Expected 78.5 percent gas hike could jeopardise 60 percent of exports

The International Monetary Fund (IMF) has directed Islamabad to crack down on industrial captive power plants (CPP) by significantly raising the levies imposed on their gas supply. CPPs are the preferred entity from which industrialists want to purchase energy as their electricity supply is both reliable and economical.

However, government-owned power distribution companies remained unable to realise revenues from potential electricity sales as the reliance of industrialists on CPPs significantly hurt the national exchequer.

The price of electricity between CPPs and the national grid is expected to equalise, with gas prices expected to surge from 2,800 to 5,000 rupees per unit. This spells bad news for energy-intensive industries, such as the textile industry, that rely on stable and cheap CPP electricity.

The textile sector accounts for 17 percent of industrial consumption. It is precisely the availability of affordable gas that gives Pakistani millers the competitive edge that they enjoy in the international market.

Experts, however, are predicting that the 78.5 percent rise in gas prices will erode the competitive edge of Pakistani textiles in the international market. This could significantly reduce export revenues as local companies might lose out on international contracts due to the expected rise in their products.

The textile sector accounts for 60 percent of the country’s exports, and this move could effectively strangle textile exporters, akin to the government trading the metaphorical gold-laying chicken for a single golden egg.

The national power distribution companies are notorious for their inability to provide a stable source of power, and millers are aware of this fact. Textile millers may direct CPPs to continue to operate using less efficient fuel sources such as coal instead of gas. As per Dawn, an official claimed that industrial consumers would rather burn old tyres to produce electricity than purchase it from the national grid.

Islamabad might be inviting another problem, which those who walk the halls of power have not been able to realise yet. Raising the levies on gas could push CPPs to resort to using illegally smuggled gas from neighbouring Iran.

This will be a much cheaper alternative, which many energy-intensive businesses might consider despite it being illegal.

 
The national grid is already strained and faces frequent power shortages, and the addition of more industrial units could exacerbate the problem.

Gas companies have already reported that their estimated losses could exceed 400 billion rupees per year if captive power plants cease to operate. They have claimed that strangling the gas supply could even cause Pakistan State Oil (PSO) to go bankrupt.