By Shahid Sattar | Noreen Akhtar

In recent years, sustainable development has garnered significant attention across various industries. Among these sectors, the textile industry has notably advanced in adopting eco-friendly practices predominantly guided by large companies promoting their persona of eco-friendly business models. One of the key focus areas includes the use of recycled or alternative man-made fibers (MMFs) such as the recycled polyester staple fiber (rPSF) to reduce the heavy reliance on virgin materials and associated environmental pollution. Currently, man-made fibers make up 72% of global textile fiber consumption, and the demand for polyester in the global market is expected to grow at Compound Annual Growth Rate of 4.95% (USD 29 billion) by end of CY27.

Polyester staple fiber (PSF), also produced as recycled PSF (rPSF), is one of the most used fibers in the used clothing textile industry and has emerged as a champion of eco-friendly fashion due to its natural characteristics and environmental advantages. PSF is a synthetic fiber manufactured directly from Purified Terephthalic Acid (PTA) and Mono Ethylene Glycol (MEG) or Polyethylene Terephthalate (PET Chips). In contrast, rPSF is produced from recycled PET chips, polyester waste, or post-consumer PET bottle flakes. The recyclability that associates rPSF with resource and energy efficiency, circular economy and waste reduction makes it a more environmentally friendly option for textile manufacturing compared to virgin PSF.

Characteristics and Opportunities of rPSF

The distinctive natural properties and environmental benefits of rPSF have proven to be game-changers, attracting more environmentally mindful consumers and supporting textile businesses that aim for a greener future. In addition to its lower economic costs, rPSF closely resembles cotton yarn in properties and appearance. Its longer durability and key properties such as flexibility, high toughness, heat resistance, stain resistance, wrinkle resistance, and versatility are driving factors behind the growth of rPSF in the global market.

rPSF provides numerous environmental benefits and environmental compliance opportunities to manufacturers, aligning their supply chains with globally emerging sustainability and environmental regulations.

Circular Economy: The textile industry has traditionally followed linear business models, characterized by the unsustainable extraction of virgin raw materials and excessive land-filling of post-consumer textile waste. However, the use of rPSF in textiles can change the paradigm, promoting a circular economy. rPSF is produced by upcycling and reusing post-consumer plastic waste materials, offering a sustainable alternative to traditional production methods. Incorporating recycled materials into production processes through diverting plastic waste such as PET bottles from the ecosystem not only extends the use of thrown plastics but also enhances responsible and sustainable production practices.

Energy and Resource Efficiency: rPSF reduces the overall environmental footprint of textile products as the manufacturing includes recycling of post-consumer plastic waste and other recycled polyester products, thereby requiring less use of energy and virgin raw materials in the supply chain.

Water Stewardship: Water inefficiency is a major environmental concern in the textile industry, with the production of water-intensive fibers being a key contributing factor. rPSF, on the other hand, requires less water for its production processes compared to production of virgin raw materials.

Climate Change Mitigation: The production of rPSF typically requires less energy compared to virgin polyester production, which helps reduce greenhouse gas emissions associated with energy consumption. By upcycling post-consumer plastic waste into rPSF, the need for new petroleum-based raw materials is reduced, further decreasing carbon emissions from extraction and refining processes.

Meeting Consumer Demand: Consumers are becoming more aware of the environmental impacts of the products they buy, including textiles, and are increasingly seeking out sustainable and eco-friendly options. This has led the initiation of transformative strategies, such as the EU Green Deal, to promote sustainable growth and climate resilience.

The EU Strategy for Sustainable and Circular Textiles in the EU Green Deal mandates measures to improve the durability, reusability, and recyclability of textiles, as well as to enhance consumer awareness and promote sustainable consumption patterns. The strategy aims to make textiles more sustainable throughout their lifecycle through promoting circularity, reducing their environmental and climate impacts, and improving the industry’s competitiveness and innovation. Thus, rPSF holds a significant potential in helping textile manufacturers comply with this strategy as it promotes resource efficiency, waste reduction, circularity and product durability.

Similarly, Carbon Border Adjustment Mechanism (CBAM) is another key element of EU’s efforts to address carbon leakage and support climate resilience. Once CBAM is effective, the only textile products that will enter EU markets will be those with minimum or no embedded emissions in their supply chains. Therefore, textiles with lower carbon emissions such as those made with rPSF will be more competitive in the EU market under CBAM.

