Exporters decry end to subsidy

Fear withdrawal will impact their competitiveness, earnings, sustainability

KARACHI:

Exporters from various industries have voiced concern over the government’s decision to discontinue electricity subsidy under the zero-rated industry (ZRI) package.

The subsidy had been doled out to facilitate and support the growth of exporting industries but its withdrawal may potentially impact the competitiveness, earnings and sustainability of exporters.

Rejecting the federal cabinet’s decision, North Karachi Association of Trade and Industry (NKATI) President Faisal Moiz Khan stated that the government took the step under pressure from the International Monetary Fund (IMF).

“Ceasing subsidised tariff will cast a shadow over industrial exports from March 2023 onwards as a simultaneous hike in electricity and gas tariffs has further jacked up energy costs,” said Optimus Capital Management Research Head Arsalan Siddiqui.

Moreover, unavailability of raw material will add to the miseries and force exporters to considerably slash production.

He cautioned that benefits of a widening client base during Covid-19 and value addition under the Temporary Economic Refinance Facility (TERF) would be wiped out as buyers may go to other countries for placing orders.

NKATI president urged Prime Minister Shehbaz Sharif and Federal Energy Minister Khurram Dastgir to take back the decision and continue the ZRI package in the best interest of Pakistan’s economy.

Otherwise, “it will have a devastating impact on the industries, especially small and medium enterprises (SMEs), and including textile.”

“SMEs will not be able to bear the burden of expensive electricity and it is feared that they will be shut down, resulting in a plunge in exports and leaving millions of workers unemployed,” he lamented.

Following approval of the federal cabinet, the Ministry of Energy’s Power Division has notified the discontinuation of ZRI package, given at the rate of Rs19.99 per kilowatt hour (kWh) (all inclusive), effective from March 1, 2023.

The abolition of subsidy would directly affect gross margins of textile companies, which could not pass on cost pressure in line with the escalating input costs due to competitive pricing in the international market, noted Insight Securities’ textile analyst Ali Asif.

However, several players such as Gul Ahmed and Interloop are now focusing more on renewable energy, which will provide them with cushion against rising fuel and electricity prices.

The government, via notification, has directed CEOs of all power distribution companies (DISCOs) and Federal Board of Revenue (FBR) chairman to immediately suspend supply of cheap electricity to the exporting industries and ensure immediate implementation of the order, pointed out Faisal Moiz Khan.

He appealed to the prime minister and federal energy minister to withdraw the cabinet’s decision and come up with economic and industry-friendly measures.

Seeking the government’s attention, the business leader said, “With high electricity and gas tariffs, the production cost of industries has increased enormously, while operational activities have been squeezed by the high dollar rate, restrictions on opening LCs and delay in clearance of consignments at ports.”

NKATI president pressed the government to facilitate industries in steering the economy out of crisis and bringing economic prosperity so that “we can stand on our feet again and create more employment opportunities”.

Union of Small and Medium Enterprises (UNISAME) President Zulfikar Thaver believed that the ZRI package had been discontinued because exporters were getting a windfall due to the rapid change in rupee-dollar parity while importers were facing hardships.

Secondly, due to the high policy rate, borrowers are compelled to pay their entire earnings.

“Actually, the finance team needs a revamp as its members are not economist,” he remarked. “We have officers who are accountants, not economists. It is sad to see them resorting to orthodox means instead of banking on modern scientific methods.”