Decision on fertiliser plants may cost Pakistan Rs6b

ECC approved operation of two RLNG-based plants for three months

ISLAMABAD:

At a time when Pakistan is struggling to maintain its foreign exchange reserves, Economic Coordination Committee’s (ECC) decision to operate RLNG-based fertiliser plants may result in outflow of Rs6 billion ($36 million).

In its recent meeting, the ECC approved gas at the rate of Rs756 per mmbtu to two RLNG-based fertiliser plants, namely Agritech and Fatima Fertiliser, for three months (July-September). The government claims that the subsidy, worth Rs959 million, provided to LNG fertiliser plants will help ensure sufficient urea supply in the country.

Industry figures show that urea demand rose 8% to 2.6 million tons during the first half of 2020 compared to the corresponding period of last year. As of June 2020, indigenous gas players produced 2.93 million tons compared to 2.5 million tons last year on the back of consistent gas supply and plant investments. Due to a slowdown in urea offtake, June’s closing inventory of 0.43 million tons was more than twice compared to the same period of previous year.

The National Fertiliser Development Centre (NFDC) has projected that national urea inventory at 200,000 tons by the end of 2020. Despite closure of RLNG-based urea plants, inventory will be sufficient due to massive stock carried forward by dealers in 2020. Topline Securities analyst Sunny Kumar said that the industry had an inventory of 470,000 tons at the end of June 2020.

“We expect the production to hit 2.9 million tons during next six months which will be enough for upcoming season,” he said. “We believe that even with Agritech and Fatima Fertiliser not functioning, the industry will have sufficient closing stock of 300,000-400,000 tons.”

It is also worth noting that the actual subsidy for RLNG-based fertiliser plants is likely to be much higher than Rs969 million as crude prices are rising in the global market.

Published in The Express Tribune, July 5^th, 2020.

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