ISLAMABAD: The Ministry of Commerce (MoC) has requested the inclusion of regionally competitive electricity tariffs in the Federal Budget FY25 to support export sectors. This move aims to reassure international buyers about the stability and competitiveness of sourcing from Pakistan, according to sources informed by Presstonight.
In a letter to the Power Division, the Commerce Ministry highlighted that the Strategic Trade Policy Framework and Textiles and Apparel Policy, 2020-25, initially facilitated regionally competitive electricity tariffs (between 7.5 to 9 US cents per kWh) to lower manufacturing costs and maintain international competitiveness.
This federal support led to a significant increase in Pakistan’s exports, reaching a historic high of $31.8 billion in FY22, marking a 49% increase from FY20. The textiles and apparel sector, in particular, saw a 54% growth in exports during the same period.
However, the internal market challenges following the Ukraine war and stringent IMF conditions led to the withdrawal of these support schemes, including the competitive energy tariff, which impacted the growth momentum of exports in FY23 and beyond.
Despite an increase in exports in FY24 (Jul-Apr), mainly due to a 59% rise in agricultural commodity exports, the key industrial export sectors are struggling. Approximately 20 to 30 percent of production capacity remains underutilized, leading to significant labor layoffs and widespread human suffering, the Commerce Ministry stated in its letter to the Secretary of Power.
The ministry emphasized that electricity has historically been a concern for export sectors due to its unavailability during 2009-2014 and uncompetitive prices from 2014-2019 and since March 2023. High business costs have eroded the competitiveness of export sectors, severely affecting Small and Medium Enterprises (SMEs).
As Pakistan attempts to regain its global export market share and attract foreign investment amid economic challenges and an expected hike in electricity tariffs in July 2024, export sectors are advocating for a competitive electricity tariff of 9 US cents per kWh (compared to 10.2 in Bangladesh, 8.9 in China, 7 in Vietnam, and 8.2 in India). This excludes cross-subsidies and inefficiencies from industrial tariffs and compensates for protective consumers through budgetary allocations in the upcoming Finance Bill.
The Commerce Ministry argued that maintaining international competitiveness for export industries through consistent policy interventions is crucial amidst the global economic slowdown and challenging business environment.
Following these concerns, the Commerce Ministry has urged the Power Division to establish a regionally competitive electricity tariff with long-term stability in the federal budget FY25. This move is expected to send a positive signal to international buyers interested in continuing and expanding their sourcing from Pakistan.
Recently, a representative from the Central Power Purchasing Agency-Guaranteed (CPPA-G), under the Power Division, mentioned during a public hearing at Nepra that the government is considering various reforms in the power sector to boost electricity consumption by the industry, particularly those related to exports.
According to sources, the Prime Minister has directed relevant ministries to develop a plan for providing competitive electricity to the industrial sector to boost GDP and exports. The Pakistan Textile Mills Association (APTMA), Pakistan Textile Exporters Association (PTEA), and other associations have been consistently urging the government to rationalize energy tariffs in line with regional countries.
