Energy Woes Of The Textile Sector
In the textile sector, power and energy cost is one of the main components of the cost and makes up around 35-40% of the total conversion cost. Energy, being the main component of the conversion cost, expensive energy relative to regional competitors made our textile products uncompetitive. Eventually, the government offered regionally competitive energy tariffs to the textile industry in late 2018, and the textile sector started showing signs of revival. Under regionally competitive energy tariffs policy, the government offered a regionally competitive RLNG/Gas tariff at the rate of $6.5/mmbtu and fixed electricity tariffs at 7.5 cents/kWh to export-oriented units of the zero-rated sectors. In September 2020, the electricity tariffs were revised from 7.5 cents/kWh to 9 cents/kWh.
In January 2021, the government proposed a moratorium on the supply of gas to industrial units. Some of the units to which the supply is proposed to be stopped, also use gas to generate electricity. The fundamental objective of the proposal is to address the fast depletion of natural gas resources and to tackle the problems of the power sector. Electricity purchase agreements executed by the government with the Independent Power Plants (IPPs) are such that the government has to pay capacity charges for the unutilized generation capacity of the IPPs. By encouraging the industrial units to move to the power grids, the proposal seeks to use more of the idle electricity generation capacity. This would reduce payments against capacity charges thereby reducing the average cost of power and the circular debt.
The optimum utilization of the IPPs generation capacity has never been achieved because of surplus. The installed power generation capacity was around 38,719 MW as of June 2020. While the maximum generation capacity of any day recorded during 2020 was 27,780 MW and the maximum demand of any day during 2020 was around 26,252. Therefore, even in the event of peak demand, the country had a surplus of 1,528 MW of power. Hence, outwardly the gas moratorium proposal seems very reasonable and cogent.
However, to assume that offering competitive electricity tariffs and shifting industrial units to power grids would solve all the problems facing both the power sector and the textile sector would be a naïve assumption. Even if one ignores the increased cost of electricity due to systemic inefficiency, the big concern is related to the transmission and distribution mechanism. The data of the National Transmission and Dispatch Company (NTDC) shows that the number of power outages during 2020 was 2,812, while 578 outages occurred at 500 kV transformers. Moreover, out of the total 43 transformers of 500/220 KV level, 48% are loaded by over 80% of their rated capacity.
These inefficiencies in the distribution and transmission are the main reasons for the reluctance of the textile sector to switch to the national grid for electrical power and place greater reliance on it. For instance, a one-minute breakdown in the spinning sector stops work for 20 to 25 minutes and causes 10 to 15% production loss in the weaving sector. Moreover, the latest machinery, having sensitive electronic gadgets is computerized. Power shutdowns and fluctuations sometimes cost these gadgets to fuse and malfunction. These are imported gadgets and it takes at least a few days. if not more, to import thus further adding to the cost.
The point that the government misses is that during the last decade of power scarcity, most of the textile mills shifted to energy mix usage including gas and coal. To remain in the business and to keep energy and power cost-competitive, the textile mills paid special attention to achieving efficiency in electricity production from their captive power plants. Resultantly, the captive capacity of the textile units is much more economical than the electricity tariff offered by the government.
The units had also imported machinery compatible with gas and coal. Now, if they have to shift to power from the grid, this machinery would go waste – the mills will have to purchase new machinery that runs on electricity. Even if the mills bear the cost burden, it is not clear for how long the government will supply ample power at the regionally competitive tariffs to the industry. Even if the electricity supply is assured, uninterrupted supply and supply without fluctuations cannot be ensured.
The government, before devising the gas moratorium plan, should first ensure the availability of a robust and efficient transmission network. The existing transmission and distribution system is unable to deliver an un-intercepted and cheaper power supply. To address these issues, a complete overhaul of the electricity infrastructure is required, which is out of the question in the short run as this involves gigantic investment.
The textile sector is presently experiencing expansion and up-gradation, which requires consistent policy support. The withdrawal of the regionally competitive energy tariffs and the moratorium on supply gives whimsical policy signals at this stage which is bound to adversely influence the investors’ confidence and performance of the textile sector.