from consumers by keeping prices higher than the world. If textile is not regionally competitive, the players could invest in other industries. And that is happening for the past decade or two. According to World Bank report, the excess support to the import substituting industries in Pakistan have also substituted exports.

The point is one cannot single out textile. If something ought to correct, it’s the overall business environment – including high cost of doing business and rent seeking. If auto and steel enjoy import protection, textile has all the rights to demand subsidies. Today, if the market is open to imports, both auto and steel industries will die. And if textile sector was not getting subsidies, it may die too. The textile players will invest in other industries and that shall add to import bill as lion’s share of production cost of auto and steel (and other industries) is relying on imports.

Due to lack of fiscal space, subsidies have reduced in Pakistan. That is why there was virtually no investment in textile (for exporting) during 2008-18. However, in case of cement, steel, auto, fertilizer etc, there are plenty of examples. And top on the list is power (IPPs). During its ongoing tenure, the PTI government attempted to correct the anomaly. The energy supply at regionally competitive rate was ensured. The currency value was corrected. The refunds were made swift. Long-term investment was provided at subsidized rates. The industry responded to it with around $5 billion fresh investment. This would help in jacking up the much-needed exports.

The message to the government is to not undo its good policies. The message for good textile players is to distance from infamous APTMA and its arrogant mouthpieces. The ego wars between the ministry of energy and APTMA representatives is damaging country’s export potential. The real challenge is to provide reliable energy to new expansions. The industry has expanded. It is their interest to run. They can live with relatively higher energy prices to the region; but cannot live without reliable supply. The government should not think on the lines of outlawing CPPs without proper investment in discos’ grids. It’s best to leave the energy supply to the private sector. The new LNG terminal envisaged by the industrial players cater to their own and other industries’ need. Let the private sector supply gas to the private sector at market price. Let the refineries provide furnace oil at discount (as refineries shall die without finding way to dispose of FO). The government should invest in its grids. It should come with right pricing of gas and electricity and let the private sector compete with government in the energy space. And more importantly, let the industry decide itself on which form of energy to use. The government incentives should be confined in terms of pricing.

Copyright Business Recorder, 2022

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Ali Khizar

Ali Khizar is the Head of Research at Business Recorder


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