Challenges

There are several challenges and risks associated with the use of rPSF in the textile industry. One of the major environmental concerns is the release of microplastics into the natural ecosystem. This challenge is intrinsically tied to rPSF, as microplastics/microfibers are released during manufacturing as well as laundering of products made with rPSF. This poses a challenge to comply with the international traceability requirements, as traceability requires data inputs of environmental performance of products.

Secondly, Pakistan has limited recycling infrastructure which is compounded by a broken and informal system of plastic waste collection. Pakistan has a largest network of waste pickers who play a crucial role in collecting plastic waste from around the cities. However, these waste pickers are part of the informal economy and are not integrated to a formal system of waste collection. This leaves tons of plastic waste collected by these informal waste pickers unmonitored, most of which ends up in the landfills or burning sites, ultimately leaking to the ecosystems.

Current Policy Landscape: In Pakistan, there is a 5% import duty on Purified Terephthalic Acid (PTA), a key raw material used in the production of polyester and resultantly a 7% cascading duty on rPSF. rPSF is also subject to additional anti-dumping duties of up to 12%. These duties were hiked from 4% and 6% to 5% and 7%, respectively, in June 2016 to afford protection to domestic manufacturers of PTA and rPSF. Pakistan’s sole PTA manufacturing facility, however, is based on 30-year-old technology that has become obsolete and is outperformed by newer, more productive facilities in China and India, resulting in significantly higher prices compared to those prevailing internationally.

The disparity between domestically and internationally manufactured inputs eliminates both the domestic and international competitiveness of domestically manufactured MMF. This is supplemented by the absence of fully developed rules for duty-drawbacks on rPSF which prevents exporters from using imported rPSF for export manufacturing. Together, these factors have hindered the development of an MMF manufacturing culture and capacity in Pakistan.

What needs to be done

Pakistan’s textile industry, at present, is battling with environmental challenges. Water pollution is a significant concern due to the sector’s heavy use of water in processes like dyeing and finishing. The discharge of untreated or inadequately treated wastewater into water bodies has serious environmental implications. Energy consumption is another issue, with the sector being one of the largest consumers of energy in the country. This not only contributes to greenhouse gas emissions but also adds to the sector’s operational costs.

Ensuring environmental compliance in response to the increasing sustainability demands of global buyers is crucial for the survival of Pakistan’s textile industry. Achieving this requires Pakistan to review its current policies, including import and anti-dumping duties on rPSF, to support textile businesses in enhancing their environmental practices and thriving in competitive markets through expansion into MMF manufacturing.

By re-evaluating and ending import and anti-dumping duties on rPSF, Pakistan can potentially reduce the cost barriers that hinder the adoption of environmentally friendly practices and materials in the textile industry. This would incentivize the use of sustainable alternatives such as rPSF, which can help reduce the industry’s environmental impact. Meeting global sustainability standards can open up new markets and increase demand for Pakistani textiles, enhancing the industry’s long-term sustainability and resilience. India and Bangladesh – our regional competitors— have already introduced duty-free rPSF in their industry. If we do not take immediate action, we would lose the case for using rPSF to enhance market competitiveness.

The demand for rPSF from major textile exporting countries such as India and Bangladesh is rising. With textile sector becoming highly competitive and economically significant in the Asia-Pacific region due to growing global demand for textiles and apparels, these countries are boosting their sustainable textile manufacturing through rPSF application. In case of Pakistan, the demand for rPSF and its sustainable usage in the manufacturing industry is rising which regrettably is not fulfilled due to heavy import and anti-dumping duties. This has caused over reliance on domestically generated cotton, which is already inadequately available majorly due to climate change-induced calamities. The raw material shortage compounded by climate impacts and heavy duties on rPSF has significantly made the supply chains unpredictable and unsustainable and Pakistan’s textile industry uncompetitive.

“Integration of rPSF into textile manufacturing holds a significant potential in reducing plastic pollution from the ecosystem. This, in Pakistan, requires a well-established domestic system of plastic waste collection, sorting and recycling equipped with modern technology. The system should also be connected with the textile producers to divert locally produced rPSF for their manufacturing.”

This efficient sustainable system of domestically producing rPSF will not only protect manufacturers from duties imposed on imported rPSF but will also significantly overcome Pakistan’s ever-rising plastic pollution. Lastly, to overcome the challenges of microplastic leakage, modern technology such as microplastic captures should be installed at the manufacturing facilities by the firms to enhance environmental performance of their products.

