Pakistan Unlikely to Meet $60 Billion Export Target: PBC

Pakistan is unlikely to achieve the coalition government’s 3-year $60 billion export target due to recently doubled gas prices for local industries, the Pakistan Business Council said in a post on X on Tuesday. “At US$ 15/mmbtu, the cost will be more than double the amount charged for gas to captive units in Bangladesh,” it said. The 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. PBC warned that 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 US 17 cents/kWh, the industrial tariff in Pakistan is significantly higher than the 6 to 8 cents/Kwh in India and Vietnam and 9 to 10 cents/kWh in Bangladesh and elsewhere. More than 50 percent 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. The Council determined that due to this gas hike, the Prime Minister’s $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.” PBC explained. It said some will not be able to gain access to the grid in the short time envisaged in the Ordinance. 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. 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. We urge the government to reconsider the broader ramifications of the move that would make exports less competitive, PBC concluded.