Time to shut down inefficient spinning mills

yarn coneSome of the readers may recall in one of my recent posts I wrote ‘sugar mills deserve no sympathies’. This was written in response to a decision of the government to pay Rs6.5 billion or Rs13kg subsidy to facilitate the mills to export half a million tons sugar. The decision came because the mills were not able to compete in the global market. I also wrote that this colossal amount will go into the pockets of owners of sugar mills, mostly ‘turncoat’ politicians and the beneficiary will also be the foreign buyers.

Today, I read another news that textiles and clothing exports during first five months of the current financial year have gone down by 8.4 percent as compared to the corresponding period of last financial year. This decline has been attributed to rising cost of doing business and declining prices of textiles and clothing products in the international markets.

Lately, spinners have threatened to close down their mills due to the lack of support by the government. One of their demands is that Pak Rupee should be devalued to facilitate them to sell their product in the global markets. It seems that these novice are unaware of the adverse impact of currency devaluation on the economy.

No doubt the mills are suffering because of outages of electricity and gas. This is partly true because the government has failed in ensuring adequate supply of electricity and gas despite repeated increase in tariff. However, it may not be out of context to say that as a group spinners owe billions of rupees to distribution companies. If these amounts are paid in full a large percentage of the debt will be cleared.

One has to probe a little deeper to explore the economic viability of spinning units operating in the country. Without any exaggeration it may be said that overwhelming number of units are obsolete and economically unviable. The sponsors have failed in undertaking timely balancing, modernization and replacement (BMR).

It is also an undeniable fact that most of the mills produce course counts of yarn, which is negative value addition. These units are still running only because of getting export refinance. May be the time has come to close down the inefficient units at the earliest.

One of the suggestions is to ask the financial institutions to repossess these mills, especially carrying huge NPLs and auction these. Keeping in view the replacement cost, many of the entrepreneurs will be keen in taking over the management control of these rather inefficient/obsolete units.

It may not be out of context to propose that along with financial audit, cost audit should also be undertaken. This will establish whether these mills are economically viable or not. The audit will also help in establishing if the owners are concealing their income.

It is often alleged that nearly one million cotton bales are sold without proper documentation. If this statement is accepted at face value it is also true that yarn produced from these bales is also sold without proper documentation.

Spinners have enjoyed government for more than half a century but failed in doing for higher value addition. If they are not willing to change their mindset, they have to be dealt in a different manner.





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