Pakistan is one of the top ten countries importing post-consumer textile waste. In 2022, it ranked first with the import of worn out clothing equivalent to 422.8 million USD. 90% of the imported post-consumer textiles are PSF based. These imports majorly enter resale markets and ultimately landfills and incinerators, that adds to the already existing nearly unmanageable waste management challenges in the country.

To address the challenges related to importing rPSF and managing plastic and post-consumer textile waste, the government should form a joint venture with the private sector to set up a demonstration unit, which would establish the commercial viability of rPSF. This unit would collect, process, and recycle both plastic and post-consumer textile waste. An expression of interest should be promptly issued to invite private sector companies to participate in partnership with the government with long-term lending from EDF, ensuring the facility becomes commercially viable.

By Shahid Sattar | Absar Ali

Unless power tariffs for industrial consumers are rationalized immediately, economic catastrophe is imminent.

Pakistan faces a situation akin to the “boiling frog” metaphor, where the gradual increase in energy tariffs is slowly but steadily undermining the economic viability of its manufacturing sectors, especially textile and apparel that are the backbone of the economy, contributing over 50% of export earnings and employing around 40% of the industrial workforce.

Much like a frog placed in cold water that is slowly heated, policymakers remain indifferent to the creeping danger of rising energy costs. Incremental hikes in energy prices have accumulated over the past year, placing an ever-growing financial strain on manufacturers, and leading to severe consequences for the industry and the broader economy.

Since the withdrawal of the regionally competitive energy tariffs regime last March, power tariffs for industrial consumers have spiralled upwards from around 9 cents/kWh for export-oriented firms and 12 cents/kWh for domestically oriented sectors to 17.5 cents/kWh at present—over twice that in regional economies like India, Bangladesh, and Vietnam whom Pakistani firms directly compete with in the international market.

In November 2023, domestic gas prices were also increased from Rs 1,100/MMBtu to 2,400/MMBtu for export sector captive, and from Rs 1,200/MMBtu to Rs 2,500/MMBtu for non-export captive. Then, in February 2024, gas prices were once again hiked to Rs 2,750/MMBtu—an increase of 223% since January 2023—and the separate tariff category for export sectors abolished.

Simultaneously, the proportion of RLNG in the gas blend supplied to industries has been gradually increased, for example, from 50% in January 2024 to 75% in March for those on the SNGPL network. Now, word on the street is the government is planning to completely cut off gas supply to captive industrial consumers by the end of the current fiscal year, with the supposed goal of shifting industrial power consumption to the national grid to bring down the power sector’s fixed cost per consumer.

As power tariffs have deviated above the regionally competitive level of 9 cents/kWh, one part of the industry—already equipped with gas-based generation owing to policy incentives over past decades—has shifted to captive generation.

The other part, with no financially viable source of energy available to them, has abandoned their businesses entirely. This is reflected in the power consumption of APTMA’s members in the North region—whose data is available to us—that has been down by over 70 percent YoY since November 2023 (Figure 1) and is further evidenced by the largest decline in textile sector output in over 20 years (Figure 2). Similarly, textile and apparel exports in March 2024 stood at only $1.3 billion against an installed capacity of over $2 billion.

As high energy costs have pushed prices of domestically produced inputs such as yarn and cloth above international prices (Figure 3), exporters are readily utilizing duty-free import for export schemes to import cheaper inputs from abroad, thus, leading to a decline in the share of domestic value addition in exports and deterioration of the trade balance.

Producers of domestic inputs are further disadvantaged by the sales tax regime, where exporters must pay 18 percent sales tax on locally purchased inputs and wait several months for it to be refunded, which incentivizes them to choose duty-free imported inputs to avoid red-tape procedures.

For a country with only around $13 billion in reserves compared to a projected forex shortfall of over $25 billion annually for the next 5 years, this represents a dire situation. And, if the government proceeds with its plan to cut off industrial consumers from the gas network without a simultaneous reduction in grid electricity tariffs to regionally competitive levels, it is only going to get worse.

To elaborate on this, we must dissect the government’s problematic assumption that cutting industry off from the gas network will automatically shift it to the power grid. This is not the case. If economic theory is to be believed, a firm’s decision to export is based on a cost function which comprises costs of fixed capital, raw material, wages, and various factory over-heads, including the energy required to power production equipment. It decides to export if and only if its total cost of production is less than the international price of the goods it produces. If the cost of an input increases beyond a threshold that pushes total cost of production above international prices, it is unable to compete in the international market and exits the business.

