Pakistan Textile Exports Hit by Gas Crunch, Industry Body Says
Pakistan’s natural gas shortage is hurting its crucial textile exports, according to an industry trade organization, putting even more stress on the nation’s struggling economy.
About $250 million of textiles exports were lost last month after mills in Punjab were forced to shut for 15 days, said Shahid Sattar, executive director of All Pakistan Textile Mills Association. Factories in the province are dependent on power generated from regasified imports of liquefied natural gas, while domestic supply is being diverted to other regions, he said.
Pakistan has become a fast-growing import market for LNG as local supply has subsided over the last few years. But competition for the fuel -- used as an electricity feedstock and for heating and cooking -- has intensified due to global shortages, sending spot prices to levels that Pakistan can’t afford.
“The high gas prices are prohibitive,” Sattar said in an interview. The “supply shortfall is due to the energy ministry’s inability to arrange supply, and is hurting the very future of Pakistan’s exports and economy.”
Pakistan’s government, which has been criticized by the opposition for mishandling LNG imports, refutes claims that textile exports dropped because of low gas supplies. More than 90% of mills shifted to using electricity from the grid when gas wasn’t sent to their power generation units last month, Energy Minister Hammad Azhar said by phone, adding that “the electricity is being offered at regionally competitive rates.”
Pakistan restored gas to the textile sector last Wednesday after the association halted litigation against the government on the supply cut, and agreed to energy audits of their captive power plants. Only half of the companies have restored connections, while the rest are still running their mills on the national grid, according to the ministry.
Still, the gas shortage is hitting Pakistan at a critical economic and political juncture. The country is struggling with accelerating inflation and a weakening currency, with support for Prime Minister Imran Khan’s ruling party ebbing ahead of national elections due in 2023. The government also needs to raise taxes, and has just increased petrol price levies, as a pre-condition to resume its $6 billion bailout program with the International Monetary Fund.
The textiles industry -- which supplies everything from denim jeans to hats to buyers in the U.S. and Europe -- is one of the country’s few economic bright spots. Production grew almost 6% in the nine months through March 2021 and the sector accounted for 60% of total exports, government data show.
The country exported $11.4 billion of textiles in the nine months through March 2021, according to government data. Based on those figures, the lost $250 million probably amounted to around 20% of Pakistan’s textile exports last month, according to Bloomberg calculations.
Pakistan, which is heading into the coldest months of the year, issued an emergency tender to import more LNG in November after suppliers backed out from deliveries amid skyrocketing prices and surging global demand. More recently, gas trader Gunvor told Pakistan it would be unable to make a delivery scheduled for Jan. 10.
The country faces gas shortages every winter because Pakistan’s natural gas fields are seeing a depletion of about 9% each year and imported LNG is very expensive, Minister Azhar said at a press briefing in late December. Pakistan announced a bidding round to help find more oil and gas reserves, Azhar said in a Twitter post on Friday.
Despite the government restoring gas supplies to the textiles sector last week, frequent power blackouts are still curbing operations, Sattar said. Mills will only be able to run at about 80% of capacity if the situation persists, he said.
“Our history is littered with episodes of ‘stop-go’ growth caused by energy shortages and exorbitant costs, both of which are the result of mismanagement” by the government, Sattar said.
©2022 Bloomberg L.P.