Discrimination in supply: Absence of gas may force closure of fertiliser plants

Four plants on SNGPL network not working for three months.

LAHORE:

Unjustified distribution of natural gas has crippled fertiliser manufacturers over the last couple of years, leading to a sharp drop in production of urea and may eventually cause closure of plants, says an industry stakeholder.

Interacting with members of the Agriculture Journalists Association on Tuesday, Fertiliser Manufacturers Pakistan Advisory Council Executive Director Shahab Khawaja highlighted the challenges faced by the sector.

The advisory council is a newly established representative body of fertiliser manufacturers.

Khawaja said the fertiliser industry had become the biggest victim of a “flawed gas distribution policy” as discrimination in gas supply to different sectors dealt a blow to the urea manufacturers and left thousands of workers jobless.

“If the current situation persists, then we may be forced to close all four fertiliser plants, which are linked with the gas distribution network of Sui Northern Gas Pipelines Limited (SNGPL).”

Fertiliser plants on this network had been provided gas for only two months so far this year, he said.

Khawaja said farmers also paid a heavy price of unwarranted closure of the plants. In the last 18 months, he revealed, the farming community borne an additional burden of Rs53 billion on account of higher urea prices.

Current installed capacity of fertiliser plants in the country is 6.9 million tons per annum, which is sufficient to meet urea demand. “We are blessed with the ability to not only produce sufficient urea for domestic use, but a handsome quantity can also be exported,” he said and put Pakistan at 7th place in the world in terms of urea manufacturing capacity.

However, a significant part of this capacity is lying idle because of absence of natural gas – a raw material for manufacturing urea. Urea production has plunged to just 4.4 million tons this year.

According to Khawaja, against average gas supply for 3.6 days a week in 2011, the supply was only one day a week for the fertiliser plants so far this year. “How can an industry survive while working for only one day in a week?”

He pointed out that the slump in production forced the government to import a vast quantity of urea, putting an additional burden on the economy.

From January 2011 to June 2012, 2.2 million tons of urea worth Rs1.1 billion had been imported while the government spent a subsidy of Rs57 billion on its sale to farmers at special rates. Last week, the government also gave the go-ahead for further import of 300,000 tons of urea.

The financial health of fertiliser plants has worsened because of the sharp decrease in gas supplies. The plants running on SNGPL network have become loss-making units from profitable ones within a short span of one year.

From the first quarter of 2011 to the first quarter of 2012, the revenue loss for the plants was recorded at 32%, besides 133% erosion in profitability, Khawaja observed.

In the second quarter, the financial condition of the plants deteriorated with all four plants fully closed for the past three months. As a result, Khawaja said, the companies had been unable to service their debt. Total bank exposure of the plants is about Rs150 billion.

The workers are also feeling the pinch in the shape of lay-offs. Agritech, one of the oldest fertiliser plants, has already filed a petition in a labour court to lay off 3,000 workers and other plants may also be forced to resort to the move if the situation does not improve.

Published in The Express Tribune, August 15^th, 2012.