Our estimates suggest that this threshold value is around 12.5 cents/kWh for the textile and apparel sector. With current power tariffs at 17.5 cents/kWh and captive gas-based generation at around Rs 33/kWh or 11.8 cents/kWh with a 75% RLNG:25% gas blend, any move to cut off gas supply to industrial consumers will not push them to the grid but rather force them to shut down their factories and exit the sector as was the case with those who did not have captive generation capacity.

There are also various indirect implications. One such example is the RLNG diversion costs. Pakistan has signed long-term LNG SPAs of 6.5 MTPA (900 MMCF/d) with Qatar Gas and Qatar Petroleum. Diversion of indigenous gas from captive industrial consumers to government power plants (RLNG-N GPPs) results in surplus RLNG in the system. Surplus RLNG is then diverted to low-revenue consumers at subsidised rates, the financial impact of which is traditionally passed on to industrial consumers, in the absence of whom it will simply add to the gas sector circular debt.

The sequencing of these reforms must therefore be carefully considered by policy makers. Shutting off one source of energy without opening up of another, financially viable source will drastically accelerate the pace of deindustrialization that has been ongoing since early last year and cause an immediate and sizable reduction in exports and employment.

It will jeopardise the semblance of economic stability we have struggled to achieve over the past year, send a negative signal to investors the country is desperately trying to woo to stimulate capital inflows, and throw the economy into an abyss.

In light of this precarious situation, it is imperative that immediate action is taken to rationalize power tariffs for industrial to a regionally competitive level of 9 cents/kWh that will sustain industrial viability and competitiveness.

According to our estimates, power tariffs of 9 cents/kWh could increase power consumption in just the textile sector by up to 1,530 MW/annum to bring in an additional $1.06 billion in power sector revenue, around $9 billion/annum in additional exports, and an addition of over $513 million to government revenue through various channels.

Additionally, these lower power tariffs will also prompt an automatic shift from captive gas-based generation, that currently costs 11.8 cents/kWh, to grid electricity, freeing up domestic gas-based resources as well as reducing the LNG import bill.

“However, if left unchecked, the continued escalation of energy costs will not only deepen the crisis in key sectors such as textile but also imperil the broader economic stability of Pakistan. To prevent a complete industrial collapse, a swift and thoughtful intervention is necessary to align energy pricing with regional benchmarks and ensure the survival of Pakistan’s critical manufacturing base.”

The time to act is now; failure to do so would be akin to watching the economy slowly succumb, much like the proverbial frog in boiling water.

By Shahid Sattar | Amna Urooj

The new government faces the daunting challenge of navigating its complex economic landscape. The country’s foreign debt, while seemingly modest at US$124.5 billion or 42 percent of its GDP as reported by the State Bank of Pakistan in mid-2023, belies an undercurrent of fiscal strain.

The crux of the dilemma lies in the country’s foreign exchange earnings, which fall short of bridging the gap between export revenue and import costs. The previous fiscal year saw a current account deficit of US$30.5 billion, a gap only narrowly closed by the remittances from the Pakistani diaspora and further borrowing on the international front.

On the domestic front, internal economic challenges have thwarted efforts to boost export earnings in 2024. The textile industry, a cornerstone of Pakistan’s exports, has been particularly hit, with surging electricity costs leading to widespread mills closures and a dip in export production throughout 2023. Regulatory measures aimed at stabilizing the currency have had the unintended consequence of dissuading overseas Pakistanis from utilizing official remittance channels.

In the face of static export earnings, the government’s most pressing priority is to catalyze exports through economic stability and growth. This is where the country’s energy consumption patterns emerge as both a challenge and an opportunity.

The sectors of industry, transport, and residential living have experienced notable shifts in their energy demands over the past two decades.

A discernible rise in energy consumption within residential areas, a sector that traditionally does not feed directly into economic productivity, calls for a strategic reallocation of energy resources. The following graph illustrates the need for an energy paradigm shift towards sectors that promise to revitalize the national economy.

The confluence of findings from academic literature on global energy consumption offers a robust framework for Pakistan’s energy policy.

The examination of OECD countries’ energy use illustrates the impact of economic activities on energy demands and highlights the potential for energy efficiency to mitigate these demands. The study on developing countries’ energy growth factors emphasizes the significance of balancing economic development with efficient energy use, pointing to a sustainable path forward.

Additionally, the investigation into major energy-consuming countries offers a blueprint for Pakistan, indicating that comprehensive energy efficiency and the transition to renewable sources are key to achieving a more sustainable energy footprint.

