Correlation between energy crunch and industrial production

Energy consumption has historically been a vital indicator of robust economic activities and improved living standards. But when this input turns irregular and insufficient, driving up its costs to an outrageous level, the manufacturing sector can hardly be sustainable. Bangladesh, according to seasoned business leaders and expert economists, is right now in such a crisis. Industries built a few decades ago were told by political leaders leading the country that the country was floating on natural gas, a comparatively cheap source of energy. But now the projection is that by 2030, the country will exhaust its gas reserves completely. At a parley titled, "Bangladesh Industrial Energy Efficiency Policy: A Draft for Sustainable Progress" participated by business leaders and economists, speakers made it amply clear that outrageous pricing of gas has compelled some industries to slash production and a few others turned completely non-viable. Production in the country's major sectors including textiles, steel and fertilisers has declined by 30-50 per cent. 

This is depressing news. Gas price hiked, as claimed by the DCCI president, by 178 per cent in January 2023 has recently been subjected to yet another price escalation by 33 per cent. Intriguingly, small, cottage and some other industries in the SME sector saw the highest ever increase in gas price, with the prices surging to Tk 30 a cubic meter from Tk 10.78. Naturally, production in several industrial units has either stagnated or was forced to suspend. Once moribund, the textile industry here got a new lease of life on account of the flourishing readymade garment (RMG) industry. In fact, it turned out to be a backward linkage industry to the latter. There are several manufacturing units, other than textile, that need natural gas for operation and started thriving, courtesy of the RMG. Now if the vital input, gas that is, is in short supply, there is a negative chain reaction in the industrial sector.

The withdrawal of subsidy has made gas costly. But now the country's overwhelming dependence on imported liquefied natural gas is also a vulnerable factor for industrial slump. At a time when the international fossil fuels' market is down by 15 per cent, the domestic prices in Bangladesh have no reflection of this price fall. Crude oil spot price drops by 15 per cent globally and the projection is that gas price too could fall by 15 per cent over the next five years. This is likely to go in Bangladesh's favour but the problem here is that prices here hardly match the global level, particularly when the market value is down. 

The Bretton Woods institutions' recipe for subsidy withdrawal in underdeveloped countries is not always suitable. Bangladesh has to swallow the bitter pills because it had hardly any better option when it was desperately running short of funds. The country's industrial base is not large enough and therefore cannot defy the recipes suggested by the International Monetary Fund (IMF) and the World Bank (WB). Where the country grossly failed is the exploration of natural gas---either onshore or offshore. It should have developed the Bangladesh Petroleum Exploration and Production Company Ltd (BAPEX) as a highly efficient entity to explore at least its onshore gas reserves, if not the offshore ones. The energy crunch now threatening to deal a grievous blow to its industries could be avoided.