Fertiliser industry urges uniform gas tariff

Engro CFO calls on govt to end discriminatory pricing, promote new investments

KARACHI:

The discriminatory gas tariffs for fertiliser plants have caused a disparity in fertiliser prices, creating opportunities for middlemen to profit by Rs80 to Rs100 billion. Currently, Fauji Fertiliser Company (FFC) Bin Qasim costs Rs5,389 per sack, Engro Fertiliser is priced at Rs4,649, and Fuji Fertiliser stands at Rs3,767 per sack.

Engro Fertiliser, Chief Financial Officer, Ali Rathore stressed the government’s need to abolish the unequal gas prices among fertiliser plants to encourage new investments and ensure farmers have access to fertiliser. He noted that removing the gas subsidy is a necessary step, particularly for fertiliser manufacturers who constitute 60% of the industry’s capacity and operate under Sui Northern Gas Company (SNGC) and Sui Southern Gas Company (SSGC). However, gas prices have surged nearly 200% for fertiliser plants under SSGC and SNGC, whereas those reliant on Mari gas still benefit from a reduced price of Rs580 per MMBtu. This disparate pricing has led to varying fertiliser prices in the market, providing middlemen with increased profit opportunities. A uniform gas price would level the playing field, stabilise urea prices, and ensure equitable input costs for all fertiliser manufacturers.

Rathore proposed that the government could gain an additional income of Rs 80 to 100 billion by ending the gas subsidy for fertiliser factories and implementing a unified gas tariff for the industry, thereby supporting agricultural development. He stressed the importance of long-term policies to promote sustainable economic growth and meet the goals of Green Initiative Pakistan.

The local fertiliser industry is committed to ensuring an abundant and affordable supply of urea, and locally-produced urea is still around 30% cheaper than imported urea. Additionally, the industry recently supported the government by obtaining approximately 220,000 tonnes of urea at import prices.

Despite being the fifth-largest consumer of urea globally, Pakistan lacks new investments to increase fertiliser production capacity, despite a rapidly growing population. Rathore underscored the urgency of encouraging further expansion in fertiliser manufacturing capacity and establishing consistent policies for determining gas prices in the industry.

Acknowledging the multibillion-dollar investments required for large-scale fertiliser plants, the Engro CFO stated that eliminating gas pricing anomalies would incentivise manufacturers to invest in modernising and expanding their facilities, thereby improving efficiency to maximise gas utilisation.

Furthermore, Engro Fertilisers and other major fertiliser manufacturers are investing heavily in the Gas Pressure Enhancement Facilities (PEF) project to maintain local urea production levels and ensure food security. Engro Fertilisers’ capital expenditure in this project is expected to exceed $100 million.

Published in The Express Tribune, March 8^th, 2024.

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