ECC puts off decision on gas allocation for Engro plant

Petroleum ministry had sought supply of 31mmcfd to fertiliser manufacturer

ISLAMABAD: Paying heed to opposition from the Ministry of Finance, the government has stopped short of approving a proposal for allocating gas supply to Engro Fertilizers from Mari Petroleum Company and providing unutilised gas in the Habib Rahi reservoir to other fertiliser manufacturers.

The Ministry of Finance did not endorse the proposal tabled by the Ministry of Petroleum and Natural Resources for discussion in a meeting of the Economic Coordination Committee (ECC) on May 23.

The petroleum ministry was seeking allocation of 31 million cubic feet of gas per day (mmcfd) for Engro Fertilizers from the output of Mari Petroleum. It also suggested that any unutilised gas in the Habib Rahi reservoir could be supplied to the fertiliser industry connected to the Mari Petroleum network.

Finance ministry opposes Mari gas supply to Engro

Mari Petroleum started supplying 585mmcfd from the Habib Rahi reservoir on February 9, 2016 including 60mmcfd for power generation company-2 (Genco-2) and 33mmcfd for fertiliser plants - Fauji Fertilizer and Fatima Fertilizer - to partially make up for the gas curtailment.

Later, the ECC, in its February 18 meeting, agreed on diverting 60mmcfd from Genco-2 to the fertiliser manufacturers as originally it was earmarked for that industry.

Of the total, 34mmcfd was supplied to Fauji Fertilizer, 13.5mmcfd to Fatima Fertilizer and 12.5mmcfd to Engro Fertilizers.

Mari Petroleum has continued to release required gas for Engro in a bid to avoid shutdown of the fertiliser plant. In the meantime, Engro requested Mari for additional gas supply after meeting needs of other fertiliser plants and Genco-2.

However, the Ministry of Finance fiercely opposed the allocation of gas to Engro, arguing that the fertiliser manufacturer had defaulted on payment of gas infrastructure development cess (GIDC) to the government.

It pointed out that Engro had been enjoying a concessionary tariff, but it had stopped paying GIDC and initiated court cases against the government and its companies. “This has created serious gas price distortion in the fertiliser industry,” the ministry remarked.

Therefore, it insisted that the proposed allocation of 31mmcfd to Engro could not be supported unless the company met its obligation in relation to GIDC and withdrew legal cases against the government.

It also suggested that the Ministry of Petroleum should specifically seek ECC’s green signal in case of unutilised gas volumes and an umbrella approval of the committee could not be supported.

Mari to supply gas to Engro Fert, power plant

In its response, the petroleum ministry contended that the litigation process initiated by Engro against GIDC was pertaining to gas supply to the company’s new plant, which should be dealt with separately. The proposed supply of 31mmcfd was meant for the old plant and it had not withheld GIDC and had no outstanding payments.

The finance ministry, however, gave its backing to gas supply from the Mari field to the Genco-2 power plant.

After discussion, the ECC approved allocation of 60mmcfd from the Habib Rahi reservoir to Genco-2, but putt off decision on gas supply to Engro and earmarking unutilised gas for other fertiliser plants.

Published in The Express Tribune, June 1^st, 2016.

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