Don't let fuel shortage undo RMG success
The world is in an uncertain situation right now – arguably even more so than when the pandemic was at its height in 2020-21. The talk of the town around the world – among policymakers, governments and industry leaders – is energy. In recent months, global energy prices have soared, and ready-made garment (RMG) makers in Bangladesh have been feeling its impacts these past few weeks.
Why are energy prices on the rise? The answer is the war between Russia and Ukraine. Russia was previously a major energy supplier to the West. However, countries such as the US, UK and Germany have boycotted Russian goods and encouraged their businesses (many of them fashion brands) to pull out of the Russian market. In retaliation, Russia has restricted energy supplies to Europe. This has led to rising prices regionally, which is ultimately having a knock-on effect on the global market.
When the war started, many commentators believed it would be over in a couple of months. Clearly, they did not consider Russia's willingness to play hardball and sit things out. There are no signs of any side blinking first, and there are talks of a global energy crisis gripping the rest of 2022.
The upshot of all this is the current situation we are seeing in Bangladesh. Financial losses for many RMG factories have started to mount as they are being forced to cut down production due to gas shortages. Energy is our lifeblood. Garment makers and other supply chain stakeholders depend on a ready-supply of energy – diesel and gas – to keep our factories running and to complete orders. Our country has been experiencing lengthy power cuts since July 19, sometimes for up to 13 hours a day in some places, as utilities struggle to source enough diesel and gas to meet the demand.
More concerning is the fact that we recently became the third South Asian country, after Pakistan and Sri Lanka, to seek a loan from the International Monetary Fund (IMF). This is because our foreign exchange reserves fell and the trade deficit widened. The taka has effectively slid against the US dollar by around 20 percent in the past three months. As the taka becomes weaker, the cost of importing goods rises.
What is the solution to this problem? I believe the key is to get our RMG factories up and running. As I keep saying, our industry is at a critical juncture. We cannot afford not completing orders as fashion brands may just go to another source – and not return to us. Moreover, we need US dollars to maintain our trade balance. Going cap in hand to the IMF – historically the last resort for countries with financial problems – is not a good look for our country and harms our credibility.
The fuel mix is the key. At present, Bangladesh's power plants are heavily based on natural gas. Our government has said it plans to reduce dependence on domestic natural gas and increase the use of imported liquefied natural gas (LNG). Until last year, the power and energy ministry was reportedly reconsidering plans to shift Bangladesh's fuel mix towards coal. This would have included generating as much as 50 percent of total electricity using coal-based power plants by 2030.
However, plans to build 10 coal-fired power plants were scrapped in June 2021, due to unsatisfactory progress of the projects. Moreover, just a few weeks ago, Japan cancelled funding for the second phase of a coal-fired power plant in Matarbari.
The government is also developing a new Power System Master Plan (PSMP), where the use of coal will get a lower priority due to pressure from environmental groups and development partners. Our customers in the fashion industry would be dismayed if Bangladesh shifted heavily towards coal-powered industry, given the global climate issues. In fact, they may walk away from us as suppliers.
Bangladesh is also looking at importing more electricity from neighbouring countries and expanding the use of renewable resources, such as solar, wind, and hydropower.
As a stop-gap solution, Bangladesh has turned to LNG imports to help meet its growing fuel demands. There are also talks that Bangladesh may have sizable reserves of untapped gas in its offshore blocks in the Bay of Bengal.
I accept that there are no easy solutions, but our government needs to grasp this nettle sooner rather than later. There is no time for indecision. How are we going to secure our energy needs, and how are we going to keep our garment factories running? Garment makers tell me they cannot continue with this uncertainty.
The government must prioritise garment production. Without that, our foreign reserves will dwindle, as RMG is the highest foreign currency earning sector, and we will end up in a downward spiral.
We need a plan, a strategy, and this clearly cannot include a dependence on coal-powered energy (our government should surely know that by now, given the talks that have been ongoing at the global level for years).
We have achieved so much in the past 18 months and bounced back so well from the pandemic fallout. Our policymakers cannot allow this work to be undone due to fuel shortage in power production. The clock is ticking, and our government should treat this issue as a matter of supreme urgency.
Mostafiz Uddin is the managing director of Denim Expert Limited. He is also the founder and CEO of Bangladesh Denim Expo and Bangladesh Apparel Exchange (BAE).