APTMA warns of further industry closure, plunging cotton prices amid unsustainable tariffs

October 10, 2023 (MLN): The current tariffs are unsustainable and if they persist, further closure of the industry will cause cotton prices to plunge even further, with severe implications for vulnerable segments, including farmers, All Pakistan Textile Mills Association (APTMA) emphasized during a meeting with the Minister of Commerce on Monday.

In their meeting, the Ministers of Commerce and Energy were made aware of energy issues faced by the industry, specifically high power tariffs of 16 cents/kWh that are currently being charged to the industry, and the uncertainty surrounding the availability and pricing of gas/RLNG.

The Ministers informed members that a solution was close to being found to ensure the availability of gas/RLNG for industry, and disparities in pricing were also being addressed. APTMA expressed appreciation for this.

Regarding electricity-related issues faced by the textile industry, an agreeable solution is still pending.

As it stands, the textile industry has an export capacity of $2 billion per month, of which $650 million worth of export industry is closed.

If electricity prices for exporters continue to remain high, a growing number of firms will be forced towards closure.

This is evidenced by the 12% year-on-year decline in textile exports for September 2023, while the textile exports of APTMA’s four regional competitors, including India, Bangladesh, and Vietnam, continue to increase.

Members of APTMA conveyed to the Ministers that current tariffs are unsustainable and include a cross-subsidy of Rs10.85/kWh to non-productive sectors that cannot be exported.

Exports need to be made competitive to be able to match prices in the international market.

If textile firms continue to close, this will prove disastrous for the overall economy.

In addition to negative effects on the macroeconomy and Balance of Payments, effects will also spill over to upstream sectors, including cotton.

Pakistan has been able to reverse the decline in cotton production/productivity and a bumper crop is expected this year.

This is primarily due to the tremendous effort put in by the Punjab Government, especially CM Punjab, and APTMA.

One of the reasons for a better crop is that the farmers were promised a putti price of Rs8,500/m.

However, given the large-scale closure of the industry, the price currently stands at Rs7,500/m.

Proposed solutions by APTMA

1. Create a winter tariff category for exporters and announce the cost of service tariffs (excluding stranded costs, distribution losses, and cross-subsidies) to maintain competitiveness across the country and internationally for the next 6 months.

2. Wheeling B2B contracts with a wheeling/Use of System Charge of up to 1 cents/kWh, all-inclusive excluding cross-subsidies and stranded costs. Allow the Hybrid Bulk Power Consumers (BPC) concept for both B2B and grid supply to be maintained without any penalty on the exit of BPCs from grid supply.

3. Raise the cap on solar net-metering for industrial consumers from 1MW up to 5MW. This will add 5,000 MW of solar energy at the point of usage, with no upfront investment or guarantees from the government.

Discussions were held with FBR on delays in the processing of sales tax refunds faced by several members, causing a liquidity crisis in the industry.

It was conveyed to them that refunds for many industry taxpayers are pending and faster refunds to be issued within 72 hours are being inordinately delayed.

Moreover, a large number of sales tax claims are being deferred by the faster system, which is not being processed by field officers.

Refund claims against provincial sales tax invoices are also being rejected or deferred due to the non-availability of automated verification of the provincial invoices, resulting in the accumulation of refunds of billions of rupees.

FBR was also made aware of the need to include indirect exporters (i.e., upstream suppliers of exporting firms) in the faster system such that it applies to the entire textile value chain.

FBR appreciated feedback provided by APTMA and ensured cooperation, and to find a timely and mutually agreeable solution to these problems.

Moreover, APMTA ensured FBR of its cooperation to assist in FBR’s efforts to counter tax fraud committed in sales tax refunds.

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