KARACHI: The country’s large-scale manufacturing (LSM) sector has started to grapple with the energy shortage situation, by reverting to ‘alternative energy resources’, the first quarterly report of the State Bank of Pakistan for FY14, revealed.

In a ‘special section’ added to the report, the central bank says that the energy availability in the country has been on the slippery slope over the past few years.

The bank blames it on lack of investment; stagnant supply of domestic gas; persistent inefficiencies in energy-related public sector enterprises and inadequate infrastructure for gas import. “While all economic sectors have been affected by the energy shortages, the industrial sector has been the worst hurt,” the SBP concedes and observes that due to technical differences in how the energy is used (fuel types) the impact on the local industry has varied across the sectors.

The bank recalls that when power and gas outages began in FY09, a number of industries suffered production declines, except those that run primarily on coal (such as cement industry).

However, as these outages persisted, firms in the LSM sector started exploring substitutes. The report says, “While power-intensive units like steel melting, edible oil/ghee and textile spinning opted for generators that run on high speed diesel and/or furnace oil, gas intensive-units like paper, glass and chemicals shifted to boilers that can run on coal, waste heat and biomass.”

The SBP report discusses response of different industries to energy shortages. In the textile sector, spinning and weaving of fibre are electricity-intensive, whereas dyeing and finishing are gas-intensive processes.

Most large spinning units are now run on back-up diesel generators, whereas in weaving sector a large number of units in Faisalabad, use power-looms for fabric manufacturing; some medium-sized power-looms have installed diesel generators.

A number of textile processing units have installed boilers that can run on bio-fuels like cotton waste, rice husk and other waste.

Big units such as Nishat, Gul Ahmed, Sitara and Sapphire have captive power plants. More importantly, these companies use gas-fired combined-cycle power plants, which generate power from gas; and the waste produced is automatically utilised to generate steam.

The steel sector comprises melting and re-rolling units. In the steel melting process, scrap is melted by using arc furnaces to form billets.

“This process is 100 per cent electricity-intensive and cannot be substituted by any other energy source,” the SBP quarterly report said and noted that facing power shortages, smaller firms located in Punjab, switched to diesel-run generators, though it increased production costs and also reduced productivity as uninterrupted power supply is required to melt steel scrap.

In contrast, larger units in Karachi switched to captive power, which required higher fixed costs, but guaranteed smooth production without interruptions.

The re-rolling process requires the preheating of billets to shape final products, which is a gas-intensive process.

“It is estimated that around a dozen re-rolling units in Punjab have installed coal gasification plants in the previous two years,” the report revealed and added that those plants were imported from China, with cost ranging widely between Rs4 million and Rs30m, depending upon size and specification.

In the chemical sector, caustic soda and soda ash are highly gas-intensive products. Large players in the sector are shifting to coal-fired boilers.

The paper industry, which is energy-intensive and requires combination of electricity and steam for paper production, the shortage of main fuel natural gas, forced large number of pulp manufacturers to use bio-mas run boilers (mainly wheat straw, kai grass and bagasse) to drain extra moisture from the paper.

The leather industry requires both electricity and steam. Punjab-based firms are using diesel-run generators as a back-up for electricity.

Sugar mills in the country are using captive power generated from bagasse. In the cement sector, which is most energy-intensive within LSM, production requires various fuels including pulverised coal or coke, natural gas, lignite and fuel oil, the SBP said in its report, but added: “However, in Pakistan almost all cement manufacturers shifted from natural gas to coal in early 2000s, which means this sector was largely immune to the worsening energy shortages in the country.”

The fertiliser sector has no alternative but to use natural gas as the principal raw material (feedstock) in production process, the bank stated and admitted that due to inadequate supply of gas, fertiliser production had declined in the previous two years and demand-supply gap had to be bridged with imports.