ISLAMABAD: After a month-long standoff, the government agreed on Monday to provide 50% gas to textile manufacturers for cogeneration to the extent possible, on condition that they waive their suspension orders in writing and have their energy audits carried out.
Energy Minister Hammad Azhar said Dawn that a government team and a delegation from the All Pakistan Textile Mills Association (Aptma) struck a deal on Monday whereby textile mills would get half of their needs – 75 million cubic feet per day (mmcfd) instead of 150 mmcfd – at best. This will only be supplied to cogeneration plants.
In return, the textile factories would give in writing that they would not go for stay orders to get a gas reconnection. Additionally, the millers would submit their energy efficiency audits and those who were unable to do so by June 30 would be permanently removed from the gas supply. The energy efficiency audit is now mandatory for all textile factories and must be completed by June 30, 2022.
Millers must provide written assurance that they would not seek a stay order for reconnection
Mr Azhar said the textile factories had been made clear that their gas supply priority would, in any case, be seen as lower than “transformation gas” (textile processes that are impossible without natural gas). The millers had separately obtained residence orders against energy audits and the disconnection of gas supplies.
Amid severe gas supply constraints, as gas companies, in particular Sui Northern Gas Pipelines Limited (SNGPL), began disconnecting gas from captive power plants (CPPs) of textile mills on the instructions of the ministry Energy, some of the millers have gone to court and obtained stay orders, creating serious supply problems.
The Energy Ministry has felt aggrieved by the textile industry’s attempts to protect gas supplies and subsidies through the courts instead of honoring its commitments to save the amounts of gas used in thermal power plants while gas companies struggled to manage supplies for other priority sectors.
The Department of Energy had received an independent study from three internationally renowned organizations – the University of Chicago, the London School of Economics and Political Science and the International Growth Center – which did not exhaustively support a narrative in the country according to in which gas and electricity subsidies had a direct link with export growth.
The ministries of energy, finance and planning are convinced of rent-seeking and abuse in the textile sector, he said.
The government provided subsidized gas and electricity at $ 6.5 per mmBtu and nine cents per kWh, respectively, for three years, but now finds them unsustainable and untargeted. He estimates the cost of annual gas subsidies at 65 billion rupees and 20 billion rupees for electricity subsidies, leading to the accumulation of circular debt. This is in addition to other grants and facilities such as the DTRE, TERF and DLTL regimes as well as tax exemptions. Gas tariffs for exports were recently increased to $ 9 per unit from $ 6.5 as LNG import tariffs increased significantly.
Around 1,870 export industries, mostly located in the Punjab, were currently receiving uninterrupted gas on the SNGPL grid, while around 420 factories, mostly located in Sindh, were on the Sui Southern Gas Company Ltd grid. . Due to the gas shortage, around 375 factories equipped with CPP had been disconnected as they ran their power plants – mostly inefficient – on subsidized gas while the gas for their processes was still intact.
Officials said the grant was originally intended for one year to jumpstart the export sector, but was later extended for a year until June 2020 due to challenges from the Covid-19 pandemic. The textile factories had agreed to end the gas subsidy on June 30, 2020.
The Energy Ministry is now pushing for targeted subsidies to exporters based on export earnings. Specifically, for textile exports, he wants gas supply only for clothing manufacturing and a complete ban on gas consumption by CPPs, as the process and CPPs have separate meters.
Posted in Dawn, December 28, 2021