KARACHI: The government and fertiliser companies are working on an alternate solution to the gas availability problem that forced fertiliser companies to increase fertiliser prices.
Fertiliser companies responded to the government’s 12 to 20 per cent cut in their gas supply for almost three months by increasing urea prices by Rs75 per bag. The government is looking for a work around because it does not want to compromise on urea production, increase the country’s dependence on imports and weaken contribution margin for urea players, according to KASB Securities analysts.
The alternative The government’s proposal suggests restoring the 12 per cent Mari gas curtailment to urea producers, Engro and Fauji Fertiliser Company (FFC). Producers on the Sui network will be compensated accordingly. This may increase domestic production and lower imports to 0.25 million tons for Kharif crops, about to be sown, as compared to earlier imports of 0.40 million tons, said KASB Securities analyst, Farrah Marwat. KASB Securities believes this development is indicative of the strong bargaining power of fertiliser companies with the government.
The government’s proposal The proposal involves restoring full gas supply from the Mari network, which includes Engro and FFC. These two companies jointly contribute almost 70 per cent of Pakistan’s domestic urea capacity. The proposal also suggests separate compensation for urea producers who continue to face supply cuts like the ones on the Sui network including Fauji Fertiliser Bin Qasim Ltd (FFBL).
This should result in a decrease in urea prices. According to the analysts, the impact of the gas supply curtailment for Engro and FFC had been neutralised because the companies had increased prices. But according to them, FFBL will still benefit from this development.
Published in the Express Tribune, May 22nd, 2010.