ISLAMABAD: The Finance Ministry has reportedly refused to extend subsidy on urea fertilizer due to financial constraints as provision of RLNG at subsidized rates to two SNGPL-based fertilizer plants will result in subsidy of Rs 3.8 billion per month, well-informed sources told Business Recorder.

On May 7, 2024, Ministry of Industries and Production (MoI&P) briefed the forum that on March 27, 2024, the Fertilizer Review Committee (FRC) meeting was convened to assess the need of urea fertilizer for the Kharif season- 2024 and recommended: (i) MoI&P to move a summary for extension in operations of SNGPL plants beyond March 31, 2024; (ii) Petroleum Division to ensure that maximum gas pressure/volume is provided to FFBL for maintaining optimum production of urea/DAP fertilizer; and (iii) NFDC (MoNFS&R) to firm up the requirement for import of urea fertilizer and present it in next FRC meeting to be convened in second week of April, 2024.

Fertilizer cos ordered to withdraws urea price hike

The ECC of the Cabinet, in its decision of February 7, 2024 had earlier decided to allow operations of two SNGPL based plants for the period January to March, 2024 at gas rate of Rs 1239/MMBTU and the differential of price with RLNG for such supply to be treated as RLNG diversion to domestic sector for recovery through SNGPL’s revenue requirements to be determined by OGRA which was ratified by the Cabinet on February 15, 2024. It further recommended:(i) SNGPL based plants, ie, Fatima Fertilizer (Sheikhupura) and Agritech may be allowed to operate beyond March 31, 2024 for six months till September 30, 2024 at OGRA notified price i.e. Rs 1597/MMBTU (feed &fuel) and the differential of price with RLNG for such supply to be treated as RLNG diversion to domestic sector for recovery through SNGPL’s revenue requirements to be determined by OGRA; and (ii) Petroleum Division may be directed to ensure that maximum gas pressure/volume be provided to Fauji Fertilizer Bin Qasim Limited (FFBL).

Ministry of National Food Security and Research had supported the proposal and stated that closure of SNGPL based plants during Kharif- 2024 would result in production loss of 445,000 tons and the same quantity would have to be imported.

Supply of gas to FFBL at the maximum pressure would enhance domestic production by 165,000 tons during Kharif season resulting in reduced reliance on imported supplies.

Finance Division endorsed the proposal for continuous operation of plants and stated that understandably, the natural gas would be supplied to the plants, which does not entail any subsidy/cross subsidy. Moreover, the reference to RLNG needed to be explained, as RLNG was supplied to these plants only during the winter months, when domestic demand for natural gas was higher. Continuous use/diversion of RLNG would result in higher consumer price for all consumers.

Petroleum Division stated that the previous five months’ operations from November 2023 to March 2024 resulted in a subsidy of Rs. 27 billion which is yet to be recovered. Further provision of LNG at subsidized rated @ Rs. 1597 per MMBTU would result in a monthly subsidy of Rs.3.8 billion. However, a blend of RLNG and indigenous gas had a portion of 75:25 can be offered to these two plants.

Ministry of Industries and Production argued that in order to ensure smooth supply of fertilizer to farmers, the following options were available: (i) SNGPL based plants i.e. Fatima Fertilizer (Sheikhupura) and Agritech may be allowed to operate beyond 31st March, 2024 for six months till 30th September 2024 at OGRA notified price i.e. Rs 1597/MMBTU (feed and fuel) in this case the financial impact would be around Rs.538.5/ per 50 kg bag and the price differential @ Rs.3.8 billion per month may be bridged through budgetary provision;(ii) both the plants may be allowed to operate on a blend of RLNG and indigenous gas at a proportion of 75:25.In this case, the blended price rate would be Rs.2890/MMBTU, consequently price of Agritech will increase by Rs. 2,141 50 kg bag and FatimaFert will have an increase of Rs. 1,929/50 kg bag; and (iii) in case full LNG is charged, i.e. $ 11.8/ MMBTU per 50 kg bag, the increase in per 50 kg bag price of Agritech would be Rs. 2,855/bag and FatimaFert would be per Rs. 2,572 /bag.

During the ensuing discussion, Petroleum Division explained that in the case of provision of gas to the plants at OGRA notified price, the price differential would either have to be borne by the domestic consumers or have to be subsidized by the Finance Division.

Ministry of Industries & Production explained that the benefits of subsidy had not trickled down to the farmers as corresponding decrease in the price of urea had not been witnessed. The Ministry also suggested that distortion in the pricing of gas for fertilizer sector should be eliminated. Finance Division, owing to financial constraints, did not endorse the proposal of provision of further subsidy to meet the price differential.

The ECC maintained that a holistic approach encompassing the entire supply chain should have been adopted to stabilize the price of fertilizer. It was considered appropriate to give some more time to the relevant Division to work out a viable gas pricing plan for the fertilizer sector.

After threadbare discussion, the ECC deferred the decision with the directions that Secretaries of Finance, Petroleum and Industries & Production Divisions shall workout and present a viable gas pricing plan for fertilizer sector in the next meeting of ECC.

However, ECC directed Petroleum Division to continue supply of gas to the urea plants as per ongoing arrangements till next meeting of the ECC.

Copyright Business Recorder, 2024