Tarin opposes subsidy for urea plants

Officials propose subsidy to cover gap between RLNG cost, price agreed with industry

Zafar Bhutta October 12, 2021
Gap between supply and demand of natural gas has increased and in the face of cabinet decision to give priority to domestic consumers, it will not be possible to divert gas to the fertiliser industry. Photo: File


Finance Minister Shaukat Tarin has opposed any subsidy on re-gasified liquefied natural gas (RLNG) supply to fertiliser plants for urea production in a bid to overcome its shortfall.

Sources told The Express Tribune that members of the cabinet, in a recent meeting, suggested that instead of locally produced gas, RLNG should be supplied to the fertiliser plants.

However, they pointed out that there would be a difference between the RLNG price and the gas rate negotiated with the fertiliser plants, which the government would have to bear. But the finance minister opposed the provision of any subsidy on RLNG supply.

During discussion in the meeting, it was highlighted that urea prices had surged in the global market due to a recent tender floated by India and it could be more feasible to ramp up domestic production of the commodity by supplying additional gas to the fertiliser plants.

Energy Minister Hammad Azhar pointed out that the gap between supply and demand of natural gas had increased and in the face of cabinet decision to give priority to domestic consumers, it would not be possible to divert gas to the fertiliser industry until specific directives were issued by the cabinet.

It was suggested that RLNG could be supplied but in that case the difference between the RLNG price and the price negotiated with the fertiliser plants would have to be borne by the government.

It was emphasised that the matter needed to be discussed in detail by the economic team in order to come up with the most viable option after considering the pros and cons of all available alternatives.

Gas price hike in winter

Pakistan is mainly dependent on imported LNG as there have been no major discoveries of gas reserves in the country for the past many years.

As LNG prices have gone sharply higher globally, the Cabinet Committee on Energy (CCOE) has mulled over options to increase gas prices during winter to discourage its use.

Also, the objective is to increase the consumption of electricity. To achieve this goal, the energy committee has offered consumers a discount on the incremental use of electricity.

The CCOE has already approved it. The increase in gas prices for the winter season is also part of this package. However, the committee has deferred the proposal due to fear of political backlash.

On the other hand, the circular debt has continued to rise and RLNG has emerged as another factor that has pushed the debt level upwards in the energy sector.

Over the past three winter seasons, the government had diverted expensive LNG to the domestic sector to overcome the gas crisis. As a result, billions of rupees worth of bills of Sui Northern Gas Pipelines Limited (SNGPL) had been stuck in the domestic sector.

Furthermore, there is no legal framework in place to recover dues from the domestic consumers.

In a meeting, the Cabinet Division told Prime Minister Imran Khan that the CCOE had held a meeting on September 17, headed by Minister for Planning, Development and Special Initiatives Asad Umar.

The committee reviewed an agenda item titled “Revision of gas tariff slabs for domestic (residential) consumers during winter - November 2021 to February 2022, which was submitted by the Petroleum Division.

However, decision on the matter was deferred till the next meeting of CCOE. Umar expressed the desire that cabinet’s approval might be taken for the constitution of a committee.

Energy minister requested that CCOE’s decision on the “Winter incentive package for electricity consumers on incremental consumption”, taken during its meeting on September 17, 2021, may also be ratified as gas consumption would increase with the advent of winter. Planning minister endorsed the request.

Published in The Express Tribune, October 12th, 2021.

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