In response to the key objectives outlined in the International Monetary Fund’s (IMF) Staff-Level Agreement (SLA), Karachi’s industrialists have urged the newly-elected government to adopt a fully-fledged strategy for reducing energy costs to revitalise the struggling industry. They also call for the formulation of better economic policies and comprehensive reforms.
Expressing concerns about the IMF-SLA objectives mentioned in the press release, particularly those related to energy, they fear that enforcing these policies without addressing critical infrastructure deficiencies could lead to the shutdown of companies across the country. With both small and large industries facing closures, urgent initiatives are needed to prevent further economic decline. There is significant unrest and anxiety due to the skyrocketing wave of street crimes fuelled by runaway inflation and unemployment in Karachi, the country’s port city.
Industrialists debate whether electricity should be provided to them at the Regionally Competitive Energy Tariff (RCET) or if they should be allowed to economically operate captive power plants, as the government is currently unable to meet the industry’s needs in terms of quality and quantity. While the IMF has consistently stressed the need to recover energy costs, this is the first time they have urged the government to focus on cost-effectiveness. Reducing the cost of energy to international levels would benefit local industrialists, they argue.
They criticised the government’s failure to provide uninterrupted power supply to the industry and highlighted the challenges faced by industrialists in operating captive power plants due to unaffordable gas and electricity tariffs. Despite previous support for RCET, the government withdrew it in March 2023 under IMF pressure, prompting industries to produce electricity using gas. However, subsequent increases in gas tariffs (to around over 220%) have further burdened industrialists, forcing many to switch to the power grid, where electricity costs continue to rise.
The exact electricity tariff billed to industries in the industrial zone is Rs55.74 per unit for February. Additionally, in one Site Association of Industry (SAI), 50% of small units and 20% of large units have closed due to unaffordable gas and electricity tariffs, despite Karachi being home to a total of seven industrial zones.
“As an industrialist and economic analyst, I believe that the five-year plan is indispensable for setting the roadmap for national development; for the systematic allocation of scarce resources to national priorities and thereafter to be used as a measurement of the achievement of developmental goals against targets over the period. Instability is the order of the day, and instability is the killer of any kind of investment,” said eminent industrialist Riaz Uddin.
Landhi Association of Trade and Industry (LATI) President Siraj S Monnoo highlighted the dire economic challenges faced by various industries. He highlighted the significant hurdles posed by factors such as higher gas and electricity tariffs, gas availability issues, water shortages, governmental corruption, inflation, and inadequate infrastructure. He called for improvements in the reliability and modernisation of transmission and distribution infrastructure, while citing the double cost impact of electricity and challenges in transitioning from captive power to the electricity grid. He stressed the importance of strengthening governance and management within distribution companies and implementing effective anti-theft measures.
Published in The Express Tribune, March 21st, 2024.
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