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Pakistan’s immense economic potential will remain elusive as long as the most productive sectors that enable export-led growth are deprived of energy availability and consistency. Despite the textile exporting sector’s capacity to deliver over $2 billion per month in exports, recent government decisions to suspend gas supply to the sector have badly affected the sector’s capacity to deliver.

Gas/RLNG to the textile industry has been suspended from July 1st to July 8th, which will be followed by shutdowns for Eid from 9th to 14th July. This shutdown of 15 days will translate into a loss of at least $1billion that would have otherwise positively impacted the Balance of Payments. More than 50% of output is likely to be lost in the month of July, with the very real risk of losing orders on a permanent basis.

The textile industry has achieved a new record in terms of exports reaching $19.5 billion from $ 12.5 billion just two years ago. This fantastic growth was enabled by implementation of Regionally Competitive Energy Tariff (RCET), investment of over $ 5 billion in expansion and establishment of 100 new textile units resulting in enhanced export capacity of $ 500 million per month.

Textile exports were expected to increase to $25 billion plus in the coming fiscal year. If this momentum is lost due to energy supply and cost constraints, Pakistan will be forced to seek additional $6 billion in loans from abroad which under the circumstances may not even be possible.

Textiles have repeatedly delivered their commitments and proven that they are a viable and long-term solution towards economic stability. However, energy unavailability, uncompetitive pricing of critical inputs and unjustifiably high taxes continue to jeopardize export-led growth.

The government has been no stranger to taking bold steps that are intended for economic stabilization, such as increasing the fuel price substantially over the past several weeks. In the same vein, we urge the government to consider its misallocation of resources as a detriment to this very goal of stability.

There must be an equally bold decision to aptly prioritize the gas supply for export-oriented sectors which are the greatest contributor to economic stability and growth, rather than allowing heavy gas usage in the domestic sector, which is unproductive and does not make any contribution to the national exchequer.

Gas remains the major or only source of energy for 75 percent of the textile industry in Pakistan but still consumes only 8.6 percent of the total national gas supply. Processing mills have the highest use of gas and accounts for 75 percent of their energy-mix — while 67 percent of the electricity in composite firms is being generated through gas.

The full potential of our energy resources is not unlocked because of overuse in non-exporting sectors. A policy to ensure pure economic use of the scarce resources has to be implemented in order to ensure a sustainable economic future. For domestic users, single point source, i.e., electricity should be implemented to prevent overuse and wastage.

Good business sense dictates that policy needs to be holistic and prioritize the largest value addition to society, so that economic disasters can be prevented.

However, policymakers in Pakistan tend to be caught up in rectifying mistakes of the past and by the time a useful policy is implemented, plenty of damage has already been done, e.g., exports have already sunk and buyer relationships have been destroyed due to an inability to meet orders.

While the manufacturing and consumer goods sectors have a moderate need for reinvention and innovation, what they really need is minimal disruptions in the form of regulatory limitations, to be empowered to keep up with new technologies, and the ability to stay abreast of the competition, and the role of the government is central in each of these aspects.

It is no surprise that Pakistan ranks low in the ease of doing business and competitiveness indices, as many potential startups are burdened by overregulation that hinders them from taking off. Meanwhile, the textile sector remains under immense pressure to maintain the majority of Pakistan’s exports, and therefore must be considered critical for Pakistan’s economic prosperity.

These policy recommendations are synergistic — they can only be fruitful if implemented simultaneously. As the textile value chain is fragmented, there is a need for uniformity and facilitation at each step of the process, and any incentives that are provided must be available across the chain.

Earnings through exports serve as a crucial inflow to the economy. Policy support is an absolute requirement that ties into this, but the measures taken by the government are often insufficient. It is essential to direct our confidence and incentives towards our local business community as well as our entrepreneurs.

