Fertiliser plants to get gas supply

ECC’s move will help avoid import of 300,000 tonnes of urea for Kharif 2023

ISLAMABAD:

The government on Wednesday decided to provide locally produced gas to two fertiliser plants with the aim of avoiding import of 300,000 tonnes of urea for the upcoming sowing season but it left the gas price question open after the finance ministry refused to provide more subsidies.

The Economic Coordination Committee (ECC) of the cabinet directed the Petroleum Division to supply natural gas to Fatima Fertiliser Limited, Sheikupura and Agritech Limited, Mianwali to meet urea requirement till May 31, according to the Ministry of Finance.

However, the official statement and the industries ministry did not explain the source of indigenous gas as authorities had been running the two plants on imported gas since October 2018 due to unavailability of local gas.

But a senior ECC member said that 68 million cubic feet per day (mmcfd) of Mari gas had remained unutilised by Guddu Power since October, which would be diverted to the fertiliser plants.

Besides, there was additional gas flow of 10 mmcfd from Mari Deep. But it left some gap, which had to be bridged.

The finance ministry stated that the ECC deliberated on a summary on urea fertiliser requirement for Kharif 2023. The ministry presented details of urea demand, production and production gap in the country for the Kharif sowing season.

Setting aside the option of importing urea, the ECC decided and directed the Petroleum Division to supply indigenous gas to fertiliser plants till May 31, 2023 to meet urea requirement in the country for Kharif 2023.

During the meeting, secretary finance said that the government could no longer provide subsidies to the fertiliser plants due to the commitments to the International Monetary Fund (IMF).

The Ministry of Finance still owes Rs21 billion to Sui Northern Gas Pipelines Limited (SNGPL), the gas supplier to these plants.

The IMF has asked the government not to give untargeted subsidies and also avoid giving preference to a few sectors over others; the government’s wrong policies that have created distortions in the economy.

Due to the non-payment to SNGPL by the government and other buyers, the gas company has not been able to meet its obligations towards Pakistan State Oil (PSO), which is now near default.

A day earlier, the ECC allowed the issuance of Rs50 billion worth of sovereign guarantees in favour of SNGPL to help it pay PSO.

PSO’s liquidity position is under severe stress as its receivables are at an all-time high at Rs773 billion with major contribution from SNGPL, according to the Petroleum Division.

SNGPL owes Rs498 billion to PSO, including the Rs212 billion that has been added during the tenure of current Pakistan Democratic Movement (PDM) government.

The government had been providing liquefied natural gas (LNG) at discounted rates to the two fertiliser plants to cut the cost of urea production. Due to the scarcity of foreign currency, Pakistan has not been able to import adequate LNG, which has affected operations of power and fertiliser plants.

At a price of Rs839 per million British thermal units (mmBtu), the local production is cheaper than imports. But a source in the Ministry of Finance said that the gas price would go up as subsidies were no longer an option.

The government was providing gas at Rs839 per mmbtu against the actual average RLNG cost of $15 per mmbtu, or Rs2,925, in the last fiscal year.

The ECC also could not decide whether to run the fertiliser plants on imported gas from June or to shut them down. It left the matter of gas pricing with a committee, chaired by former prime minister Shahid Khaqan Abbasi.

Various fertiliser plants are operating at different rates, partly because of court cases. The ECC member said that in order to fully operate the fertiliser sector, there was a need to adopt uniform pricing for all plants at about Rs550 per mmBtu for feedstock and Rs1,800 for fuel.

He said that the government was consulting the stakeholders to address price anomalies. Urea accounts for 60% of the total fertiliser being consumed in farms. But the installed production capacity is only 6.3 million tonnes. However, the two plants connected to the SNGPL system with production capacity of 874,000 tonnes have been operating on imported LNG.

A meeting of the Fertiliser Review Committee was held last week to review the fertiliser situation for the upcoming Kharif season. The Ministry of National Food Security and Research projected that demand for urea would be 3.2 million tonnes, but production had been estimated at 2.9 million tonnes.

Shortfall between demand and supply was estimated at 300,000 tonnes on the assumption that both fertiliser plants on the SNGPL system will remain closed. The industries ministry requested the ECC to either allow import or provide indigenous gas.

The government has been discussing the issue of providing local gas for the past one year. However, the ECC still did not identify the source of local gas or the price, which may take more time to resolve the issue.

Published in The Express Tribune, March 16^th, 2023.

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