Major industries see 25-50% output fall amid energy crunch

Major manufacturing industries of the country have been under extreme strains in recent months due to a gas and electricity supply crunch, resulting from raw material price hike in the global market in the aftermath of the Russia-Ukraine war and the subsequent dollar crisis.

Textiles, ceramics, cement, steel, fertiliser and electronics manufacturers have witnessed output decline by 25-50% while counting 50-60% of increased production cost also due to regular load shedding, one of the government's austerity measures aimed at coping with the global crisis.

As the energy crunch threatens to undermine the industries' competitive edge in the global market, industry insiders fear losing orders and have urged the government to allocate gas and electricity supply based on production capacities in the manufacturing sectors.

Industry owners and management officials said the manufacturing sector is also importing raw materials, which are now pricier because of the war. The gas and electricity supply crunch has further added to the production cost as more disruptions mean more system loss in raw materials.

RAK Ceramics, a leading ceramic products manufacturer, produces 9 lakh square metres of tiles per day. Amid the ongoing gas and electricity supply crunch, its production dropped to 4.5 lakh square metres while production cost has increased by more than 50%.

Sadhan Kumar Dey, chief operating officer and chief financial officer of RAK Ceramics, told The Business Standard, "We do not get gas for 12 hours a day in our factory. Then there is load shedding. As a result, production has declined by 40%. But the production cost has remained the same for a 60% output."

Unfortunately, the added cost cannot be adjusted in the retail market, which means the company is forced to count losses, he said.

"We are able to survive as our company does not have any bank loan. Companies with loan burdens are in serious trouble," he added.

Md Shahidullah, secretary general of the Bangladesh Steel Manufacturers Association, said the effect of two hours of load shedding in a steel factory equals the loss of six hours as the machines take six hours to restart.

"This is why steel factories have to be kept running for 24 hours a day," said Shahidullah, who is managing director of Metrocem Ispat and Metrocem Cement.

After the daily load shedding came into effect as part of the government's austerity measures, the production of steel sector companies has decreased by 25% while the production cost has shot up, he said.

Shahidullah, also Vice-President of the Bangladesh Cement Manufacturers Association, added that production in the cement factory has also decreased as it cannot use captive power because of low gas pressure.

"Since the market is extremely competitive, the increased production cost cannot be adjusted in sales. However, the government has taken steps to determine the prices of rods and cement as essential products. We have shared our problems and demands," he said, suggesting that tax, VAT and advance income tax should be made tolerable to help the industries survive the ongoing crisis.

According to Petrobangla sources, due to price hikes in the world market in the light of the war in Ukraine and the dollar crisis, the government has stopped the import of liquefied natural gas (LNG) from the open market. As a result, gas supply has been reduced by 7-8%. Then, due to the energy crisis, electricity production has decreased and load shedding has increased across the country.

According to the Ministry of Power, Energy, and Mineral Resources, the current daily supply of gas is 2,797mmcf, which was 3100mmcf in June before the crisis. Of the total supply, 15.76% or 440.80mmcf of gas is used in the industrial sector and 5.50% or 153mmcf is used in fertiliser factories while 42.99% gas is used in power generation.

On the other hand, the industrial sector consumes 28% of the total supply of electricity per day. Currently power generation is 9,600-11,700MW, which before the crisis was 11,105-12,951MW.

Market insiders say 56% of the country's total exports are from the manufacturing sector. And the government is projecting growth based on this sector. But in the ongoing crisis, if the products cannot be delivered on time, the orders will go to other countries. Therefore, the government should judge the production capacity and allocate gas and electricity supply accordingly.

Large industrial groups like Bashundhara, Meghna, Premier, Abul Khair and Crown Cement are producing cement by using Vertical Roller Mill (VRM) technology, which allows cement production at a low cost but requires both electricity and gas as fuel. Now, the supply crunch of both has forced production to decrease significantly.

Walton Group, a local manufacturer of electronics products, is currently able to use up to 50% of its production capacity at the company's TV and fridge manufacturing plant in Gazipur.

Fatullah Dyeing in Narayanganj used to run three shifts daily with its 800 workers, but, with no gas pressure in the last two months, the company is struggling to run one shift.

Fatullah Group Managing Director Fazlee Shamim Ehsan told The Business Standard, "If production capacity utilisation drops below 90%, output naturally falls short of meeting even the break-even cost."

He added that the company's bank liability is increasing every month.

"Due to the gas supply shortage, we had to shut down three of our four urea manufacturing plants. We later managed to reopen two of them, but Jamuna Fertiliser factory is still closed," he said, adding that due to the factory closure for nearly three months, urea supply in Jamalpur went through a severe crisis.