According to a Business Recorder report, the Economic Co-ordination Committee (ECC) of the Cabinet has decided to accord priority to the fertilizer sector over the electricity generation for supply of domestically-produced natural gas, during the 'Rabi' season (October 2014-March 2015) in order to reduce the import of urea from 0.6 million tons to 0.17 million tons. This would result in saving of Rs 4.29 billion, ie, 429 million dollars, approximately. ECC has directed Ministry of Petroleum to ensure supply of gas to the fertilizer companies on the SNGPL network. In essence, this decision would ensure a higher domestic production of wheat crop sowed during the Rabi season and harvested during April-June. Besides wheat; lentils (masoor), tobacco, rapeseed, barley and mustard are other crops which would benefit from timely supply of fertilizer at a low price. On the face of it, it appears to be a good decision; in economic terms, however, it does not make sense at all.
According to a study conducted by a highly reputed independent institution, Pakistan saves 1.4 billion dollars if cost of imported fertilizer and imported furnace fuel oil is compared, by giving priority to supply of domestic gas to the power sector over fertilizer sector. Pakistan is caught in a catch-22 situation. Reduced output of urea by domestic producers leads to higher import to ensure adequate domestic production of food (wheat being a staple food) and other cash crops such as cotton and rice. Agriculture requires policy formulation, economic co-ordination and planning. Realising this, as far back as 1972, a Federal Committee on Agriculture (FCA) was constituted. Under the 18th Amendment, agriculture was fully devolved to the provinces; however, a ministry of National Food Security and Research was created at the centre and now FCA fixes crop targets for the provinces.
In the absence of a coherent energy policy based on productive use of natural gas, ECC keeps on stumbling in decision-making on gas supply priority. As a result, gas allocation appears to be in a mess. Giving top priority to domestic users, who are not productive users and constitute major consumers of gas is a politically-biased decision. All this time, despite growing consumption of domestic sector - no incentive, thus far, has been given to domestic users, like a tax credit, to switch to solar panels for heating of water and cooking or heating. Savings in domestic consumptions as well as in usage of compressed natural gas in the transport sector, would allow for supply in adequate quantity to both fertilizer as well as power sectors. Five percent of cost in textile production is electricity. Cotton-based textile sector constitutes more than 50 percent of our exports. Denying natural gas to the export sector, which earns foreign exchange (dollars) does not make sense. Theoretically, if the country earns more dollars it can import food as well as fertilisers. Therefore, top priority needs to be given to supply of natural gas to the power sector as well as to the captive power plants owned by exporters. At present, crude oil and FFO import price is 88.32 dollars a barrel and 514.51 dollars per ton, respectively. If September versus August price declines are calculated then crude oil price has come down by five percent while that of FFO by three percent only. In fact, if subsidy of any kind is to be given then it should be given to furnace fuel oil used by the power sector. A cross subsidy is provided by natural gas consumers to urea manufacturers. In the same manner cross subsidy could be provided for furnace oil - which is primarily used for electricity generation. Once the coal-based plants come into production subsidy on FFO would come down.
The present government appears to be confused in the absence of a proper energy policy. We hear of priority being given to LNG imports. At the same time, the nation is told that piped gas from Iran would get the highest priority. Even after 16 months in power PML (N), just like its predecessor PPP, appears to stumble on this score. Rumours are rampant that money is changing hands to obtain higher priority for supply of dwindling resource, ie, natural gas.
Those bulk users of gas who have contracts with companies owning gas fields are better off than those who have supply of gas contracts with distribution companies such as SSGC and SNGPL. There are issues of sovereign guarantees as well, complicating the messy situation. ECC needs to refrain from issuing a priority list in the absence of input from Water & Power Ministry. It needs to insist on an energy policy with involvement of the Planning Commission to sort out this messy gas allocation and distribution prioritisation. The Finance Minister may have taken into account that he has provided for subsidy towards fertilizer and the amount consumed may be less than the one budgeted. Whereas, the subsidy amount provided in the budget for power sector has been consumed and in fact is more than provided for. Decisions should not be made in this way. A proper cost-benefit analysis is needed, which can be defended at any forum.
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