Export-oriented sectors: MoC advocates concessional power tariff

ISLAMABAD: Ministry of Commerce (MoC) has sought regionally competitive electricity tariff (with a long-term visibility) under Federal Budget FY25 for the export sectors, to generate a positive signal to international buyers that are interested to continue and expand their sourcing from Pakistan, well informed sources told Business Recorder.

Commerce Ministry in a letter to Power Division has stated that as per the interventions envisaged under Strategic Trade Policy Framework and Textiles and Apparel Policy, 2020-25, the federal government provided regionally competitive electricity tariff (US cents 7.5 to 9 per kWh all-inclusive) to export oriented sectors to reduce their cost of manufacturing and keep them internationally competitive.

As a result of facilitation extended by the federal government, Pakistan’s exports reached historical high level of $31.8 billion in FY22 - an increase of 49% as compared with FY20, whereas, in case of the largest manufacturing sector (i.e.; textiles and apparel), exports witnessed a growth of 54% in FY22 as compared with FY20.

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However, internal market situation in the aftermath of Ukraine war, and strict IMF conditionalities resulted in the withdrawal of incentives/ support schemes (including regionally competitive energy tariff) and affected the momentum of increasing exports in FY23 and onward.

“Although, Pakistan managed to increase exports in FY24 (Jul-Apr) mainly due to agricultural commodities (+59%); however, the key industrial export sectors of Pakistan are struggling to recover and gain their lost share in global markets. Further, approximately 20 to 30 percent production capacity is under-utilised in the key clusters and regular labour retrenchment to the tune of thousands is resulting in massive human misery,” said Commerce Ministry, in its letter to Secretary Power.

Commerce Ministry argues that electricity remained a matter of apprehension for the export sectors due to its non-availability during 2009-2014 and the uncompetitive prices during 2014-2019 and March 2023 onward. As a result, the export sectors lost the competitiveness due to high cost of doing business, and Small and Medium Enterprises (SMEs) are severely affected.

The export sectors are being deprived of a competitive tariff at the time when Pakistan is struggling to regain its lost global export market share, as well as, trying to attract foreign investments. In the backdrop of prevailing economic challenges and anticipated hike in electricity tariff after rebasing in July 2024, export sectors are continuously requesting for regionally competitive electricity tariff of US cents 9 per kWh all-inclusive (Bangladesh: 10.2, China: 8.9, Vietnam: 7, India: 8.2) after exclusion of cross subsidies and inefficiencies/ losses from industrial tariff and compensation of protective consumers through budgetary allocation in the upcoming Finance Bill.

Commerce Ministry further argued that amid continued global economic slowdown and challenging business environment, it is important to keep the export industries internationally competitive and same may be reflected through consistent policy interventions.

After explaining the background and woes of export sectors, Commerce Ministry has requested Power Division to announce a regionally competitive electricity tariff (with a long-term visibility) under federal budget, FY25 for the export sectors which will generate a positive signal to international buyers that are interested to continue and expand their sourcing from Pakistan.

Recently, a representative of Central Power Purchasing Agency-Guaranteed (CPPA-G), an arm of Power Division, revealed during a public hearing in Nepra that the government is considering different reform interventions in the power sector aimed at increasing electricity consumption by industry, especially export related industry.

Prime Minister, sources said, has also directed concerned Ministries to work out a plan to provide competitive electricity to the industrial sector to push GDP and increase exports.

Pakistan Textile Mills Association (APTMA), Pakistan Textile Exporters Association (PTEA) and other Associations are continuously writing to the government that their energy tariffs be rationalised as per regional countries.

Copyright Business Recorder, 2024