Business council warns gas price hike could derail Pakistan's export target

The Pakistan Business Council (PBC) has warned that Islamabad’s ambitious $60 billion export target by 2027 is unlikely to materialise following a staggering increase in gas tariffs for captive power plants (CPPs). As per reports, the government has raised the price of gas for CPPs through a presidential ordinance, with additional levies further driving up the cost of gas.

Gas price has surged from a conservative 2400 rupees per million British thermal units (mmBtu) to a whopping 4200 rupees per mmBtu. This marks a colossal increase of 75 percent, which might significantly affect industries that use the commodity for power generation. Once all levies come into effect, the final cost may even exceed the global rate of regasified liquefied natural gas (RLNG).

According to reports, the new price is twice the amount which industries in Bangladesh have to pay for gas. Islamabad has effectively raised the price so that more industrial units start utilising electricity from the national grid instead of producing it themselves.

However, industrialists might be impacted negatively by the shift to the national grid as electricity tariffs for Pakistani industries are already among the highest in the region: at 17 cents per kilowatt-hour (kWh).

The sky-high tariff amount could be dubbed as extortionate if compared to the six to eight cents/kWh tariff that is levied in India and Vietnam. According to analysts, the latest gas price hike could weaken Pakistan’s industrial and export competitiveness.

PBC’s Chief Executive Ehsan Malik expressed his concerns in a letter to the prime minister, as he highlighted that this sharp increase will not only hurt export-oriented industries but also impact manufacturing for the domestic market. The move could force businesses to rely more on imports instead which will ultimately strain Pakistan’s foreign exchange reserves.

Reports reveal that a staggering 50 percent of Pakistan’s exports come from factories that depend on gas-fueled CPPs. The PBC has warned that making gas more expensive may not necessarily shift industries to the national grid as intended.

Moreover, some manufacturers lack immediate grid access, while others will need to make additional hefty investments to get connected to the national grid. Industrialists will have to bear these expenditures on top of their previous spending on modern CPPs when grid power was unreliable.

Analysts were predicting that with the United States imposing tariffs on Chinese imports, Pakistan could have benefited from increased export orders. However, rising energy costs will detrimentally impact the cash-strapped nation’s ability to secure export orders.

Ehsan Malik further outlined that it remains unclear whether businesses will receive any consideration for their past investments in CPPs when calculating the levies. Faced with these challenges, most industries are expected to turn to alternative energy sources such as solar power.