Lastly, the comparative analysis of energy consumption patterns across different regions spotlights the need for developing countries, including Pakistan, to stimulate growth in the industrial sector for socioeconomic development, shifting away from a reliance on the residential energy use which characterizes less developed economies.

Comparatively, the case of Vietnam stands out. Once marred by similar challenges, Vietnam has dramatically shifted its energy utilization towards manufacturing and technology sectors, resulting in an impressive average annual GDP growth rate of over 6% in the last decade.

This rechanneling of energy has been fundamental to its emergence as a manufacturing hub in Southeast Asia. The spotlight was on the industrial sector, which grabbed more than half of the country’s energy use, showing its key role in driving economic growth.

On the other hand, in 2020, its energy use in transportation dipped, likely because the pandemic kept people from traveling, hinting at a chance to move energy use towards more productive activities. Also, the slight rise in energy used by households suggests an opportunity to shift some energy use to boost the economy.

Vietnam made impressive progress in industrial, agricultural, and services sectors. It was the result of broad-based economic transformation, which opened the Vietnamese economy to international markets and foreign trade. Global exports of Vietnam have surpassed $370 billion, while its global imports have crossed $358 billion.

We have a lot to learn from the Vietnamese economic model, which underscores the importance of integrating into the global economy and leveraging sectors that can drive substantial economic growth.

Bangladesh’s journey towards greater energy efficiency is evident through strategic investments in energy-intensive industries, such as the textile sector, which now remarkably accounts for around 80% of the country’s export earnings. This deliberate push has seen the industrial sector’s energy consumption rise, catalyzing a boost in economic activity and job creation.

The shift in energy use reflects a broader economic transformation, where energy previously utilized for less productive means is now powering sectors that directly enhance the country’s GDP and export capabilities.

Furthermore, an analysis of Bangladesh’s gas consumption paints a clear picture of prioritized resource allocation: about 40% is directed to the power sector, with industry and captive power following closely. This judicious distribution of energy resources, favoring industrial over non-productive use, contributes to a higher energy to GDP conversion rate, setting a commendable example in the region. Such deployment of energy should serve as a blueprint for Pakistan.

The energy intensity graph, which measures primary energy consumption per unit of gross domestic product (GDP) in kilowatt-hours per dollar, illustrates the economic efficiency in Vietnam, Pakistan, and Bangladesh. Vietnam exhibits an ascending line, indicating rapid industrialization and economic growth accompanied by increased energy usage per unit of GDP. This suggests a phase of development characterized by heavy industry expansion.

Conversely, Pakistan and Bangladesh maintain lower energy intensities. Bangladesh’s prioritized resource allocation strategy contributes to its superior energy efficiency compared to regional counterparts. The declining energy demand within Bangladesh’s industrial sector reflects greater energy efficiency in industrial processes, bolstering the country’s overall energy performance.

While Vietnam’s model of industrial growth is enviable, it argues for a strategic approach in Pakistan: emulating Vietnam’s aggressive economic development while concurrently investing in energy efficiency technologies and practices. This dual focus would ensure that Pakistan’s economic growth, powered by increased energy use in productive sectors, does not come at the cost of environmental sustainability or long-term economic viability. It’s about finding a balance between the necessary energy consumption for growth and the efficient use of energy to ensure that every kilowatt-hour contributes as much as possible to Pakistan’s GDP.

Tailored energy policies are imperative, with Pakistan’s current trajectory pointing towards a higher proportion of renewable energy in its power mix and the adoption of energy-efficient practices. Measures such as implementing minimum energy performance standards (MEPS) for appliances and promoting renewable energy alternatives are crucial steps towards enhancing energy efficiency in the residential sector and thereby lowering household costs and making valuable energy for industrial use.

Similarly, attention to the transport sector, through the adoption of electric vehicles and improvement in public transport infrastructure, can bolster energy productivity while mitigating environmental impacts.

However, realizing this vision necessitates policy synchronization, requiring coordinated efforts across ministries and sectors. Revamping outdated policies, incentivizing renewable energy adoption, and implementing stringent energy efficiency standards are vital steps towards achieving energy resilience and economic prosperity.

Pakistan’s journey towards economic revival through productive energy use is both a challenge and an opportunity. By drawing lessons from Vietnam and Bangladesh, Pakistan can navigate towards a brighter economic future, where energy is not merely consumed but harnessed as a catalyst for growth and development. The path forward is clear: strategic energy reallocation, coupled with a focus on efficiency and sustainability, will energize Pakistan’s economy, driving it towards prosperity and resilience.