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Textile and apparel industry to lose competitiveness in global market if gas price rises

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 Though the majority of the businesses are not in favor of a further hike in gas price, a good number favored a rational level of the hike so that the textile and apparel industry can survive.


Industry people are still concern over the quality supply of energy and its future cost as they are in uncertainty about the cost of the natural resource after liquefied natural gas (LNG) has connected to the national grid. There is no clear indication from the government about the costing after LNG entered in the national grid and the RMG sector people are worried that the price might go up after the national polls.

 

RMG industry to lose competitiveness in global market if energy cost rises
Figure: There is no clear indication from the government about the costing after LNG entered in the national grid and the RMG sector people are worried that the price might go up after the national polls. Courtesy: excelerateenergy.com
The government has moved to increase the existing gas price in June while it took a u-turn in October from its previous stance of raising the gas price. And the industry people believe the national election is the reason behind the u-turn.

 

The Bangladesh Energy Regulatory Commission (BERC) in one of its press conference at October announced its decision of not raising the price of gas in the present situation of the country especially just ahead of the general election to avoid any political repercussion.

 

While participating at a hearing, the gas entities argued that as per the government decision they had to submit their respective price hike proposals because of the high import cost of LNG as it will push up their cost substantially.

 

The Petrobangla started supplying the imported LNG to the national gas network from August 18 through re-gasification by private sector-operated floating storage and re-gasification unit (FSRU).

 

According to officials currently 300 mmcfd gas is being supplied from LNG and it was supposed to go up to 500 mmcfd in a month or two and soon after 1,000 mmcfd gas would be flowed from next year as per a government plan.

 

The textile and clothing industry of the country has already been facing a number of challenges to remain competitive in the global market and is in the dark about future costing of gas with a number of existing problems including fluctuation in energy supply, high cost for other utility services, high bank interest rate, inefficient port facilities, long lead time, huge investment for workplace safety initiatives, recent wage hike for workers and an appreciating local currency value against the US dollar.

 

Besides, the government is not giving any new gas connection to the factory that meets the requirement of energy through captive generation. The support once considered as the policy support given by the government since mid of the ‘90s due to an unreliable gas supply to the industry.

 

The state-owned energy provider Bangladesh Oil, Gas, and Mineral Corporation – commonly known as Petrobangla – stopped allowing new connections to captive power plants since August 2015.

 

Rather, the government hinted several times for reducing the gas supply to captive generators last year and asked for enhancing their efficiency level to at least 60 percent through cogeneration process as cogeneration plants are more thermally efficient.

 

A captive power plant is a localized power generation facility solely used by a commercial or industrial consumer.

 

Cogeneration is the simultaneous production of electricity and heat. In a cogeneration system, also known as combined heat and power (CHP) system, the flue gas – the energy byproduct of power generation termed waste heat – is recovered from the atmosphere, mostly in the form of steam, and used to produce more electricity.

RMG industry to lose competitiveness if gas price hiked

Currently, more than 80 percent of the captive generators in the country are releasing their flue gas into the atmosphere. Some captive plants have already converted to CHP to tackle the severe shortage of gas, but 70 percent of the flue gas collectively released by the existing captive power plants is still being wasted.

 

According to the power sector insiders, around 17 percent of the total gas consumed currently goes to the captive power plants and they can generate around 2,400MW of electricity.

How affects

In a recent CIP (commercially important person) Cards awarding ceremony the chief of the apex body of the chambers—FBCCI also pressed the issue saying that the industry needs not only gas but with quality supply at a time when it is the era of digitalization, innovation and fourth industrial revolution.

 

Fluctuation of gas supply means damages of automated and computerized machinery worth of thousands of millions of taka, damages of products and their quality that finally resulted in losses.

 

It not only increases the cost of doing business but also creates obstacles in a whole supply chain from producing backward linkages ranging from yarn, fabrics, accessories and final shipment of finished products.

 

On the other hand, prices of apparels are not increasing in line with the rising production cost.

 

Industry people feared that if gas price increases after the election it would add further woes to the industry. It would raise the production cost in several phases from spinning yarn to manufacturing finished products.

 

Transportation cost would also increase from the import of raw materials to the store and internal movement of backward linkages like yarn, fabric and accessories and final shipment to ports.

What should be done?

The industry also believes that, as LNG is being imported it would require some additional cost. Though the majority of the businesses are not in favor of a further hike in gas price, a good number favored a rational level of the hike so that the industry can survive.

 

The existing per unit price of gas at captive generation unit is Tk 9.66 which they believe to make an increase, not more than by Tk 2.0 (there was a proposal to increase by Tk 14-15 per unit).

 

They also seek the hiking phase by phase. The first hike might last long for at least for four to five years and there would be indication time of next possible hike.

 

Any policy changes should be for long-term ranging from at least five to ten years so that entrepreneurs can plan their investment for setting new industries or for expansion.


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