ECC to approve RLNG supply for urea plants
Ministry of Petroleum has provided the company with a firm gas supply commitment. PHOTO: FILE
The Economic Coordination Committee (ECC) is likely to approve supply of re-gasified liquefied natural gas (RLNG) at discounted rates to Agritech Limited in a bid to help the company resume operations, produce urea and bridge the shortfall.
A gas tariff of Rs756 per million British thermal units (mmbtu) - with variable contribution margin of 119% of revenue - may be offered to Agritech Limited and Fatima Fertiliser for three months from July to September, the Ministry of Industries and Production stated in a summary sent to the ECC for approval in a meeting to be held on Wednesday.
The government’s share at this gas rate has been estimated by taking RLNG’s notified rate for June, which would be approximately Rs0.959 billion. Further payment by the government for price differential to Sui Northern Gas Pipelines Limited (SNGPL) may vary due to the difference between monthly rates of RLNG.
In another option, the Ministry of Industries said the ECC may allow import of 200,000 tons of urea to ensure that national stocks remained above the 200,000-ton mark. The NFDC has projected that the national urea inventory would be below 200,000 tons by the end of December 2020 and has advised the government to either import 200,000 tons or provide subsidy to the closed urea plants.
However, industry sources say urea inventory is estimated to be approximately 300,000 tons by the end of December 2020. Despite the closure of RLNG-based urea plants, the inventory will be sufficient due to a large carry-forward stock with dealers in 2020, they say.
As per the latest numbers reported by the NFDC, urea inventory at the end of May stood at 1.1 million tons.
Engro Fertilisers’ production is expected to increase 12% to 2.2 million tons in 2020 due to improved gas supplies. Fertiliser companies of the Fauji Group are expected to produce an additional 180,000 tons of urea in 2020 due to higher production by Fauji Fertiliser Bin Qasim and Fauji Fertiliser Company.
Apart from these, Fatima Fertiliser is expected to increase its urea production by 22%. In its meeting on June 10, 2020, the ECC decided that a committee would be constituted, headed by the Industries and Production Division, with representatives from Finance, Petroleum and National Food Security and Research Divisions. The committee would review and recommend the appropriate variable contribution margin (VCM).
The committee met on June 16 and considered the request from two closed plants - Agritech Limited and Fatima Fertiliser (Sheikhupura plant) - on the SNGPL network.
The committee, after going through the cost breakdown provided by both the plants and previously used in the VCM calculation, recommended gas price of Rs756 per mmbtu and VCM of Rs186 per bag.
RLNG price recovery
Though the government has managed to overcome the gas crisis, it has resulted in accumulation of a bill of Rs73 billion due to diversion of expensive imported gas to domestic consumers in the last two winter seasons.
At present, the Oil and Gas Regulatory Authority (Ogra) notifies the RLNG sale price on a monthly basis whereas locally produced natural gas prices for domestic consumers are revised after every six months. Moreover, there is no mechanism in place to recover RLNG price from the domestic consumers.
The gas sale price for domestic consumers is Rs350 per unit but RLNG was provided to them at a cost of Rs1,700 per unit, which led to the accumulation of a tariff differential of Rs73 billion. In a desperate effort, the Petroleum Division has approached the ECC, seeking permission for the recovery of Rs73 billion from RLNG consumers due to the diversion of imported gas to domestic consumers.
The revenue shortfall compounded the impact of reduction in gas supply from different fields with the Covid-19 outbreak. The tariff differential is subject to change based on actual volumes diverted in winter and summer months and the recovery of shortfall during the months.
The Petroleum Division has recommended the economic decision-making body that an arrangement for the recovery of RLNG-related shortfall can only be made through a monthly pricing mechanism.
Accordingly, the Petroleum Division has submitted different options to the ECC for approval. The Petroleum Division wants the ECC to allow the recovery of RLNG revenue shortfall through monthly RLNG sale pricing for all consumers.
It has submitted a proposal to the ECC, saying that Ogra may provisionally allow the recovery of RLNG revenue shortfall considering the month-wise actual RLNG volumes dierted to domestic and commercial sectors and any amount in the deferral account would also be adjusted.
Published in The Express Tribune, July 1st, 2020.
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