Restoring gas supply to fertiliser plants to help reduce urea prices

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The government can help reduce the price of urea in the domestic market by providing adequate supply of gas to fertiliser plants from available resources, sources said on Thursday.

This, they said, would reduce urea prices, besides passing on an impact of nearly Rs 24 billion per annum to farmers, reduce the government's import bill by $500 million and cutting spending on subsidies by some Rs 15-20 billion per annum.

At present, fertiliser plants were not getting gas in accordance with the decision of the Economic Co-ordination Committee (ECC), resulting in huge import of urea and losses to domestic plants. Industry sources told Business Recorder that plants based on Sui Northern Gas Pipeline Limited (SNGPL) network faced gas curtailment of over 75 percent during the current calendar year (2012). They said that after approving a summary of the Ministry of Petroleum and Natural Resources, the ECC in its meeting on October 23 this year, decided to provide 200 MMCFD gas to fertiliser planst under its short-term measurers.

The allocation of gas to fertiliser plants from dedicated sources was discussed in detail during the ECC meeting. Later, it was agreed that 200 MMCFD gas from newly-discovered fields and from the fields with additional gas will be provided to the fertiliser sector.

However, the fertiliser plants are unable to get gas even two months after the ECC decision, sources said. They said that restoration of gas to urea plant as per agreed ECC summary would substantially help reduce the urea prices. On the one hand, almost all urea plants were facing huge losses because of gas curtailment, on the other farmers and the economy were also paying huge cost of this gas curtailment. Out of 365 days, Dawood Hercules received gas for 62 days, Agritech for 108 days, Pakarab for 110 days and Engro's new plant got gas for just 45 days. Over the past two years, the farming community suffered a direct loss of nearly Rs 48 billion because of the increase in urea prices and another Rs 10 billion because of black marketing. This was because of gas curtailment, which forced the government to import over 1.4 million tons of urea during the current calendar year to meet domestic demand.

"The government has spent some $1.15 billion on urea imports in the past two years in addition to a subsidy of Rs 55 billion to keep imported urea prices in line with domestic urea prices," they said. Sources claimed that the government could solve this problem by providing adequate gas to fertiliser plants from available supplies not going into the network. This will reduce urea prices passing on an impact of approximately Rs 24 billion per annum to the farmers, reduce the government import bill by approximately $500 million and reduce subsidies by some Rs 15-20 billion per annum. They said that gas curtailment was affecting almost all domestic plants, but Engro's fertiliser plant, set up with an investment of over $1.1 billion, was facing the worst situation. The company, despite raising urea prices to partially offset the losses, suffered losses amounting to Rs 27 billion over the last two years.

Engro's new urea plant has a firm contract with SNGPL for gas supply, while in the current scenario, many sectors were receiving gas even without any contracts. Sources said that the 60 MMSCFD of Mari gas, being supplied to Guddu thermal power plant and additional 22 MMSCFD of gas from Mari can be directed to the Engro's plant, enabling it to start production. However, they said, its seemed that there were some vested interests who wanted to keep urea price high, therefore gas was not supplied to fertiliser plants. In December 2006, the government invited bids to set up a new urea plant under the Fertiliser Policy 2001 to alleviate urea shortages and Engro won the bid and secured 100 MMSCFD gas through a competitive international bidding process in January 2007 and built the world's largest single-train urea plant with an output capacity of 1.3 million tons. Engro entered into a gas supply contract effectively under a sovereign guarantee and an incentivised gas price to help the economy and provide jobs to thousands of workers.

Sources claimed that after exhausting all avenues to persuade the government to supply gas as per agreement, Engro went to the Court and the Sindh High Court through its judgement in October 2011 categorically asked the government and SNGPL to supply Engro its contracted quantity in accordance with its contract as well as Article 158 of the Constitution. However, the government continues to violate the Sindh High Court order.

Courtesy: Business Recorder

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