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Hard times for textile industry

March 27, 2017

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Almost half of the 46 textile factories at the Khurrianwala industrial estate outside Faisalabad, to quote the industry sources, have gone out of business over the last several years — mainly owing to severe energy shortages in Punjab. Others are operating at far below their full capacity.

Some may argue — and rightly so — that energy crunch wasn’t the ‘only factor contributing to the closure of some of these factories’.

But few would dispute the contention that the energy shortages spanning over last one decade have been the single most important reason for the widespread bankruptcies up the textile value chain in Punjab.


“Unless a paradigm change is brought about and transparency is ensured, the exporters will never be able to get their refund claims on time”


Ever since the energy supplies to the industry have enormously improved after the induction of the imported LNG (liquefied natural gas) last year.

However, the chances of an immediate recovery of the industry and revival of the closed factories remains far from assured.

“We (the textile industry) are just hanging in... in the hope of better days,” insists Khurram Mukhtar whose own company, Sadaqat Limited, was able to survive energy shortages by investing in expensive, alternate sources.

“Not everyone could bear the high cost of alternate power generation. So they closed down to avoid their losses as their customers turned to other textile producing countries in the region,” argued Khurram, whose company exports home and other textiles worth $150m a year, while talking to this writer at his factory last week.

“If the closed factories resume production and others start operating at the full capacity, we can easily double textile exports from Khurrianwala industrial estate alone to $3bn in no time.”

Improved power and gas supplies aside, few believe that that the closed textile units will start to produce for overseas buyers and exports pick up any time soon.

“Power and gas are now available to the industry round the clock, the cost of export refinance is at its historic low, banks are flushed with liquidity, and the prime minister has announced a Rs180bn package to lift textile exports. Still no one is investing in the textile manufacturing. Have you ever considered why the textile factory owners are moving away from the manufacturing and investing in other businesses like real estate and retail?,” asked Ajmal Farooq, chairman of the Faisalabad-based Pakistan Textile Exporters Association.

These are tough times for Pakistan’s textiles industry, he argued. The industry’s competitiveness in the world markets has in the recent years been eroded by higher-than-regional average cost of electricity and the liquidity crunch it has been facing owing to the delays in the release of export refund claims worth billions of rupees.

“Power supply has indeed improved, but its price has also doubled to Rs12 a unit — much above the cost in the competing countries like Bangladesh, and the entire bill of expensive gas imports has been passed down to industrial consumers in Punjab. On top of that massive working capital of textile exporters has been held in sales tax, custom rebate and income tax refund regime, increasing their financial stress. No payment has been made to exporters against the RPOs (refund payment orders) issued since July 1, 2016, despite the law that money should be refunded to the holders of RPOs in 72 hours of their issuance. With 10pc of my sales flowing into refund regime, how can you expect me to survive?,” Ajmal asserted, who estimated that claims of over Rs150 billion had already been accumulated in the FBR’s refund regime.

He was of the opinion that the ‘refund money’ should be parked separately by the FBR and must not be shown as part of its tax collection. “Unless this paradigm change is brought about and transparency is ensured, the exporters will never be able to get their refund claims on time.”

Sohail Pasha, another exporter from Faisalabad, argued that this was the worst period for the textile industry and exports. “Theoretically the government has zero-rated the textile industry. Practically, we continue to pay myriad of taxes that are never returned to us. For example, the government hasn’t zero-rated energy fuels like coal, furnace oil, etc. Apart from paying international price for gas, we are also being charged for the inefficiencies of the SNGPL. Although the Economic Coordination Council (ECC) had decided that the consumers will pay only actual UFG (unaccounted for gas), we are being charged SNGPL’s average UFGs. Last but not the least, the Punjab Revenue Authority (PRA) is taxing our exports separately. In all, the exporters are paying 11pc of their sales in un-refundable taxes. These taxes are the hidden costs that we cannot export.”

The exporters are not much optimistic about the implementation of the Rs180bn export enhancement package announced by prime minister Nawaz Sharif in December. The package allowed the 4-7pc rebate to textile exporters across the value chain rewarding value-addition. Besides, imports of cotton and machinery for the industry was also made duty-free to encourage investment for boosting exports.

“Our past experience with the government is not very encouraging. It makes promises with us but never implements them,” PTEA secretary Azizullah Gohir asserted. “The finance division is yet to allocate funds for rebates the package promises to help the industry cut its costs and get back to its feet. No exporter has so far been paid any paisa so far although they already have partially passed the benefit to their foreign buyers to book orders. We don’t know if the government is going to pay what it has promised and when. So far it hasn’t allocated money for this purpose. But we are submitting export realisation documents to our banks.”

He reminded that the government also owed Rs40bn to the textile exporters accumulated in the last three years under the textile policy incentives. “The government wouldn’t need to give any support or subsidy packages if it truly zero-rated textile and other exports and reduce the cost of doing business by pulling down the electricity prices to the regional average. Who needs a package if the government cleans up its own mess?,” he concluded.

Published in Dawn, Business & Finance weekly, March 27th, 2017