TEXTILE
SATISFACTORY PERFORMANCE

The industry seems confident to embark upon the export target of $5 billion

By AMANULLAH BASHAR
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 environment.

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 economy.

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.

BMR

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 cost.

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 to-date.