Exporters to bear brunt of new gas price hike

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Exporters to bear brunt of new gas price hike
« on: February 26, 2020, 09:23:29 AM »
For industrial use, gas price has been increased by 37.88% from Tk7.76 to Tk10.70 per cubic metre, while for captive power it has been increased by 43.97% from Tk9.62 to Tk13.85

Bangladeshi exporters, especially those in apparel and leather sectors, will lose competitive edge in global markets as they fear that the latest spell of hike in gas prices will push up production cost.

The Bangladesh Energy Regulatory Commission (BERC) on Sunday issued a circular increasing gas prices at different rates effective from Monday.

For industrial use, gas price has been increased by 37.88% from Tk7.76 to Tk10.70 per cubic metre, while for captive power it has been increased by 43.97% from Tk9.62 to Tk13.85.

Gas price for the power sector has been increased from Tk3.16 to Tk4.45  per cubic metre with a 40.82% rise. 

In immediate reactions, industrialists and trade body leaders expressed deep concerns over the losing competitiveness in global export destinations.

“On the basis of the information I have, gas bill will take up around 1.5% of the manufacturing cost. So 38% increase in gas price means almost 1% increase in production cost. This may not sound much in terms of percentage, but for an industry struggling for every penny this will be another blow,” Bangladesh Garment Manufacturers and Exporters Association (BGMEA) President Rubana Huq has told Dhaka Tribune.

"Now, given the fact that the supply situation of gas did not improve and factories are suffering from pressure fluctuations, we are in tipping point with regard to pricing," Huq mentions.

Entrepreneurs are not feeling encouraged to invest due to numerous challenges and this sudden increase in gas price cripples their financial plan, such as increase in gas price will only add up to production cost making the business difficult for the SMEs whose break even is on a thin ice now, the trade leader finds.

Meanwhile, primary textile sector people have urged the government to increase prices of gas in phases, which they think will mitigate the pressure.

“From the current fiscal year, the government is implementing VAT. In this context, a sharp rise in gas prices will be a huge burden for the textile and apparel sector,” Bangladesh Textile Mills Association President Mohammad Ali Khokon tells Dhaka Tribune.

Moreover, he says, in the apparel sector compliance has cost huge but the prices of finished goods did not increase.

"So the rise in gas prices will leave the textile sector highly dependent on captive power, in tougher competition," Khokon fears.

He thinks the government should increase the prices of gas in phases so as not to put extra pressures on the manufacturers.   

Meanwhile, former Dhaka Chamber of Commerce and Industry (DCCI) President Abul Kasem Khan warns that the rise in gas prices will put an extra pressures on production cost.

The government should have done it taking more time so that investment will be encouraged and businesspeople will get breathing space, he notes.

Besides, the leather sector, the second largest export earner after the apparel industry, will also face competition as the price of raw materials will go up.

“Though there is no direct use of gas in finished leather goods, the gas price hike will hit the sector as gas is used in tanneries, which supply raw materials for the sector,” Md Saiful Islam, managing director of Picard Bangladesh Limited, a leather goods exporter, tells Dhaka Tribune.

On top of that, businesspeople also call for a long-term policy on gas and electricity so that people can make investment decisions with a sustained and futuristic aim.

According to Petro Bangla data, in the fiscal year 2017-18, Bangladesh produced 966684.63 mmcm gas.

Of the total production, 40.60% was used in the power sector, the highest, while 16.96% was used in industry, followed by captive power 16.35%, domestic 16.06%, fertilizer 4.38%, compressed natural gas (CNG) 4.70%, commercial 0.83%, and tea estates 0.10%.

Md. Arif Hassan
Assistant Professor
Department of Business Administration
Faculty of Business and Economics
Daffodil International University