Home ›› 30 May 2023 ›› Front
DBL Group, the country’s one of the largest textile and apparel exporters, used to pay Tk 25 crore in monthly gas bills on average before February this year. But it is now paying Tk 75 crore a month due to the energy price hikes.
The government justified the hikes, saying liquefied natural gas (LNG) imports will increase gas pressure. But factory owners say they are yet to get the benefit.
Even though higher gas bills have raised DBL Group’s production costs by up to 30 per cent, the gas pressure is still the same as before. On the other hand, buyers are refusing to increase product prices due to the ongoing global economic crisis. This has put the manufacturer in deep trouble.
The company is also facing problems opening letters of credit (LCs) due to the USD crisis while the central bank’s move to reduce the Export Development Fund (EDF) size from $7 billion to $4.5 billion and cut individual borrowing limits from $30 million to $20 million for the textile industry has worsened the situation.
Business is now very bad, DBL Group Vice-Chairman Mohammed Abdur Rahim told The Business Post.
He said gas and fuel prices are going down in the global market, but the opposite is happening in Bangladesh. “This has increased our production costs amid reduced orders while the irony is that Bangladesh Petroleum Corporation (BPC) is making profits.”
Rahim further said at a time when the export sector is struggling with the decrease in orders, the central bank has reduced the EDF size. “They did not consider we highly depend on the EDF to import raw materials. Also, most raw materials have to be imported.”
Like DBL Group, hundreds of textile factories that are using gas to run their captive power plants and boilers are in a severe crisis due to the low gas pressure, high energy prices, and the USD shortage.
The production capacity of most spinning, weaving, dyeing, and washing factories has gone down by up to 40 per cent while costs have risen by up to 25 per cent.
Industry insiders said they are now forced to accept orders at rates below production costs and do not know how long they can survive that way. Many factories have already got their loans categorised as non-performing while many more are at risk as well.
Besides, they said factory owners are facing problems opening LCs due to dollar shortages and some banks are charging up to Tk 114 per USD.
The crisis has also hit readymade garment (RMG) factories, especially knitwear manufacturers, as most apparel makers highly depend on the domestic market to source yarn and fabrics as well as for washing and dyeing.
Bangladesh Textile Mills Association (BTMA) President Mohammad Ali Khokon said they are under pressure from all sides.
Gas pressure is low despite higher tariffs while the government has failed to ensure uninterrupted electricity supply, he said.
“We cannot open LCs due to the USD shortage, and banks are charging higher dollar rates than the one set by the central bank. In addition, we are unable to accept enough orders as the offered rates are below our production costs.”
No end in sight to gas crisis
According to Petrobangla, Bangladesh currently has 20 operational gas fields with a supply of nearly 2,300 million cubic feet of gas per day (MMcf/d) against the countrywide demand of around 3,800 MMcf/d.
To fill the gap, the government signed long-term agreements with Qatar and Oman to import 500 MMcf/d through LNG. Besides, it imported LNG from the spot market on various occasions to increase supply.
However, after Russia invaded Ukraine in February last year, the price of per cubic metre (m3) of gas in the spot market rose from $6-7 to $35 while Bangladesh’s forex reserves declined gradually to an alarming level. For this reason, the government stopped LNG imports from the spot market in July last year to save depleting forex reserves.
The move severely impacted the textile industry’s production. Industry leaders recommended the government increase gas prices to up to Tk 22 per m3 to import LNG from the spot market.
The government, however, raised gas prices to Tk 30 per m3 for all sectors on January 18 this year from Tk 11.98 for large, Tk 11.78 for medium, and Tk 10.78 for small, cottage and other industries. It said LNG imports from the spot market will increase gas pressure.
Petrobangla data shows the country imported six cargos of LNG from the spot market from this February to May, though the plan was 12 cargos during the February-June period. The plan fell through due to the ongoing forex reserve shortage.
On May 28, the country supplied 3,113 MMcf/d gas to the national grid despite a demand of nearly 3,800 MMcf/d. Of this, 978 MMcf/d came from both the spot market and long-term LNG imports.
Industry insiders said they are yet to get any benefits though gas supply has improved a little as they have to use high-cost diesel generators due to the low pressure. This is also one of the main reasons of the increase in production costs. Moreover, the recent load-shedding has exacerbated the situation.
Fakir Fashion has 50 tonnes of dyeing capacity per day but is able to dye 20-25 tonnes as gas pressure remains as low as 1-2 PSI most of the time during the day. Besides, production is being affected by three to four hours of load-shedding every day.
The company’s Managing Director Fakir Kamruzzaman Nahid told The Business Post they used to pay Tk 1.2 crore in gas bills per month on average in the past, which has now jumped to Tk 3 crore.
“Besides, we have to spend Tk 30 lakh on diesel to run generators. As we cannot dye at full capacity, I have to outsource from other factories but they sometimes fail to ensure quality.
“This has increased my lead time. Besides, my RMG factory has lost production capacity of 30,000 pcs per day due to load-shedding and gas supply shortages,” he explained.
He also said business in Bangladesh is becoming tougher day by day while some buyers are also doing unethical and unfair trade amid this situation, adding only a few factories could make profits in the last one year.
DBL’s Rahim said the government hiked gas prices to ensure uninterrupted supply through LNG imports from the spot market.
“But where is that LNG? We heard that Rampal and Payra power plants are likely to be shut due to the energy shortage. If that happens, a disaster will hit businesses as well as the country.”
