Page 17 - CMA Journal (May-June 2025)

Exclusive Interview

The sole expectation that has been met, after prolonged
advocacy, is the removal of cotton, yarn, and fabric from Although financing costs remain
the Export Facilitation Scheme, which at least creates a
level playing field for local producers through imposition elevated, exporters also face a
of sales tax on imports.

ICMA: APTMA has raised strong concerns about shortage of available credit.
including yarn and fabric in the Export Facilitation
Scheme. How is this affecting the local textile mills The transfer of export-finance
and overall industry sustainability?
schemes from the SBP to EXIM
Kamran Arshad: Although APTMA was among the
architects of the Export Facilitation Scheme, the FY25 Bank has been delayed, leaving
budget’s removal of sales tax zero rating on local
supplies converted it into a de facto Import Facilitation many programs only partially
Scheme, effectively subsidizing foreign suppliers and
farmers at the expense of local industry and agriculture. operational and their limits
Allowing zero-rated imports while imposing 18% sales
tax on the same local supplies triggered a three-fold insufficient to meet
surge in annual yarn imports and collapsed demand for
locally produced cotton, yarn and greige fabric. industry demand

Over 120 spinning mills have shut down, thousands of
workers have been laid off, and billions of rupees of
investment now lie stranded. Farmers, without a support As the grid is unaffordable and supply quality is not
price and facing collapsed demand, are shifting to suited for sophisticated manufacturing processes due to
water-intensive crops—an alarming trend in a regular outages, fluctuations, blips, etc. that disrupt
water-scarce country—while rural incomes of $2–3 production cycles and damage machinery, a significant
billion, especially for women in cotton picking, are under portion of the industry relied on gas-fired captive
threat. Since imports for exports have risen sharply, net generation to meet their requirements. However, in a bid
textile exports are also expected to fall from ~$14 billion to increase capacity utilization on the grid, the
in FY24 to $13.6 billion in FY25, meaning there has been government has increased price of gas for captive to Rs.
no real increase or recovery in exports as we are bleeding 3,500/MMBtu, and imposed an additional “grid transition
foreign exchange to sustain them at present levels. The
levy” of Rs. 791/MMBtu, taking the cost to Rs.
widening trade deficit and lost tax revenues from
4,291/MMBtu ($15.38) which is significantly higher than
foregone business activity compound the crisis.
the cost of Pakistan’s RLNG imports, and around twice
Thankfully, the government has responded to APTMA on the prevailing RLNG spot prices.
this front and announced that cotton, yarn and fabric
The problem is that the levy has been calculated in
imports will be removed from EFS.
contradiction of its governing statute. The objective is to
ICMA: Energy costs in Pakistan are said to be among take the cost of captive power generation above grid
the highest in the region. How are these rising tariffs electricity prices for industry in order to remove any
impacting production and the global competitiveness financial incentive for captive generation. However,
of our textile exports? instead of using the B3 industrial power tariff, as
explicitly stated in the law, the government has based its
Kamran Arshad: Textile manufacturing is relatively
calculation on the B3 peak-hours tariff that is only
energy intensive and energy accounts for 12–18 %of
applicable for 4/24 hours a day, significantly
input costs across the value chain. The disparity between
underestimated captive O&M costs, and made other
our tariffs (11–16 cents/kWh) and those of regional peers
arbitrary errors in order to artificially inflate the levy,
(5–9 cents/kWh) directly inflates production costs and
because when done correctly it comes negative,
undermines price competitiveness. In FY22, when power
underscoring our point that captive power generation is
was available at a regionally competitive 9 cents/kWh
already at par with grid prices at the prevailing gas tariff
and gas at $9/MMBtu, exports peaked at $19.3 billion; as
of Rs. 3,500/MMBtu.
RCET was withdrawn and energy costs soared, exports
plummeted to $16.5 billion.
ICMA’s Chartered Management Accountant, May-June 2025 15