ISLAMABAD: Pakistan Business Council (PBC) has urged the government to reconsider gas increase for Captive Power Plants (CPPs) for broader ramifications as the move would make exports less competitive.
In a letter to Prime Minister, Shehbaz Sharif, Chief Executive, PBC, Ehsan Malik has stated that increase in the price of gas for captive power plants announced last week, followed by the imposition of additional levies in the Ordinance released on Sunday, will take the cost of gas up from Rs. 2,400/mmbtu (or US$ 8.8) in November 2023 to Rs 4,200/mmbtu (US$ 15) once the full levy is implemented.
According to PBC, at US$ 15/mmbtu, the cost will be more than double the amount charged for gas to captive units in Bangladesh and once all the levies are implemented, the cost could even exceed the then-prevailing global cost of RLNG.
“Electricity tariffs for industry in Pakistan are already amongst the highest. At Cents 17 /kWh, the industrial tariff in Pakistan is significantly higher than the Cents 6 to 8 /Kwh in India and Vietnam and Cents 9 to 10 /kWh in Bangladesh and elsewhere, “Ehsan Malik added.
PBC is of the view that more than 50% of Pakistan’s export volume is produced in plants that rely on gas-fueled captive power. Manufacturing, which provides jobs and generates exports, is now Pakistan’s least attractive sector for investment and growth. Therefore, your $60 billion export target by 2027 is unlikely to be achieved.
The competitiveness of manufacturing for the domestic market, which reduces reliance on imports, will also suffer due to the higher cost of gas. The increase in gas prices comes as the USA is imposing tariffs on imports from China.
“With the higher cost of gas, Pakistan is unlikely to benefit from the diversion of orders, which our competitor countries will gain. Making gas more expensive may also not achieve the objective of shifting all industries to the grid. Some will not be able to gain access to the grid in the short time envisaged in the Ordinance,” CE PBC said adding that others will need to spend hefty amounts to obtain access on top of their earlier investment in establishing modern captive power units when reliable power was not available from the grid. It is unclear whether a return on the earlier investment will be considered when determining the levies envisaged in the Ordinance. Most industries can be expected to increase their reliance on alternative energy, resulting in further outflow of precious foreign exchange on solar and other equipment.
He has further stated that if some captive-powered industries shift to the grid, SSGC and SNGPL will lose their most reliable, high-paying customers and be left with mostly lower-tariff domestic consumers. The resulting deficit of the gas companies will need to be covered either by the government or by increasing the gas tariffs for domestic users, which is a tough political call. In the meantime, the vital objective of export growth would have been compromised.
He has urged the government to reconsider the broader ramifications of the move that would make exports less competitive.
