Two fertilizer plants: Domestic industry opposing RLNG supply at cheap rates

The domestic fertilizer industry is said to be opposing supply of RLNG to two fertilizer plants at cheap rates, arguing that any such decision on the part of the government will inflict a financial loss of Rs 45 billion on the national exchequer.

According to industry sources, the government will have to bear a cash subsidy of around Rs 15 billion on the total annual production of Fatima (FFT) and Agritech (AGL) plants to ensure commercial viability. This additional burden on the national exchequer is likely to have a multiplier effect on the overall economy, which is already battling high inflation and low revenue collection.

In a letter to Prime Minister's Advisor on Commerce, Industries and Production and Investment, Abdul Razak Dawood, FFT and AGL have requested the government to ensure RLNG supply to fertilizer plants at a subsidized rate, as last year. Their proposal also seeks permission to directly source RLNG cargoes from the international market through contracts for a two-year period.

"The urea produced by RLNG-based plants is even more expensive than the imported fertilizer. Industry figures clearly show that Pakistan does not need to run plants on subsidized RLNG or import urea as there are sufficient stocks to meet demand," said one of stakeholders on condition of anonymity.

The total urea inventory currently stands at approximately 550,000 tons, with 400,000 tons at the manufacturers end and the remaining built in the channel due to record sale of around 6.2 million tons. With the agronomic demand stagnant at 5.8 million tons last year, in line with the five-year average, the production of 760,000 tons by RLNG-based plants only led to accumulation of inventory. Due to their operations, the government not only incurred an outflow of foreign currency of $ 200 million on LNG imports, but also suffered a fiscal hit of Rs 15 billion on subsidies.

Currently, both plants are closed as natural gas is not being supplied to them because the Ministry of Petroleum has diverted subsidized LNG away from the fertilizer manufacturers. As suggested by figures, domestic fertilizer industry argues that it would be logical to continue current policy as the fertilizer plants operating on indigenous gas are fully capable of catering to the domestic demand of 5.8 million tons without incurring any outflow of valuable foreign exchange.

Any new RLNG imports would lead to a gas over-supply situation in the system, which faces a pipeline capacity constraint and leakages especially in times of peak demand due to high pressure. The inherent bottleneck of distributing RLNG upcountry remains one of the biggest drawbacks of any additional RLNG.