Cheap gas for Pak-American Fertiliser Limited: industries ministry fails to get Tarin's nod

The Ministry of Industries and Production has failed to get the nod of Finance Minister Shaukat Tarin on a proposal intended to benefit Pak-American Fertilizer Limited (PAFL) by charging less feed gas tariff as no other ministry, except Minfa, came forward to support it, official sources told Business Recorder.
Sources said that when the issue came under consideration in the meeting of the Economic Co-ordination Committee (ECC) of the Cabinet on February 9, 2010, several ministries opposed it. "The ECC directed the Ministry of Industries to refer the matter to Ministry of Law, seeking opinion on the point as to whether Fertilizer Policy 2001 was applicable in this case or not?," sources said.
Industries Ministry, which was secretly in the process of preparing this controversial proposal, briefed the ECC that Pak-American Fertilizer is undertaking 'Balancing, Modernisation and Replacement' (BMR) of the fertiliser plant with an investment of $60 million to expand urea production. The Ministry claimed, on behalf of the company, that BMR would enhance urea production by 136,867 tons per year. Currently, urea is produced, using gas, both as fuel and feed.
The BMR would introduce shift to using coal as fuel also, and use the gas, freed from fuel and from the BMR generated efficiency, to produce additional urea. Therefore, it had requested to be allowed to avail 2001 Fertilizer Policy concession for BMR, which allows use of feed gas at full concessional rates, for a period of seven years for the additional urea to be produced post-BMR.
Ministry of Industries further said that domestic gas shortfall compared to its demand was steadily increasing. Therefore, Pak-American proposal seemed feasible, due to (i) consumption of urea increasing steadily is around 5.4 million tons as against production of around 49 million tons and its annual growth rate is 3 percent. (ii) Fatima Fertilizer has set up a urea and phosphatic fertiliser project having capacity of around one million tons of fertilisers of which 0.5 million tons is urea. Engro Chemical Pakistan Limited is establishing a new fertiliser plant to produce around one million tons of urea alone, that will come into production during October 2010.
In spite of these additions, demand for urea will continue to outstrip its supply. (iii) Scarce foreign exchange is spent on import of urea. The Government is providing subsidy on the import of fertiliser and during 2008-09, incurred a sum of Rs 27 billion as subsidy for DAP @ Rs 2200 per 50 kg, as well as for other Phosphatic fertilisers, while at conservative estimates Rs 17 billion will be required to import urea in the next five years. (iv) Concession is on the feed gas, then ultimately, money spent remains in the economy in terms of subsidy passed on to growers and growth in the economy, while an incentive is extended to the industry.
The Ministry proposed that 9 MMCFD of gas generated from switch to 'feed' from 'fuel' and from the 'BMR generated efficiency' to produce additional urea subject to actual post BMR confirming concessionary feed gas rate for seven years as provided for in the 2001 Fertilizer Policy and the review of Fertilizer Policy on June 17, 2004.
According to sources, during discussion, it was noted that this case was not covered under Fertilizer Policy 2001; rather this case falls under Fertilizer Policy 2009. It was however, pointed out that since fertiliser was an essential ingredient for the agriculture production; therefore, case of Pak-American Fertilizer should be considered in the light of Fertilizer Policy 2001.
It is pertinent to mention here that the Industries Ministry was facing stiff resistance from Ministries of Petroleum, Finance, and Water and Power and the Planning Commission on the proposal.
"Ten years' period available for concessionary pricing of Rs 36.77 per million British thermal unit (mmbtu) expired on September 12, 2008 and any concession in rate would be in direct conflict with the existing Fertiliser Policy," sources quoted Petroleum Ministry as saying in its comments.
Planning Commission in its observations has stated that the Industries Ministry should also assess the revenue loss to government by freeing up of 9 mmcfd gas from fuel and convert it into feed gas on account of BMR. It is estimated that 9 mmcfd gas per day will result in total Rs 2821500 loss per annum.