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Planned gas tariff hike to hurt textile sector

The proposed 130 per cent hike in gas tariff for captive power producers, if materialised, will negatively impact the country`s primary textile sector that is already hit by imports of cheaper Indian fabrics and yarns, industry insiders said.

According to the proposed hike, gas price is scheduled to be fixed to Tk 19.26 per cubic metre from existing Tk 8.36 for captive power plants, while Tk 4.60 from existing Tk 2.82  and Tk 4.41 from Tk 2.58 have  been proposed for electricity producers and fertiliser factories respectively.

The government in September last year made 100 per cent hike in gas price, which has impacted the cost and the profitability of the industry, they added.

"Now, within a year there is a proposal to increase this further by 130 per cent. If the proposal is accepted, the cost of gas will go up 460.77 per cent in 12 months," said A Matin Chowdhury, managing director of Malek Spinning Mills Ltd.

No industry in international trade can adjust such a big increase in price of utility within one year and this will be `impossible` for the industry to absorb, he said expressing the fear that such a hike could make the industry uncompetitive leading to the loss of exports, closure of spinning mills, job cut and fall in foreign exchange earnings and retention.

"This will also cause financial crisis as mills will not be able to service their term loans and other debts taken from time to time," he noted.

The proposed increase in the tariff of gas for captive power generation is much higher than any other consumers, particularly those involved in electricity generation, he said.

"This will amount to punishing the industry on which the major part of export income of this country is dependent," he said.

Matin estimated nearly 14 per cent of the total selling price of one kg of yarn that is $2.80 would be spent on gas once the proposed hike comes into effect.

The textile mills have invested a large amount of money in captive power generation following the encouragement from government, especially the low gas price, said Tapan Chowdhury, president of the Bangladesh Textile Mills Association (BTMA). 

Despite slow global demand, devaluation of euro and sterling in major importing countries, hike in recent raw material price, the industry is still maintaining its competitive edge, he said.

But the proposed gas price hike will cut the industry`s competitiveness, he added.

"Majority of the spinning mills, run through captive power generation, will not survive if such a hike in gas price is implemented," he said, noting there is no fresh investment in the weaving sector due to gas crisis. 

There are some 430 spinning mills in the country. The primary textile sector supplies nearly 80 per cent raw materials to the knitwear industry and 40 per cent to the woven sector, according to the BTMA.

According to industry insiders, the industry is under pressure from the global market -- compliance and incentive by competing countries like India and China. The Gulshan café attack has limited visits of buyers, making the business more difficult. 

There is hardly any scope for the spinners to increase the price of yarn in line with the gas price as prices are set by the global market and Indian export prices, while duty-free import of yarn is allowed.

The local market will be flooded with cheap Indian yarn and fabric resulting in shut down of local spinning mills, they added.

The BTMA leaders requested the government not increase the gas tariff as proposed and establish a long-term pricing policy for a gradual increase after consultation.

Source: The Financial Express

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