ISLAMABAD: Ministry of Energy (Petroleum Division) is reportedly reluctant to supply LNG to two urea fertilizer plants due to pricing issues, well-informed sources told Business Recorder.
In a summary to the Economic Coordination Committee (ECC) the Cabinet, the following measures were proposed to address shortage of urea fertilizer during Rabi season 2021-22: (i) for the month of Oct-Dec 2021, Sui Southern Gas Company Limited (SSGCL) should ensure provision of 63MMCFD gas to Fauji Fertilizer Bin Qasim Limited FFBL (possibly by cutting down demand from some other sector); (ii) for Jan-2022, SSGCL may be directed to ensure provision of system gas/RLNG (if RLNG is to be opted, then differential for RLNG price and the negotiated gas price to be paid by FFBL shall be borne by Government of Pakistan (GoP); (iii) for market signaling, a tender for import of 100,000 MT of urea may be floated. However, decision to accept or reject tender may be taken by ECC at the tender opening stage; and (iv) subsidy disbursement mechanism for DAP fertilizer to be finalized as soon as possible, which will in turn reduce pressure on Urea off-take.
The decision was communicated to the Petroleum Division; however, it is yet to be implemented.
The sources quoted the Ministry of Industries and Production, as claiming that if maximum gas supply is ensured by the Petroleum Division to Pak Arab and FFBQL, then addition of approximately 175,000 MT of urea can be produced locally over the period of six months during Rabi 2021-22.
According to sources, the Ministry of Industries and Production wants the ECC to direct Petroleum Division to ensure maximum provision of 58 MMCFD gas to Pak Arab and 63 MMCFD to FFBQL so that the estimated demand of urea fertilizer during Rabi season 2021-22 can be met through domestic production.
In March 2021, the ECC was informed that two urea plants at Sui Northern Gas Pipelines Limited (SNGPL) network may be made operational for the period March-December, 2021 so that requirement for urea fertilizer can be met through domestic production. However, ECC of the Cabinet while considering the summary approved the operations of urea plants at SNGPL network for the period, i.e., March to November 2021.
Urea shortage expected in winter
RLNG supplies to both plants at SNGPL network have been suspended by Petroleum Division since June 28th, 2021 and despite reminders from Ministry of Industries and Production, the RLNG supplies have not been restored.
In order to address the issue of urea fertilizer availability, Fertilizer Review Committee (FRC) meeting was convened on September 8, 2021. NFDC (M/o NFS&R) during the meeting projected that if Agritech and Fatima fertilizer (Sheikhupura plant) are operative from September 16, 2021 to November 30, 2021, even then country would experience a shortage in month of December and onwards. If the SNGPL-based plants (Agritech and Fatima Fertilizer, Sheikhupura plant) remain operational from September 16, 2021 to December 31, 2021, then peak demand for urea fertilizer can be easily met through domestic production. Further this will make urea readily available and would save foreign exchange.
NFDC further estimated that to import 200,000 MT of urea, would require foreign exchange of $92 million approximately. The saving for Government in case of local production would be Rs 4.53 billion. Hence, in such case, 50 kg/bag of urea fertilizer would be costing around Rs 4775/bag, whereas present MRP for domestic urea is at Rs 1768/bag.
The sources said depletion of gas fields was also discussed at length, and decided that it may also be recommended to the ECC of the Cabinet that Planning Commission may be directed to undertake a study and workout medium-term strategy for fertilizer sector in Pakistan.
The sources maintained that Finance Division had agreed to provide a subsidy to the extent of Rs 6.00 billion as Federal Share. However, the Ministry of NFS&R requested that Federal share may be considered for enhancement up to Rs 8.00 billion for the purpose. The ECC has agreed to enhance subsidy to Rs 8 billion.
RLNG allocation to fertiliser plants approved by ECC
On October 5, 2021, the issue of urea also came under discussion in the Cabinet meeting. It was highlighted that due to recent international tender by India, the urea prices had surged and it might be more feasible to ramp up domestic production by supplying additional gas to the fertilizer plants.
The Minister for Energy, Hammad Azhar pointed out that the supply demand gap of natural gas had increased and in face of the Cabinet's decision to give priority to domestic consumers, it would be possible to divert gas to fertiliser industry until specific directions from the Cabinet.
It was suggested that RLNG could instead be supplied but in the case of differential between RLNG price and the price negotiated with fertilizer plants has to be borne by the GoP. Minister for Finance opposed providing any subsidy on RLNG. It was suggested that that the matter need to be discussed in detail by the economic team to suggest most viable option after considering the pros and cons of all other available alternatives.
Copyright Business Recorder, 2021