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Businesses oppose 'high' gas tariff hike

'It'll up output cost, cut competitiveness'

FE Report | July 01, 2019 00:00:00

Trade-bodies of different export-oriented industries, including textile and ready-made garment (RMG), strongly opposed the gas tariff hike by the government on Sunday, saying it will create an adverse impact on their overall business activities.

The hike will increase production cost manifold and decrease their competitiveness in the global market, they opined.

The reactions immediately came after the government raised gas price for captive power generators to Tk 13.85 per cubic metre from Tk 9.62, and for industries Tk 10.70 per cubic metre from Tk 7.76.

Terming the 44 per cent tariff hike for captive power generation 'non-realistic', Mohammad Ali Khokon, President of the Bangladesh Textile Mills Association (BTMA), said the high hike will severely affect local textile millers, especially the captive power producers.

As a result, a good number of industries might not sustain, as it will increase their production cost manifold, he opined.

They will also face uneven competition at a time when local millers are facing pressure for ensuring compliance, and prices of locally produced items are falling, the BTMA chief explained.

He also feared that many of the millers will fail to pay bank loans, and will be bankrupts, resulting in closure of more units.

Electricity production cost through captive power will increase by Tk 15-18 for a kg of yarn production, which is now Tk 9.62, an official said.

Some 430 textile mills out of the 1,500 BTMA members, including spinning, dyeing and weaving units, are generating captive power, and producing more than 1,300 MW of electricity to run their mills.

They have invested some Tk 200 billion for this purpose, he added.

Dr. Rubana Huq, President of the Bangladesh Garment Manufacturers and Exporters Association (BGMEA), said gas bill takes up around 1.5 per cent of their manufacturing cost.

So 38 per cent increase in gas price means almost 1.0 per cent increase in production cost. It might not sound much in terms of percentage, but it will be another blow for an industry struggling for every penny, she further said.

"The fact is that gas supply situation has not improved, and factories are suffering from pressure fluctuations. We are already in tipping point regarding pricing, and entrepreneurs are not feeling encouraged to invest due to numerous challenges."

"This sudden increase in gas price will cripple their financial plan. Such hike in gas price will only add up to our production cost, making doing business difficult for the small and medium enterprises, whose breakeven is on a thin ice now," she opined.

Abdul Kader Khan, President of the Bangladesh Garment Accessories and Packaging Manufacturers and Exporters Association (BGAPMEA), said the local backward linkage industry, which meets around 90 per cent requirements of accessories and packaging items of RMG sector, will also lose their competitiveness.

"RMG sector, the major buyer of locally made accessories, is constantly facing price pressure. If the RMG businesses don't get higher prices (for their products) following rise in production cost, how will they offer us increased rate (for our products) after the hike?"

The government, on one hand, has offered additional budgetary cash incentive for RMG sector. But, on the other hand, it has suddenly increased gas price that will result in rise in production cost manifold. The industry cannot bear such an unrealistic hike, he added.

Abdul Barik Khan, Secretary of the Bangladesh Jute Mills Association (BJMA), said the gas price hike will also affect their sector, especially the units that produce diversified jute goods.

Entrepreneurs will be discouraged to opt for product diversification, as their cost of production in dyeing segment will increase, he opined.

Taking the situations into account, the industry leaders urged the government to review the tariff downward to help them retain their competitiveness and sustain in the long run.

Businesses, civil society members and consumer groups had also opposed the government agencies' gas price hike proposals during public hearings of the Bangladesh Energy Regulatory Commission (BERC) in March.

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