The Ministry of Petroleum and Natural Resources has prepared a plan to immediately divert gas from Guddu Thermal Power Station to fertiliser plants, which according to the Economic Coordination Committee (ECC) of the Cabinet are already selling urea at Rs60 per bag higher than the imported product.
According to the Petroleum Ministry's short-term plan, 60 mmcfd gas is already diverted to GTPS from Mari Shallow by curtailing fertiliser plants which now may be retrieved from GTPS and supplied to Engro Fertiliser (Enven). In addition, 22 mmcfd gas offered by Mari Gas will also be supplied to Engro Fertiliser (Enven) to provide a total supply of 82 mmcfd. Agritech will be supplied 25 mmcfd gas from Makori field (Tal Block).
The Ministry has also hinted that SNGPL will arrange approx. 45-55 mmcfd gas for the other two fertiliser plants ie Pakarab Fertiliser and Dawood Hercules to operate on rotational basis. This will require one day additional curtailment to industrial sector.
Official documents showed that since April this year, the Guddu power plant is not consuming its full allocation of 200 mmcfd from Kandhkot gas field resulting in curtailed production from the field. Kandhkot can enhance its production to 225 mmcfd which would be sufficient to compensate the proposed withdrawal of 60 mmcfd. Accordingly full 225 mmcfd gas from Kandhkot field may be supplied to the Guddu power station.
Annual urea production loss on account of non-supply of gas to four fertiliser plants works out to be around 2.7 million tons which has to be otherwise arranged through imports at a landed cost of $1.3 billion (Rs140 billion). The government has to give Rs61 billion to subsidise this imported urea to supply the same to farmers at affordable prices.
The Petroleum Ministry, while pleading the case of fertiliser sector, maintained that this sector was highly leveraged and non operation of plants for prolonged period will result in forced closures resulting in defaults to banking industry of nearly Rs 150 billion ($1.6 billion) which will convert to Non Performing Loans (NPL) ultimately impacting the entire financial sector of the country.
According to the Ministry, the policy to stop gas to fertiliser industry, as per ECC decision needs reconsideration as Pakistan is an agro based country: it needs sustainable supply of fertiliser and cannot afford to import fertiliser in such huge quantities. As a result, the cost of urea has gone up tremendously and the farm products are becoming uneconomical. The closure of industry will result in loss of 15,000 direct and 50,000 indirect jobs and affect the GDP by Rs100 billion.
The Petroleum Ministry also proposed a long-term plan to ensure gas supply sources that have been identified for dedication to four fertiliser plants for operating at reduced level: Kunnar Pasaki Deep (KPD)- 130 mmcfd, applicable policy 2001- approximate price $2.7 MMBTU; Mari field (additional), MGCL- 22 mmcfd, price $3.3 MMBTU; Bahu (new find), - 15 mmcfd, low BTU, price $6 MMBTU; Reti Maru (new find)- 10 mmcfd, price $6 MMBTU and Makori (Tal Block) (new find), MOL- 25 mmcfd, at a rate pf $6 MMBTU. Total available gas will be 202 mmcfd.
Different petroleum policies will be applicable on all proposed gas allocation plans.
The Petroleum Ministry argues that gas pricing for above field would be in accordance with applicable Petroleum Polices or equal to gas price for other fertiliser plants, whichever is higher. The above said gas, at above mentioned prices, will be distributed from the common header, amongst the four fertiliser plants (Engro 79, DHCL 40, PFL 58, Agritech 25), with a common pipeline, at weighted average uniform price.
ECC decided that fertiliser plants would be allowed to directly negotiate gas supply arrangements with the gas producers. The fertiliser plants will establish standby letter of credit equivalent to one month's gas supply value to guarantee their gas supply payments.
Dedicated transmission system (including compression and ancillary facilities) will be established by the four fertiliser plants, as a common header, for transportation of the above gases to the respective fertiliser plants. A separate designated bank account will be operated for the purpose. The investment made by the fertiliser plants for development of transmission infrastructure will be adjusted against recovery of Gas Infrastructure Development Cess (GIDC) of the fertiliser industry) subject to verification/ audit by any of big four firms of chartered accountants ie Ferguson, KPMG., Deloitte, Ernst and Young.
Estimated length of entire pipeline will be 1,000 kilometres costing nearly. $300-400 million The laying and maintenance of pipeline will be done by gas utility companies as third party contractors, at a cost to be negotiated and Ogra will allow this income (O&M charges) to the companies and make amendments in rules if required.
The cess will be utilised in connection with infrastructure development of Iran-Pakistan Pipeline Project, Turkmenistan-Afghanistan-Pakistan-India (TAPI) Pipeline Project, LNG or other projects or for price equalisation of other imported alternative fuels, including LPG.