Pakistan Textile Sector Steps Up Pressure

Industry warns of shutdown unless demands met.

LAHORE, Pakistan — At an extraordinary general meeting of the All Pakistan Textile Mills Association last week, the majority of the mills gave association chairman Tariq Mehmood the mandate to settle the issues of energy shortages and the world’s highest bank interest rates with the government.

This story first appeared in the January 13, 2009 issue of WWD.  Subscribe Today.

But if an agreement with the government cannot be reached, the chairman would then call for the voluntary closure of the textile sector until the government resolved the industry’s issues, according to the association.

The issues being faced by the industry are more adversely affecting spinners and smaller weaving and finishing mills than larger firms. Due to the economies of scale enjoyed by large mills, they can afford not only to provide suitable seasonal backup energy generation, but also to average out the extra costs incurred at this time. Also, a source at the All Pakistan Textile Mills Association told WWD that larger mills incur fewer losses by keeping their units running than smaller mills.

More important for large mills are their long-term relationships with major U.S. brands, which help justify short-term losses. These working relationships would be jeopardized if the mills support the rest of the Pakistan textile industry in its decision for voluntary closure. Fearing U.S. importers would opt for regional competitors if the closure goes ahead, these mills are distancing themselves from the rest of the association.

The All Pakistan Textile Mills Association has demanded the restructuring of loans, reduction of interest rates and provision of an uninterrupted supply of electricity and gas to export-oriented companies. About 90 percent of the sector is incurring losses and facing closure, as reported by the association spokesman to the local press. Additionally, total textile exports have already dropped by up to 20 percent due to the unavailability of electricity and gas; impediment to market access; unfavorable financial and economic environment; poor law and order; terrorism within the country, and international travel advisories.

“Regardless of what the association decides about the voluntary closure of mills, we will continue our operations and not miss a single deadline,” said Yousuf Abdullah, managing director of Sapphire Finishing Mills, based here. “The associations speaks more for spinners and smaller mills than for larger mills specializing in value-added products.”

Sapphire makes cotton and cotton stretch fabric for Gap, Levi’s, Aéropostale and American Eagle. It then ships the fabric to be made into garments to mills worldwide that are selected by the brands. Some of these mills are located here, and others are in countries like Bangladesh, India and Egypt.

“Sapphire is profitable on an annual basis, so we average out our costs. Because every winter gas is diverted from industry to domestic consumers, we factor this in our planning,” said Abdullah. “We use furnace oil for steam and diesel for electricity. Since the price of oil has gone down, our energy cost has been mitigated to a certain extent. Additionally, having invested in biofuel generation as a mill, we are also in a better position to withstand the tough energy shortages.”

He explained, “For processing mills, steam generation is a higher cost than the electricity component. Rice husk, an indigenous and cheaply available raw material, is used at our mill to produce steam for operations and this has really worked out for us. This year, we will invest more in biofuels, reducing our energy bills and providing us with a reliable alternative to the national utility companies.”

Smaller mills are not in a position to afford self power-generation and have to rely on the utility company Wapda as a backup when gas is not available. When that is not forthcoming, the companies are left with no options, which is why so many of them have shut down, he pointed out.

“Speaking for not just mine but other large mills doing business with quality U.S. brands, I assure that we will continue our operations and no commitments to U.S. importers will be missed,” stressed Abdullah. “We factor the ground reality into our plans and are thus prepared to handle the seasonal energy shortage and the higher costs it entails.”