LNG import sans subsidy: Two fertilizer plants approach MoI&P for early approval

Two fertilizer plants - M/s Fatimafert and M/s Agritech have reportedly approached Ministry of Industries and Production (MoI&P) seeking early approval of regulatory process to import LNG sans subsidy and swap it with gas companies by using their network, well informed sources in Ministry told Business Recorder.

The representatives of M/s Fatimafert were seen in the Ministry of Industries and Production to brief the officials of the Ministry about the proposal.

Prime Minister Advisor Abdul Razak Dawood is expected to hold a meeting with the representatives of M/s Fatima Group on Monday next to deliberate on the proposal. Earlier, in a letter to Prime Minister's Advisor on Commerce, Industries and Production and Investment, Abdul Razak Dawood, FFT and AGL requested the government to ensure RLNG supply to the fertilizer plants at a subsidized rate, as done last year. Their proposal also seeks permission to directly source RLNG cargoes from the international market through contracts for two-year period.

According to an official statement issued by M/s Fatimafert, FFT & AGL were operational for 14 months resulting in 960,000 MT of urea production (from September 2018 - November 2019) ensuring the availability to meet national demand. The overall positive economic impact of operating these plants during this period translated into a contribution of Rs 35 billion to GDP, forex savings of $ 275 million as well as saving of additional Rs 15 billion as subsidy burden on imported urea.

The FFT further stated that production of MPCL & SSGCL based fertilizer plants stands at 5.5 million MT, a very likely shortage of 500,000 MT urea is anticipated against conservative demand estimate of around 6 million MT by end December 2020. At current international urea prices, this would result in foreign exchange outflow of $ 127 million and an additional subsidy burden of Rs7.4 billion.

Given the government's measures to incentivize the agriculture sector there is every reason to believe the demand could touch a figure of 6.2 million MT. Price stability only comes when there are sufficient supplies.

"If there is large gap in supply and demand then prices of urea will go up to the disadvantage of farmers which will further aggravate the current inflationary trend leading to unrest amongst people. So, to ensure price stability availability of sufficient stocks is extremely important," the FFT said in a statement.

The company further stated that fertilizer is a part of Large Scale Manufacturing (LSM) and this sector witnessed negative growth of 3.5% in the first two quarters of Current Financial Year (CFY). Therefore it is imperative that the government facilitates the operation of these plants to trigger economic activity and push growth rate up. These two plants have 3000 employees and in case of closure they would lose their jobs leading to surge in unemployment.

Management of these plants has also brought it to the notice of Government that since the spot prices of LNG in international market have dropped to record lows therefore it should take timely action and capitalize on this opportunity by importing LNG and supplying to SNGPL based fertilizer plants. This will also bring down the basket price of gas to fertilizer industry leading to comparatively low price vis-a-vis imported fertilizer.

FFT maintains that reliance on imported fertilizer is at the cost of local production, autonomy, and self-reliance and is nothing short of disastrous. A timely action along with easing regulatory provisions will not only eliminate element of subsidy to the fertilizer plants operating on RLNG but also save substantial amount of foreign exchange on import of urea, which in any case is not a viable option.

"Making unsubstantiated claims of loss to national exchequer without clearly emphasizing the benefits obtained is neither tenable nor advisable," the company said, adding that to the contrary, non-supply of gas, resultant closure of the fertilizer plants is likely to result in lower GDP. On the other hand, import of urea to overcome the expected shortfall will not only decrease foreign currency reserves on a continuous basis, but may also result in subsidy burden to the GOP in order to sell at the lower domestic market price, given varying prices of fertilizers internationally.

The company has further stated that no subsidy would be required if GoP imports LNG at current delivered price of US$ 5/mmbtu. Restart of SNGPL-based fertilizer plants will ensure price stability as currently urea is selling at higher than notified price of Rs. 1740/bag. Further, operationalization of these plants is plainly important given its impact on foreign currency reserves, national exchequer and the farming community.