Fertilizer Review Committee (FRC) is scheduled to meet on Monday (today) to consider the possibility of operating two fertilizer plants on subsidized RLNG to meet domestic urea demand, well-informed sources told Business Recorder.
In 2019, 6.2 million tons urea was sold in the domestic market and on the basis of last year's usage pattern, shortage of 0.6 million tons of urea is projected which can be bridged by operating the two shut down urea plants. The meeting will be attended by officials of different concerned Ministries and representatives of fertilizer sector.
The policymakers argue if both plants on SNGPL system are operated, the government would have to supply subsidized RLNG which will be an additional burden on the national exchequer. The counter argument is that if the government opts to import urea to meet shortage, it has also to give subsidy to the consumers.
Last year, the government began operating both plants after which no shortage was recorded. Urea plants in Sindh produce 5.5 million tons which indicates a gap of 0.7 million tons which can be met by supplying gas to Fatimafert and Agritech for ten months.
Both companies in their letters to the federal government have requested to start their plant operations by supplying 70 MMCFD RLNG @ US$ 6.5/mmbtu at same tariff which is being offered by GoP to the five export oriented sectors which will enable them to mitigate their losses to an extent. Additional production of urea will supplement the domestic inventory, which after meeting the local demand would be available for export by the Industry, fetching precious foreign exchange.
"It will be a win-win situation for both the government and the fertilizer plants. Last highest growth in LSM was due to urea fertilizer's production," said one stakeholder.
Fertilizer Manufacturers of Pakistan Advisory Council (FMPAC) in a letter to Prime Minister Advisor on Commerce, Industries and Production, Abdul Razak Dawood has cited a meeting held at Ministry of Planning on December 23, 2019, wherein, Special Assistant to the Prime Minister on Petroleum Nadeem Baber desired to share a working of forex saving from RLNG import vs urea export. The two companies maintain that based on annual average price of spot cargos of LNG imported during last year, forex cost of buying of required quantity of LNG for manufacturing of one million MT of urea would be $ 150 million, whereas it may fetch forex of $ 250 million on annual average rate of urea.
The FMPAC argued that if the proposal is approved it will be considered to source more spot cargos by GoP, dedicated for these fertilizer manufacturing companies, thus reducing the subsidy element for GoP to a very nominal level, while recovering RLNG price from fertilizer plants @ $ 6.5/mmbtu. This measure can enable these fertilizer plants to enter into an annual contract with SNGPL for firm supply of RLNG @ $ 6.5/mmbtu on "take or pay" basis.
Another stakeholder said that opening inventory in December was 1.5 million tons while sales went to 1.3 million tons leaving surplus of 0.2 million tons at the end of the year. Production in January to March 2020 will hover around 0.4 million to 0. 440 million tons with Fatimafert and Agritech closed. The expected sale is 0.3 million tons to 0.4 million per month, thus creating inventory in comfortable position of around 0.3 million tons plus. The urea production figures with National Fertilizer Development Centre (NFDC) will be different.
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