We must also push for improvements in quality education, training and job opportunities for the youth. Considering the export-led economic prosperity that is taking Bangladesh and Vietnam to new heights, Pakistan must mitigate its reliance on primary and traditional commodities, prioritize free trade agreements, rationalize tariff structures and fast-track the shift towards manufactured, value added services and nontraditional goods for export.

The textile sector of Pakistan exports over 80% of its products, and the export-oriented industries are 25 percent more productive than non-exporting firms, and their productivity increases as exports increase. However, inefficiencies cannot be exported, so these must be mitigated from all input materials before results can be seen.

Since exports in Pakistan are labor-intensive, expansion in this industry is a way to ensure large-scale job-creation, and an increase in foreign currency to pay for required imports. With the right policies in place, a diversified set of high quality exports will provide a crucial uplift to economic activity and lead to a cycle of development and improvement in perception. In the coming fiscal year, textile exports were expected to increase to over $25 billion.

For this mission to be successful, consistently supportive energy policy is absolutely essential. Only then can we prevent the need to seek $6 billion in foreign aid in the coming year – a scenario which would lead Pakistan to default and sink the economy further into the debt trap.

Copyright Business Recorder, 2022

Author Image

Shahid Sattar

PUBLIC SECTOR EXPERIENCE: He has served as Member Energy of the Planning Commission of Pakistan & has also been an advisor at: Ministry of Finance Ministry of Petroleum Ministry of Water & Power

PRIVATE SECTOR EXPERIENCE: He has held senior management positions with various energy sector entities and has worked with the World Bank, USAID and DFID since 1988. Mr. Shahid Sattar joined All Pakistan Textile Mills Association in 2017 and holds the office of Executive Director and Secretary General of APTMA.

He has many international publications and has been regularly writing articles in Pakistani newspapers on the industry and economic issues which can be viewed in Articles & Blogs Section of this website.

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samir sardana Jul 07, 2022 06:58pm
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samir sardana Jul 07, 2022 07:08pm
1st Step is to identify Gas Industrial users who ARE NOT EXPORTERS- who CAN TECHNICALLY use electricity - with some variations in throughput,yield & wastages Throughput is not a constraint, if there is capacity &,in case, if Gas & Power are constrained - then,throughput is not a factor As far as Yield & Wastages, are concerned - these users have to be compensated,for the INCREMENTAL YIELD & WASTAGE LOSSES - as if Gas & Power are constrained,there will in any case be some variations in yield SO THESE USERS CAN THEN BE OFF-GAS - & THIS GAS CAN BE DIVERTED TO TEXTILES In Step 2 - the Gas users in the NON-TEXTILE sector, who are exporters - have to state the FOB to Gas Cost ratio.Those who ratio is LOWER than Textile Exports,have to crtail production for local market In Step 3 - The Portion of the Power Grid - which has poor collections - can face load shedding,& the Gas IPPs can operate at the level of PLF which DOES NOT NEED CAPACITY CHARGES.& the extra Gas goes to Textiles.dindooohindoo
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samir sardana Jul 07, 2022 07:19pm
In Step 4 - is the Gas Paradox. If Gas is available - then do we run GAS IPPs or Oil IPPs ? To the extent that GAS is used by power consumers - it is basically a waste - especially for that segement which steals power. The worst capacity charge terms in PKR & USD,are in GAS IPPs.THEREFORE,is it better to reduce GAS IPPs & divert Gas to Textiles,after maximsing the power cuts/load shedding In Step 5 - At this point in time,Pakistan has to maximise USD inflows,Power drawdowns from Gas IPPs can be met from Oil IPPs & Coal IPPs which have surplus capacity. As it is,Gas cargos are not available - & so,maximising Gas for Text,is the best option Once the Local elections are done - this strategy can be rolled out, in full steam The national elections are far away - & so,,various combos,can be tried out. USD Inflows & PKR stability will also lower , the overall import bill - & so,the sacrifice of the people in load shedding,will pay off CAPITALISE ON THE OPPORTUNITY.dindooohindoo
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