Pakistan textile industry warns of shutdowns amid energy crisis

February 14, 2024 (MLN): Pakistan's textile and apparel sector is facing an existential threat from soaring energy costs and power shortages, and more than half of the industry is at risk of closing down over the next few weeks if corrective action is not urgently taken, All Pakistan Textile Mills Association (APTMA) stressed in a letter to the government.

APTMA has requested an urgent meeting with the Ministry of Energy to discuss the impact of rising energy prices on their international competitiveness.

In a letter written to Muhammad Ali, the Federal Minister for Energy, the association highlighted that international competitiveness of Pakistan's textiles and apparel exports is being continuously eroded by ever-increasing energy prices that are, on average, over twice those in competing countries.

According to the exporters, the average electricity price for industrial consumers is hovering at 16.7 cents/kWh and the price of gas is being increased to Rs2,950/MMBtu from Rs2,200/MMBtu at present and Rs852/MMBtu a little over a year ago.

Production at these rates is not financially feasible and the sector's exports have become stagnant as we lose market share to regional economies like Bangladesh, India, and Vietnam that have significantly lower energy tariffs, the letter said.

At the same time, the country's macroeconomic outlook remains weak as high inflation continues to persist, and the external sector remains vulnerable with no improvement in foreign exchange earnings.

The economy is stuck in a wholly unsustainable situation where industrial activity is shrinking with every passing day, with further implications not just for employment and poverty but also for power sector revenue and the government's fiscal position.

With industrial power consumption declining since at least 2QFY24, industrial contribution to the fixed costs of the power sector has also declined such that it has necessitated an increase in the power tariffs of all other consumer categories, as reflected in the quarterly tariff adjustment (QTA) for the current quarter.

This will likely cause a further decline in industrial power consumption and necessitate further increases in power tariffs for all consumers.

“We are stuck in a vicious cycle of declining consumption and increasing tariffs with no end in sight,” the letter further reads.

The industry can no longer bear the burden of paying for cross subsidies to nonproductive sectors in their energy tariffs.

These cross subsidies are an economic distortion that cannot be exported and therefore significantly weighs down on the international competitiveness of Pakistan's manufacturing sectors.

"If corrective action is not urgently taken, over 50% of firms in the textiles and apparel sector are at high risk of shutting down over the coming weeks which will cause widespread unemployment and social unrest," APTMA stressed.

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