RLNG, Ogra-prescribed gas prices: Provinces required to pay differential for urea production

ISLAMABAD: The federal government has decided to recover differential between RLNG and Ogra- prescribed prices for indigenous gas used for local urea production from the provinces, well-informed sources in Petroleum Division told Business Recorder.

In this regard a mechanism for reimbursement to the fertilizer plants or direct payment to the SNGPL (as the case may be) shall be developed by Industries & Production Division, Petroleum Division and Finance Division.

This decision was taken by the Economic Coordination Committee (ECC) of the Cabinet, on November 1, 2023, after discussion on a proposal of Petroleum Division titled “measures to meet requirement of urea fertilizer for Rabi season 2023-24.”

Sharing the background, Petroleum Division noted that the Ministry of Industries and Production submitted a summary on September 29, 2023 on this matter to the ECC which contained following proposal: SNGPL based fertilizer plants, ie, FatimaFert (Sheikhupura) and Agritech may be allowed to operate beyond October 15,2023 till March 31, 2024 at OGRA notified rates.

Fertiliser plants: Body formed on gas supply, price rationalization

The ECC in its meeting held on October 03, 2023 considered the above summary and constituted a Committee, comprising Minister for Finance, Revenue & Economic Affairs (Convener), Minister for Commerce, Industry & Production, Minister for Power & Petroleum, Secretary Petroleum Division, Secretary Industries & Production Division, Secretary Power Division and Dr. Akmal Siddiq, Technical Advisor Ministry of National Food Security & Research to deliberate on the issues of supply and prices of gas and urea in holistic manner and submit viable recommendations on gas supply to fertilizer plants and rationalization of gas prices.

The Committee was to submit its report to the ECC for consideration by October 25, 2023. The ECC had further decided that till the finalization of the recommendations and presentation to the ECC, the gas supply to the plants shall continue.

The ECC was further informed that first meeting of the committee was held on October 26, 2023 in the Finance Division. On October 27, 2023 Petroleum Division received minutes of the ECC meeting held on October 03, 2023 which was virtually attended by the Minister for Energy and Secretary Petroleum through video-conference.

The minutes of the ECC had been ratified by the Federal Cabinet in its meeting held on October 11, 2023. While perusing the minutes of the ECC meeting held on October 03, 2023, it was apparent that the view point of the Petroleum Division presented during the said ECC meeting had not been correctly recorded.

Petroleum Division had highlighted in the ECC meeting that both FatimaFert (Sheikhupura) and Agritech, the SNGPL based fertilizer plants, were being provided indigenous gas at tariff of Rs. 1,050/mmbtu till October 15, 2023 in compliance of the ECC decision of August 08, 2023. The ECC was informed during the meeting that period for supply of indigenous gas can only be extended for another 15 days, ie, October 31, 2023 considering the fact that SNGPL does not have indigenous gas to continue providing to both the plants beyond November 1, 2023 when domestic (residential) consumer demand starts ramping up for the winter months.

It was highlighted that in the absence of indigenous gas supply with SNGPL, only RLNG can be provided at full cost recovery.

If RLNG is provided at indigenous gas tariff leading to differential of RLNG and indigenous tariff of Rs. 1050/mmbtu, this has to be picked up as subsidy in whatever form so that further revenue loss of SNGPL could be avoided.

Petroleum Division highlighted that there was no such decision taken in the referred ECC meeting for supply of indigenous gas to both the SNGPL based plants at indigenous gas tariff of Rs. 1,050/mmbtu till March 31, 2024.

As in the absence of indigenous gas supply, such decision has financial implications of Rs. 29 billion in terms of tariff differential between RLNG and indigenous gas for 5 months from November, 2023 to March 2024.

Petroleum Division argued that since both the SNGPL based fertilizer plants operated on subsidized RLNG during FY 2018 to January 2023 against a budgeted subsidy, therefore, supply of RLNG could be made from November 1, 2023 till March 31, 2024 on full cost recovery, ie, OGRA notified RLNG tariff.

Such supply of RLNG had already been accounted for by SNGPL in the winter load management plan. However, if supply position of indigenous gas improved during this period, the Petroleum Division would ensure provision of indigenous gas to the two plants or blend thereof.

The sources said, Petroleum Division submitted proposal that SNGPL may be allowed to continue supplying gas to FatimaFert and Agritech plants at OGRA notified RLNG tariff for domestic urea production from November 1, 2023 to March 31, 2024 on full cost recovery basis to be billed to both the fertilizer companies.

The ECC discussed the case threadbare. It was noted that a meeting of the committee comprising Secretary Petroleum, Secretary Finance and Secretary Industries & Production was held to deliberate on the issue of supply of RLNG to both FatimaFert and Agritech fertilizer plants.

During the meeting, following options were examined: (i) billing to FatimaFert and Agritech at full RLNG ; (ii) spreading the difference of RLNG and indigenous gas price between two fertilizer plants; (iii) spreading the difference of RLNG and indigenous gas price over entire industry ;(iv) spreading the difference of RLNG and indigenous gas price on captive power plants only; (v) shifting both the plants on Mari petroleum network; (vi) share the price differential 33% on plants, 33% on general industry and 33% on provinces; (vii) full contribution by provinces against price differentia

Copyright Business Recorder, 2023