The industry seems
confident to embark upon the export target of $5 billion
May 20 -June 02, 2002
The textile sector in Pakistan, despite facing a
serious jolt in the backdrop of September 11 events which disrupted
the plain sailing of the global economy, has successfully weathered
the storm. The industry seems confident to embark upon the export
target of $5 billion at the end of the current financial year showing
the fighting back spirit the textile sectors carries in Pakistan.
Its satisfactory performance in the disturbed
conditions gives a strong signal about the real strength of the
textile industry and its potential to gain heights in favourable
The complexities in the system within the country
however have enough powers to pull back any industry before it starts
to take off. The economic revival of the country through a package of
reforms was on the top of the agenda of the present government.
However, all efforts for revival may go in vain if complexities of the
system were not brushed aside by taking radical measures in the
system. The case of sick industrial units is the best example of how
the bad governance can spoil the entire efforts for revival of the
Whatever the reasons may be, whether it may be the
exorbitant lending rates of the banks, inconsistent policies,
successive failure of the cotton crop, persistent law and order
situation, the fact remains that a number of textile become the sick
units and were restructured on the basis of merit.
Earlier, the rescheduling used to be done by
capitalizing their markup, penal and additional markups with their
principal amount thereby against charging markup on markup beyond
capacity of the units.
Subsequently, these units again ended up in default
and re-approached banks once again for re-structuring. Thus, this
unrealistic rescheduling process went on and on.
For the first time these units were thoroughly
examined by CIRC, on the basis of their actual debt-sustaining
capacity and cash flow, and their loans were restructured on the
guidance of the State Bank of Pakistan. The principal amount was
separated from the accumulated interest, which was to be paid off on
monthly/quarterly basis along with the interest incurred during the
term of the loan. The unpaid interest of prior period was frozen and
interest was to start after repayment of the loan, which in most cases
is for five to seven years.
As a consequence, a number of these defaulting
units have been revised and have met their financial obligations by
returning to profitability, thereby contributing to the overall growth
of the economy. The income tax authorities have now started to open
that this frozen markup will attract Section 25 © of the income tax
ordinance 1979. According to them markup is deemed to be a current
liability and can be added back to the income of the company, if not
paid within a period of three years.
Should that happen, the very purpose of
re-scheduling of the loans and freezing of accumulated interest i.e.
revival of industry, will be negated as all of these units will become
bankrupt when the huge amount of frozen interest is added back to
their income on completion of three years.
The very reason for freezing this accumulated
interest in the first place was that the defaulting units could not
pay it from their current cash flows as they were already making
payments based on principal amount and interest thereon, and they
could not be burdened any further.
Since this situation will be confronted with by
many restructured industries. APTMA is of the view that CBR should
allow freezing of markup as a long term liability accepted by the
financial institutions and treat it outside the purview of Section 25
© of the income tax Ordinance 1979.
In spite of the directives of the Finance Minister
and Governor State Bank of Pakistan to allow Balancing
Modernizationand Replishment (BMR) and also for the new project
financing to the textile industry, the banks are reluctant to extend
the financing required by the textile industry except to Textile
Companies/ groups which are already financially very healthy.
The textile industry is serious and keen to rapidly
upgrade and increase its production facilities in line with the
strategic Long Term Textile Plan of the government. However the
industry is not being supported by availability of the required bank
financing at reasonable rates of mark-up.
The All Pakistan Textile Mills Association (APTMA)
has strongly recommended that the State Bank should ensure that
adequate and timely financing for genuine BMR and new projects
requirements of the industry is made easily available at a reasonable
SELF POWER GENERATION
In the textile Industry the operating cost of
electricity supply by WAPDA and KESC is not only expensive by 27% but
also its supply is uncertain and unreliable.To ensure regular and uninterrupted power supply
and reduce operating cost, many textile units have imported Gas Power
Generators. However, in spite of persistently pursuing Ministry of
Petroleum and Natural Resources for the last several years, permission
for gas connections to operate power generators has not been allowed