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Uninterrupted energy supply critical for industrial growth: SBP

The State Bank of Pakistan (SBP) has identified uninterrupted energy supply and the uplift of the mining sector as critical elements for sustainable industrial growth.

The central bank stressed upon rethinking the industrial policy and said that the present National Industrial Policy 2011 envisaging high growth rate for the manufacturing sector is difficult to realise unless two major concerns are addressed: indiscriminate energy availability; and mining sector development.

The SBP said that the National Industrial Policy 2011 Implementation Framework is mainly focused on four broad areas: reducing dependence on imported inputs (specifically, chemical, steel, and mining); promoting knowledge-intensive industries (electronics, machinery, pharmaceutical); performance-based import protection (mainly automobiles and electronics) and value-addition-based export subsidies; and removing supply-side bottlenecks such as energy shortages and deficient transport infrastructure.

Under these policies, the manufacturing sector’s growth rate is projected at eight percent per annum for the next decade.

The central bank said that the government should revise incentive structure in the mining sector. “The last National Mineral Policy issued in 1995 does not offer a competitive tax and duty structure (compared to other resource rich countries) and as a result, did not attract meaningful investment,” the SBP said.

“Poor law and order in resource-rich areas also adds to the country risk,” it added.

Despite these drawbacks, the policy has not been revised to date, the SBP said. This is because under the Constitution, mining (other than petroleum and natural gas) is a provincial subject. Therefore, in order to align the mining sector’s development with the manufacturing sector’s needs, provincial policies and development budgets must also have similar priorities, the central bank suggested.

About energy availability, the central bank said that the present policy framework is that the industries will be given preference in terms of both energy supply and tariffs over domestic consumers. “This not only seems impractical, given the current energy supply constraints, but also at odds with the government’s current energy policies,” the SBP said. It said that the industrial power supply had been compromised to allocate more gas and electricity for domestic users.

The central bank said that a more practical approach would be to discriminate energy supply to the industry based on the marginal economic benefit of an additional energy unit.

“This can be gauged by measuring the energy intensity of different industries against its direct and indirect employment generation capacity, foreign exchange earnings (or savings), tax compliance, and linkages with the rest of the industry,” it added.

Moreover, the SBP said that concrete steps are also needed for improving energy efficiency and investment in renewable energy by the industry.

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