Finance Minister, Asad Umar, must be held responsible for increase in power tariff under monthly fuel adjustment mechanism and circular debt in January as he did not give proper weightage to the arguments of Ministry of Energy (both Power Division and Petroleum Division) against gas diversion to fertilizer sector.
This was asserted in background discussions with officials of both Divisions. It is assumed that Rs 3-4 billion additional burden will be passed on to the consumers by using furnace oil for power generation in one month as compared to gas which is far cheaper than RFO.
On January 4, 2019, Minister for Power, Omar Ayub confirmed that power plants are being operated on RFO- a fuel which is more expensive than gas. "The ECC was clearly informed that any departure from existing allocation of gas might result in power outages and increase in the cost of electricity since the cost of furnace oil (alternate fuel for power sector) is much higher," the sources quoted one ECC member as saying.
Giving the background, the sources said, Cabinet Committee on Energy (CCoE), in its meeting held on December 26, 2018 directed Ministry of Industries and Production to update the ECC in its next meeting about the availability of urea stock in the country and its price trends.
In pursuance of directions of the CCOE, the Ministry reviewed the situation and it transpired that though in the beginning of the current month, it was estimated that 95,000 MT of urea would be carried over from December, 2018 to January 2019, but due to lower than estimated off-take in November, the estimated opening inventory for January 2019, was 118,000MT, the closing inventory for the Rabi season would be 260,000 i.e. some 60,000 MT above strategic reserve level. Off-take in November 2018 was some 17 per cent lower than that of previous years and this trend is likely to continue in coming months. Regarding prices, it was observed that price of urea increased by 3 to 4 per cent in November over October ( Sona from 1,706 to 1,7,57 and others from 1,673 to 1,741), the national average price for week ending November 20, 2018 is reported as Rs 1,785/bag by FBS i.e. a further increase of 2 per cent.
In view of this situation, the Ministry inferred that urea availability is sufficient for Rabi 2018-19 with a comfortable opening inventory for next Kharif season. The price is also likely to stabilize as imported urea has been released in the market and that historically off-take in January are substantially lower than in December, last year it was 539,216 MT against 715,685 MT.
After explaining the past and present scenarios', Ministry of Industries and Production presented available options viz: (i) maintain the status quo as per decision of ECC; (ii) inject another 50,000 tons of imported urea as had been authorised; or (iii) allow two fertilizer plants on SNGPL system to continue operating till end of season.
"Though there did not seem any imminent requirement to augment supply, in case it is decided otherwise then two fertilizer plants on SNGPL system to continue operating till end of season be allowed," the sources stated referring to a discussion in the ECC meeting on January 1, 2019.
The Ministry of Industries and Production revealed that the Fertilizer Review Committee (FRC) was convened on December 31, 2018 to get input of all stakeholders. Following emerged from the discussions: (i) local production of urea would be less than that which was estimated as there had been some variation in production estimates and that FFBL will have to go under maintenance in January; (ii) price increase is due to supply and demand factors and will be stabilized with introduction of imported urea and improvement of local production; (iii) it is expedient to keep the SNGPL based plants running at least throughout January 2019, failing which the ensuing gap would not be filled by imported urea and there could be a panic in the market; (iv) federal government should advise the provinces to ensure maintenance of Minimum Retail Price (MRP) at Rs 1,752/bag i.e. 40/bag above dealer transfer price; and (v) representative of Petroleum Division and Managing Director SNGPL disagreed on the proposal about running of two urea plants, as according to them, demand of power sector is more pressing.
During discussion, it was proposed that the additional requirement of gas for running the fertilizer plants may be fulfilled by readjusting supply of gas to the power sector. Apprehension was expressed that any departure from existing allocation of gas might result in power outages and increase the cost of electricity since the cost of furnace oil (alternate fuel for power sector) is much higher. However, after due deliberation on the matter, it was observed that in order to avoid any adverse impact on agriculture sector, a time bound reallocation of gas might still be required.
After detailed discussion, the ECC decided to maintain existing supply of gas from SNGPL network to the fertilizer plants till further orders. With a view to fulfill this requirement, gas allocation for the power sector may be reviewed.
The Ministry of Industries and Production was directed to present the ECC a comprehensive annual plan, projecting the demand, production and supply of urea fertilizer, within a fortnight so as to avoid any shortage in future.
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