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Gas price hike to eat up RMG exporter’s competitive edge

Bangladesh government has increased gas prices by 37.88% for industrial use and 43.97% for captive power 

Bangladeshi apparel makers will lose the competitive edge in the global exports market as the government has increased gas prices by 37.88% for industrial use. Meanwhile, the primary textile sector will suffer a lot as the sector is highly dependent on gas to run the factory.

BD Gas price hike
Figure: 38% increase in gas price means almost 1% increase in production cost for the textile and apparel industry.

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

For industrial use, the gas price has been increased by 37.88% from Tk7.76 to Tk10.70 per cubic meter, 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 meter with a 40.82% rise.

“Since the government hikes prices of gas, the new rate of the gas bill will take up around 1.5% of the manufacturing cost, i.e. CM. So 38% increase in gas price means almost 1% increase in production cost,” BGMEA President Rubana Huq said in an immediate reaction to Textile Today.

Since the government hikes prices of gas, the new rate of the gas bill will take up around 1.5% of the manufacturing cost, i.e. CM. So 38% increase in gas price means almost 1% increase in production cost.”

BGMEA President Rubana Huq

This may not sound much in terms of percentage, but for an industry struggling for every penny this will be another blow, said Rubana.

Now given the fact that the supply situation of gas did not improve and factories are suffering from pressure fluctuations, whereas we are already in tipping point with regard to pricing, said the BGMEA leader.

Meanwhile, entrepreneurs are not feeling encouraged to invest due to numerous challenges and this sudden increase in gas price cripples their financial plan, such increase in price would only add up to our production cost making the business difficult for the SMEs whose breakeven is on thin ice now, she added.

“Production cost in the country’s apparel sector already increased due to safety standard improvement and compliance. But the global buyers did not increase prices of goods rather cut,” Exporters Association of Bangladesh (EAB) President Abdus Salam Murshedy told the Textile Today.

In the present context, rise in gas prices would cast a negative impact on export as the manufacturer will lose the competitive edge to its competitors due rise in production cost caused by a sharp rise of gas prices, said Salam.

Gas price hike BD

On top of that, the government is implementing the VAT Act from July first, which will add salt to wound of the manufacturer, said Salam, Managing Director of Envoy Textile.

However, the primary textile sector, the supplier of raw material for apparel sector also will suffer a lot, which is highly dependent on gas.

“Currently, Bangladeshi textile mills are able to meet the demand of fabrics by 85% and 50% of knitwear and woven sector respectively,” Bangladesh Textile Mills Association President Mohammad Ali Khokon told the Textile Today.

Since the sector is highly depending on the gas, it will increase production cost and the apparel maker will move for imports due rise in prices of fabrics and yarn, said the BTMA leader.

As a result, the sector will face tough competition to the imported yarn and fabric. So considering the present situation the government should reconsider the price of gas, said Khokon.

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%.

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