Investment and exports face red alert

The gas and electricity crisis has begun ringing alarm bells for the country’s overall economy. Industrial plants are being forced to cut production because they are not receiving gas at the required pressure. Some have already shut down. Although the impact may not be immediately visible, industrialists fear the situation will have negative long-term consequences. They say that if the situation continues for a few more days, it will become impossible to ship products abroad on time. Companies could become insolvent, increasing the burden of bank loans. The crisis has also created major obstacles to both domestic and foreign investment. Not only that, food production has also been affected. As a result, the market for essential commodities could become unstable.

Meanwhile, severe gas shortages disrupted production in industrial areas again on Saturday. Production at many heavy industries in Chattogram, Narayanganj, Gazipur, Savar, Ashulia, Habiganj and Narsingdi is currently suspended. Owners of several industrial groups said they have received no assurance that sufficient gas will be available to keep their factories operating.

Sources at the Ministry of Power said the Bangladesh Knitwear Manufacturers and Exporters Association, has written to Power, Energy and Mineral Resources Minister Iqbal Hassan Mahmood seeking permission to pay its July and August electricity bills in installments over the next 12 months. The letter said production at industrial establishments has been disrupted by gas and electricity shortages, while the use of alternative fuels has increased costs. As a result, paying the gas and electricity bills for July and August in a single payment has become difficult for them.

Concerns over exports: A large portion of Bangladesh’s exports depends on the readymade garment sector. Garment production is not limited to sewing machines. Yarn, fabric, dyeing, washing, finishing, ironing and packaging across the entire supply chain depend on uninterrupted energy supplies. If even one stage of this chain stops because of the gas shortage, the entire production process is disrupted. As a result, shipping products on time is becoming difficult. Some companies are also becoming cautious about accepting new orders. Industry leaders fear that if the situation continues for a long time, international buyers may look for alternative countries.

According to those concerned, factories have to use diesel to operate when gas is unavailable. When electricity is unavailable, they have to run generators. Even when production falls, expenses for workers, factories, bank loans, interest, rent and other fixed costs remain the same. As a result, production is declining while the cost per unit of product is increasing. The problem is that Bangladeshi exporters cannot simply pass these additional costs on to buyers in the international market.

When asked about the matter, Bangladesh Garment Manufacturers and Exporters Association President Mahmud Hasan Khan Babu told Agamir Somoy that the long-term impact of the crisis could be the most severe. He said, “If production is disrupted, exports and shipments cannot be made on time. As a result, many industrial establishments could face financial difficulties and become insolvent, while their liabilities to banks could increase.”

He added, “The government must work with a generous and long-term approach to address the energy crisis. Even if the current problems at the LNG terminals are temporarily resolved, there is no guarantee that similar accidents can be avoided in the future. Therefore, attention must be given to a permanent solution. To avoid this situation, it is necessary to keep at least three to four FSRUs operational at all times so that even if one becomes inoperative, there is no major collapse in gas supplies. At the same time, a decision must be taken quickly to build onshore LNG terminals for long term energy security.”

Production of essential commodities disrupted: The recent severe gas shortage has affected factories producing essential commodities such as edible oil, flour, sugar and salt. Businesspeople fear that if gas supplies are not restored quickly, the shortage will have a major impact on the production and supply of essential commodities. This could worsen the crisis.

Sources at Meghna Group of Industries, said the group has 60 to 70 factories. These factories produce everything from consumer goods to various heavy industrial products. Of the 15 factories involved in the consumer goods sector, most are currently closed. Some factories are operating for only six to seven hours a day. Overall, production has fallen to below half of normal levels. As a result, factories producing flour, edible oil, sugar, salt and other consumer goods are becoming inoperative. If production remains disrupted and products cannot be supplied according to market demand, a major shortage could emerge.

Meanwhile, only five to seven of TK Group’s 29 factories are currently operating. Although most had been operating intermittently, the majority have been completely shut down since Wednesday. Of the group’s two edible oil factories, one is operating with difficulty while the other is closed. Factories producing steel, particle board, chemicals and other products are also completely shut down.

In this regard, Metropolitan Chamber of Commerce and Industry President Kamran T. Rahman told Agamir Somoy, “The country’s industrial sector is facing a severe energy crisis. In some places, there is no electricity for hours, in some places gas supplies have been suspended, and in others factories cannot operate because the gas pressure is insufficient. As a result, many industrial establishments are being forced to suspend or reduce production. New investments are also being held up by the energy crisis. To address the immediate crisis, LNG imports must be increased quickly. However, in the long term, the alternative to costly dependence on imports is to increase domestic gas exploration and production. This will keep industrial production costs under control and increase Bangladesh’s competitiveness in the international market.”

Investment at risk: The gas and electricity crisis has created uncertainty around investment. The current government has taken various initiatives to overcome the prolonged investment drought. But the gas and electricity crisis has raised new questions. Recently, representatives of 25 leading US companies interested in investing in the country met with the prime minister and other relevant officials. The delegation also sought assurances of uninterrupted energy supplies. Another high-level business delegation from India is scheduled to visit Dhaka this week. However, the visit is taking place at a time when the gas and electricity sectors, which are crucial to investment, are facing shortages.

According to those concerned, the government has decided not to provide gas connections to new industries. Domestic gas production has been declining steadily, while LNG imports have also failed to make up the shortfall. This means entrepreneurs seeking to establish new gas dependent industries are facing uncertainty.

New danger for banks: Bangladesh’s banking sector is already dealing with the pressure of high nonperforming loans. The emergence of a new energy crisis could put industrial loans at risk. If sales decline because of the gas and electricity shortages, cash flow will also fall. Lower cash flow will create pressure on companies to repay installments on their bank loans.