Increasing Energy Prices Hurting Pakistan’s Textile and Apparel Exports: APTMA

The All Pakistan Textile Mills Association (APTMA) on Wednesday said that the international competitiveness of Pakistan’s textile and apparel exports is being continuously eroded by ever-increasing energy prices that are, on average, over twice those in competing countries.

In a letter to the energy minister, APTMA highlighted that electricity prices for industrial consumers are hovering at 16.7 cents/kWh and the price of gas is being increased to Rs. 2,950/MMBtu from Rs. 2,200/MMBtu at present and Rs. 852/MMBtu a little over a year ago.

The association said that 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.

It added that 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 Q2FY24, 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 added.

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.

ATPMA has requested a meeting with the energy minister to explain what it called “the precarious position the industry is in and the implications this will have on the entire economy over the coming months”.

If corrective action is not urgently taken, over 50 percent 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 warned.