Economic Co-ordination Committee (ECC) of the Cabinet has allowed Petroleum Ministry to supply imported LNG to fertilizer sector after fulfilling power sector's needs. Official documents available with Business Recorder reveal that the ECC was informed that a persistent shortfall in gas supply in the SNGPL system led to a heavy gas curtailment in various gas consuming sectors, including fertilizer.
The gas supply to fertilizer plants has, on an average, ranged between 40 and 45 days per year after 2011. As a result, the local fertilizer production capacity remained idle and GoP had to import expensive urea. As per estimates provided by the fertilizer sector, GoP has spent USD 1.680 billion over the last 4 years (2011-2014) on urea import which is in addition to a subsidy of Rs 76 billion during 2011-2013.
The committee was apprised that according to the fertilizer sector, if the gas curtailment persists, GoP would have to spend foreign exchange of $2.894 billion (computed at prevailing prices) over the next 6 years on urea import and suffer a subsidy of 69 billion during 2015-2020.
According to Petroleum Ministry, in view of the scarce position of gas supply, the fertilizer plants on SNGPL network have expressed their firm interest in buying/importing LNG and also establishing LC/SBLC promptly from their own sources. As claimed by the fertilizer sector, a continuous availability of LNG to these plants during 2015 would enable them to produce 1,270,683 MT of urea which would result in estimated savings of $404.00 million in foreign exchange and Rs 9.60 billion in subsidy to be provided by GoP to the imported urea.
The committee was briefed that in order to ensure economic sustainability of fertilizer plants, the following model based on imported LNG was being proposed: (i) fertilizer sector may be allowed to import their own LNG from their own sources. The fertilizer plants shall hold the title to the purchased LNG for the transaction to be bankable; (ii) under the present arrangement, PSO is allowed to import one commissioning cargo through FSRU on FOB basis or LNG carrier on DES basis under LNG SPA. In case PSO is unable to bring the commissioning cargo, the fertilizer plants may be allowed to import the commissioning cargo subject to the payment of incremental charges over and above the charges to be incurred by PSO; (iii) the existing terminal operator will provide storage and re-gasification facility at applicable re-gasification /storage tariff along with SSGC margin; (iv) RLNG will be transported from Terminal to each fertilizer plant by gas companies under swap arrangements; (v) the Sui gas companies will ensure that RLNG delivered to the fertilizer plants shall be in equivalent BTUs of LNG imported by the fertilizer plants; (vi) the fertilizer plants currently idle and not contributing any revenue in the form of GST to the government exchequer, may be charged GST @ 5% on fertilizer produced by using imported LNG (as was allowed by ECC to the CNG sector on October 29, 2014) which will help increase the affordability of fertilizer produced from expensive LNG; (vii) in addition , no GIDC will be levied on the imported LNG to be utilised by the above plants; and (viii) since the fertilizer plants are bulk users on high pressure transmission network with minimum or no transmission losses, the transmission losses, if any, may be charged at actual.
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