By and  on January 6, 2009

LAHORE, Pakistan — The Pakistani textile industry is on the verge of a national shutdown to protest the country’s energy and interest rate policies.

The All Pakistan Textile Mills Association has called an extraordinary general meeting of all its regional offices countrywide on Friday to gain consensus for, as advertised in a local newspaper, the “immediate and orderly closure” of the country’s textile sector.

The reasons for the shutdown are given as the nonavailability of electricity and gas; high energy prices despite the steep decline in global oil and natural gas prices; the world’s highest financial charges, and government support for the sector in countries such as China, India and Bangladesh.

Pakistan was the second-largest supplier of textiles and apparel to the U.S. in the first 10 months of 2008, the most recent data available from the Commerce Department’s Office of Textiles & Apparel, but countries such as India and Vietnam have narrowed the gap with continued growth of market share. China was the largest. Textile and apparel imports from Pakistan dropped 8.3 percent for the 10-month period ended Oct. 31 to 2.5 billion square meter equivalents.

The majority of imports shipped to the U.S. from Pakistan are textiles and products for the home, such as sheets and towels. Among the chief apparel categories are hosiery, men’s knit shirts, women’s knit blouses, men’s cotton trousers and women’s slacks. The greatest share of Pakistan’s year-to-date decline in October was in specialized fabric, cotton yarn, sheets, pillowcases, nightwear and pajamas.

“We are building a consensus for an all-out voluntary textile industry closure to use as leverage with the government to resolve our energy and banking crises,” said Javaid Siddiqi, vice chairman of the All Pakistan Textile Mills Association and director of ICC Textiles Ltd., here.

“Since December ’08, the global financial meltdown pressure is building up here,” he added. “After a bad Christmas retail season in the U.S., our sales are down as well, orders have been canceled and goods on the high seas are being returned. Some clients want price discounts, whereas others are backing out completely from accepting the goods. To exacerbate the market problems of low demand, there are the high markup banking loans and scarcity and costliness of energy issues on the production side.”

The primary banking issue is the country’s high interest rates. The discount rate, set by the State Bank of Pakistan, is 15 percent, plus another 3 to 5 percent charged by banks as their spread, totaling 18 to 20 percent on most loans at a time when interest rates in most other countries around the world are being lowered because of the recession, Siddiqi pointed out.

Partially as a result, Pakistani mills are facing serious cash flow problems. Hemorrhaging cash, they are silently defaulting on both short- and long-term loans. Mills are either forced to shut their doors or are reducing their hours of production, said Siddiqi.

Further exacerbating the crisis is the nation’s energy shortage. There are two prime sources of energy for mills, Siddiqi explained. One is the utility company Wapda, which provides electricity to the majority of the country, while Kesce provides electricity to the city of Karachi. The installed capacity of Wapda is 17,000 megawatts, including the hydroelectricity generation component, the cheapest energy source, which has an installed capacity of 6,500 megawatts.

On Dec. 31, an average winter day, a total of only 7,000 megawatts were produced from all the company’s energy sources, including hydroelectric, thermal, nuclear and coal. Since Pakistan has a total demand for 10,000 megawatts of power each day, there is a daily energy shortfall of at least 3,000 megawatts, resulting in electricity load shedding of 8-10 hours a day. Additionally, electricity prices were increased by 45 percent last year, and the price of gas alone went up 8 percent on Jan. 1.

Hydroelectricity power generation is only producing 200 megawatts out of its total capacity of 6,500 megawatts — in the winter, water levels in the Mangla and Tarbela dams are at their lowest. The seasonal canal closure, which commenced earlier than expected this year in mid-December versus the usual Jan. 1, is expected to end by Jan. 20. Sources said that until then, hydroelectricity generation is expected to further decrease, and the total power shortfall is expected to reach 3,500 megawatts.

The other prime energy source for textile mills is their own captive power plants, which run on natural gas. These generally are cheaper than using electricity or furnace oil, but in the winter the country faces a shortage of over 600 million cubic feet (MCF) a day of natural gas, owing to a threefold increase in demand.

This results in a loss of production, said Siddiqi, as well as a loss of quality. For example, in manufacturing fabric there are starting marks left on the fabric when the machines turn on and off. The power shortages and surges also impact the electronic components of the machinery, and the continual stops in production result in missed delivery times, leading to financial penalties. While most mills have backup generators, these usually are diesel powered, which are not only expensive to run but also have been designed to operate for only short periods of time.

Siddiqi compared the situation in Pakistan to that in India and China, “Whereas 60 percent of the energy produced in India and China is from coal, though we have vast coal reserves in Thar, only a dismal 40 megawatts is produced from coal power generation. Moreover, India gets 9,000 megawatts just from wind power.”

Even as the nation’s textile sector buckles, there are limited alternatives for most firms. Pakistan has no formal bankruptcy laws, Siddiqi said, so mills are unable even to declare bankruptcy and are forced to go on as long as they can, regardless of losses. Public limited companies’ directors are forced to give banks personal guarantees — and so for fear of seizure of their personal assets by banks, they tend to camouflage the true financial state of their companies until there is no alternative but to shut the doors.

As a result, there are no industrywide statistics on the number of sick firms. When WWD contacted mills on the current situation, most declined to comment.

Siddiqi said the only statement he could make under the circumstances is that smaller companies have now mostly closed and larger ones are operating at only partial capacity.

An example of the seriousness of the situation is the case of Mian Naeem ul Haq, chief executive of Jaguar Private Ltd. in Faisalabad, which manufactures knitwear and hosiery products. Haq is threatening self-immolation to protest the imminent closure of his unit due to the continued power cuts and suspension of the natural gas supply to Faisalabad, a textile manufacturing hub. On New Year’s Eve, he told his 3,000-strong workforce that instead of firing them, he would set himself on fire. Street protests by the workers ensued and the power company has vowed there will be no more shortages. So far ul Haq has not carried out this threat.

Nonetheless, his attitude shows the desperate straits of the country’s textile industry.Imran Iqbal, general manager, marketing, of Active Apparels Limited, Lahore and Multan, said, “Our mills have experienced a real disturbance due to the natural gas shortages more than the electricity shortages,” Iqbal said. “Converting to alternate fuels really put us behind schedule for the summer ’09 business.

“We are also expecting a considerable drop in our fall ’09 orders from U.S. brands and department stores, though overall it may not impact us as much — because many years back, as a marketing strategy, we chose to sell our products to Wal-Mart,” said Iqbal.

“We feel there will be many more shutdowns in Faisalabad and Karachi. Lahore’s manufacturers have already shut down their nonviable operations,” he added. “Millions of workers will be unemployed here, and mills may move their capital to other competitive input cost countries, like Bangladesh and Egypt.”

Nadeem Saigol, vice president of operations at Matrix Sourcing in Lahore, said, “Today we find a ridiculous situation where gas and power is cut from textiles and given to fertilizer industries and consumers, which could decrease exports by as much as 20 percent.”

Competitor countries enjoy heavy incentives to encourage long-term investment, beneficial financing terms and education and training support.

“Our successive governments, in denial of these facts, have never been serious about exports, preferring their government policy of running to the International Monetary Fund rather than exporting to balance the books,” said Saigol. “The end result has been an increase in the cost of doing business and a forever-increasing debt burden on Pakistan — the resulting inflation paid for by the public.”

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