RMG and textile industries buckle under energy crisis

Team Group – one of the leading apparel exporters in Bangladesh – has been dealing with three hours of load shedding every working day, which is wreaking havoc on the company’s production schedule, and forcing them to spend an additional Tk 2 crore in operational costs.

As scheduled load shedding became a part of everyday life across the country since this July, the group began spending around Tk 72 lakh on diesel to power their generators, and Tk 1.2 crore to pay overtime per month, in a bid to meet the lead time.

Detailing his predicament, Team Group Managing Director Abdullah Hil Rakib said, “The acute shortage of gas and electricity has put us in a serious bind. We have to halt production from 6pm to 5am every working day.

“The energy crisis has really bit into our profit margin, and we do not see any easy way out of this situation.”

Rakib is not alone in his dilemma. The ongoing energy crisis is putting a serious dent on Bangladesh’s export-oriented industries, especially on the top earners – readymade garment factories and textile mills.

Israq Textile Mills, a yarn manufacturer, has 120 tonnes production capacity per day, but due to the acute gas crisis and load-shedding, they have to halt production from 6pm to 5am. The company’s daily production has now dropped to only 50-55 tonnes.

When the government suspended production in many gas-fired power plants and reduced gas supply to the national grid to save foreign currency, most industries began relying on diesel generators, while others halted operations during scheduled load shedding periods.

However, for a RMG or textile factory, running production with diesel generators does not come cheap. The additional costs triggered by the energy crisis are piling up, putting serious pressure on the country’s export-oriented industries, and the overall economy.

Industry insiders pointed out that the energy crisis has hit them at a time when they are already dealing with dwindling export orders, negative export earnings growth, and a steady decline in the country’s forex reserves.

For the sake of keeping Bangladesh’s export sector and overall economy in good health, RMG industry leaders urged the government to provide uninterrupted gas and electricity supply to the factories.

‘Trying our best to meet industrial demand’

The Power Division, however, claimed that they were trying to ensure electricity supply was at its level best, but due to the high price of gas in the international market, the government failed to produce power and gas to the national grid.

Discussing the matter with The Business Post, Power Division Secretary Md Habibur Rahman said, “LNG prices jumped around six times in the international market after Russia invaded Ukraine this February, which triggered a gas shortage in Bangladesh.

“The ongoing situation has forced us to halt production in many gas-fired power plants. We are trying our best to meet the industrial demand by running diesel-fired power plants, but it is not nearly enough. We expect that the crisis will be mitigated after mid-October this year.”

Bangladesh has a demand for 3,600 million cubic feet per day (MMcf/d) of gas, but the government is currently providing only 2,600 MMcf/d, show data from the state-owned Petrobangla.

Captive power plants rely on gas

Industry leaders, especially spinning, dyeing, washing, and weaving mill owners, claimed that their factories need uninterrupted supply of electricity, so they are using captive power plants run by gas.

The country’s textile and dyeing sector is generating around 1,700MW captive power capacity, say Bangladesh Textile Mills Association (BTMA) sources. But the factories have been facing low gas pressure for months, and the situation is getting worse since May.

The gas shortage is forcing a large section of industry owners to halt production for hours every day. In some cases, the production line is remaining idle for up to 12 hours daily.

This ongoing crisis is one of the key reasons behind Bangladesh earning only $3.9 billion from exports this September, recording a 6.25 per cent negative growth compared to $4.16 billion posted in the same period last year, show data from the Export Promotion Bureau (EPB).

‘Exporters have no alternative’

The Bangladesh Garment Manufacturers and Exporters Association (BGMEA) President Faruque Hassan said, “The production delays – caused by relentless load shedding – are forcing us to use air freight for product delivery, which is significantly more expensive.

“Exporters have no alternative but to keep using diesel generators to run production uninterrupted. However, we are unable to avoid delays even after spending loads of money on using generator fuel and airfreight charges.”

He added, “The government has reduced LNG imports to save foreign currency, but we are using diesel generators. This means we are using an alternative method to generate power, which is not the same as relying on power plants.

“This is pushing up our production costs significantly. The crisis has hit them at a period when their work orders have already dwindled.”

When Russia invaded Ukraine back in February, the war disrupted global gas and crude oil supply. It pushed the prices up, and triggered a global economic crisis. The ripple effect hit Bangladesh, causing the country’s forex reserves to decline from $48 billion to $36 billion.

To tackle this crisis, the government reduced LNG imports and decided to ration electricity supply from July 19.

Currently many gas-fired power plants have halted production, while diesel-fired plants are producing power under a rationing system. Industry insiders claim they are now facing five hours load shedding on average per working day.

Ashraful Islam, member (production) at Bangladesh Power Development Board (BPDB), said, “When there is a mismatch between supply and demand, we go for load shedding. We halted production at some diesel-fired power plants due to diesel shortage.”

The Power Division and Bangladesh Petroleum Corporation (BPC) officials claimed that the BPC is also facing a foreign currency shortage, and this is why they are unable to import an adequate amount of LNG.

They added that it is quite impossible for Bangladesh to fulfill the local gas demand through imports when the price per MMBtu of LNG hovers around $36 in the spot market.

However, exporters claimed that the gas crisis is causing Bangladesh to lose more, when compared to the total value of LNG imports needed to meet local demand.

They point out that the energy crisis is reducing employment opportunities, increasing lead times, pushing up production costs and impacting overall exports. The manufacturers are also importing more yarn and fabrics – causing Bangladesh to lose foreign currency.

Snowtex Group Managing Director SM Khaled said, “The consumer purchase capacity in our export destinations have dropped due to the high inflation. For this reason, the brands are scaling down, and the volume of incoming orders has been poor.

“Amid this situation, the power crisis has increased our production costs. I am using diesel worth Tk 50 lakh per month to run generators. We are under pressure from the buyers.”

Tajin Leather Corporation Managing Director Ashikur Rahman said, “My factory is suffering from load shedding for at least four hours daily. It is difficult to run production using 150 litres of diesel every day. I have been halting production during the load shedding periods.”

The Bangladesh Knitwear Manufacturers and Exporters Association (BKMEA) Executive President Mohammad Hatem said, “We received many buyers that shifted from China due to the country’s energy crisis. These buyers are now facing the same problem in our country.

“I urge the government to release $3 billion to BPC for LNG and diesel imports, which must be allocated only to export-oriented industries.”

Hatem added, “The government must understand that if the export sector does not run properly, employment opportunities and foreign currency reserves in the country will decline further.

“If the government releases this fund, the money will return within six months through value addition.”

Eastern grid recently went dark

On October 4, the country’s whole eastern power grid – which includes Dhaka, Chattogram and Sylhet regions – was hit by the sudden outage shortly after a technical glitch, according to the Power Development Board.

State Minister for Power, Energy and Mineral Resources Nasrul Hamid said, “Initially, it was found that when there was a deficit of power in the east side and surplus in the west side of the county, the transmission system tripped, which led to the grid failure.

“We could not implement a number of crucial projects under the Power Grid Company of Bangladesh Ltd (PGCB) due to the Covid-19 crisis. We have been two years behind the schedule.

A project for automation of the PGCB is underway.”

The blackout gained widespread media attention from all over the globe.