Page 18 - CMA Journal (May-June 2025)

Exclusive Interview

The grid transition levy, applied to all captive power
plants whether single-cycle or co-generation, has
penalized the most efficient industrial units which are Textile exports are expected to
major contributors to exports. These units invested
heavily in high-efficiency co-generation systems to increase by 6% to 7% YoY in
reduce energy costs and emissions, and their entire
production eco-system is based around CHP generation. the current financial year, from
Their exit from the gas network has also put the sector’s
financials in severe jeopardy, as captive power plants $16.7 billion in FY24 to $17.9
were a major offtaker of RLNG. Their demand destruction
has contributed to a 450 mmcfd RLNG surplus—nearly billion in FY25
half of Pakistan’s LNG cargoes—which will cause a huge
surge in the gas sector circular debt, already up by ~Rs.
500 billion in the first seven months of FY25.
Similarly, the government has also imposed a petroleum
levy of Rs. 82,000 per ton on furnace oil which costs Rs. 60-70% of the refund amount is issued while the
130,000 per ton otherwise. For most mills, switching to
difference is deferred for manual processing on which
grid-supplied power is not a viable alternative, as
there has been no progress in the last 4 to 5 years. And it’s
HFO-fired captive generation is principally used by units
not just APTMA saying it, it is corroborated by the World
lacking reliable DISCO connections. Across Bank 2022 Country Economic Memorandum. It is an
Pakistan—and particularly in urban industrial hubs such
open secret that this is done to manage the
as Lahore and Karachi—DISCOs routinely decline new
government’s own cashflows as FBR is never caught up
industrial hookups due to constrained infrastructure and
on its revenue targets, so as usual, compliant citizens and
transformer capacity. Where connections are technically businesses of Pakistan are punished for negligence and
offered, firms are presented with demand notices
failures of tax authorities.
running into the tens of billions of rupees merely to
secure a feeder line, with no guarantee of timely service: Protracted sales-tax refund cycles tie up critical working
lead times for actual energization often extend to two or capital, force mills into expensive short-term financing,
three years. Under these conditions, pursuing a grid and hamper production planning. The resulting
connection is neither commercially nor operationally cash-flow squeeze erodes margins and delays
feasible, aside from enduring the frequent voltage sags investment in capacity upgrades. Not only does it impact
and load-shedding that characterize grid supply. existing businesses but also sends a strong negative
signal to potential investors.
Moving forward, the government should take an
integrated view of the energy sector. While it is ICMA: With interest rates still high, how are textile
important to increase capacity utilization on the grid and manufacturers managing financing needs? Has this
bring down power tariffs, the means currently being discouraged investment and expansion in the sector?
employed do not justify the ends. The petroleum levy on
HFO merits serious reevaluation, while the calculation of Kamran Arshad: There has been a marked improvement
the grid transition levy must be corrected in line with the in interest rates over the past year, falling from roughly
law, and cogeneration plants should be reclassified to 22% to 11%. Given the government’s success in taming
the industrial process gas tariff in view of their superior inflation, rates could reasonably be in the single digits,
efficiency and dual output of both power and heat to be but external vulnerabilities perhaps justify the MPC’s
used for industrial processes, as well as to meet carbon cautious stance.
emissions and net zero requirements for exports to the
Although financing costs remain elevated, exporters also
EU and the United States.
face a shortage of available credit. The transfer of
ICMA: Textile exporters continue to face serious export-finance schemes from the SBP to EXIM Bank has
delays in sales tax refunds. How is this affecting cash been delayed, leaving many programs only partially
flows and the ability of mills to operate smoothly? operational and their limits insufficient to meet industry
demand. Exporters frequently approach banks only to find
Kamran Arshad: Despite the Sales Tax Rules 2006 their credit lines fully exhausted. The government should
mandating refunds within 72 hours under the FASTER expedite the transition to EXIM Bank and raise scheme limits
system, sales tax refunds to exporters are regularly to satisfy the sector’s financing requirements.
delayed by up to 6 months. And even then, only about

16 ICMA’s Chartered Management Accountant, May-June 2025