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Ministry mulls restarting gas supply to fertiliser industry

The Ministry of Petroleum and Natural Resources has finally come up with a proposal to restart gas supply to the fertiliser industry as Pakistan is an agro-based economy, according to sources on Wednesday.

This will not only help the ailing economy and the fertiliser sector, but would save hundreds of jobs and precious public money, said sources.

According to a draft proposal, the Ministry of Petroleum has suggested long- and short- term solutions to resolve the issues faced by the fertiliser industry by proposing a detailed summary to the Economic Coordination Committee (ECC) in light of the discussion at the ECC on August 16.

The Ministry of Petroleum’s summary states that the policy to stop gas supply to the fertiliser industry needs reconsideration as Pakistan is an agro-based economy.

The summary, if approved, will benefit the government with huge savings in a constrained fiscal environment, as well as provide immense benefits to the farming community through availability of relatively cheaper urea.

Speaking about the revised draft policy for the fertiliser sector, Petroleum and Natural Resources Secretary Dr Waqar Masood Khan said, “The government is working on both short and long term solutions.

There is a proposal of providing dedicated supplies of natural gas to the fertiliser sector, which might be implemented soon.”

He further added that a comprehensive plan is being devised to ensure natural gas supply – a raw material for fertiliser plants – on a consistent basis. “The ECC would discuss this proposal,” he said.

As per the previous policy, the Sui Northern Gas Pipeline Limited (SNGPL)-based four fertiliser plants located in Sindh and Punjab have received only 45 days of gas in 2012. Resultantly, the urea manufacturing process came to a standstill, causing a loss of over 2.7 million tons in urea production, which otherwise has to be arranged through imports at a landed cost of $1.3 billion per year. On top of $1.3 billion of foreign exchange spending on imports, the government has to bear a subsidy of over Rs61 billion on imported urea to supply it to farmers at domestic market prices.

Owing to significant dependence on imports, despite having indigenous surplus manufacturing capacity, the government has imported 2.2 million tons of urea since January 2011, costing taxpayers dearly.

Official sources confirmed that imported urea on an energy equivalent basis is more expensive than imported fuels. Based on an analysis, it makes sense for the government to import cheaper fuels, such as liquefied natural gas (LNG) and furnace oil, and divert domestic gas supply to the fertiliser sector.

Basic cost comparison of different fuel sources reveals that currently the cost of LNG is as low as $10-12 per mmbtu, furnace oil $16.9 per mmbtu, while imported urea costs $23.1 per mmbtu. According to official sources, non-operating SNGPL-based plants would ultimately lead to permanent closure of the industry, if gas shutdown continues and would cause a major financial default.

The fertiliser plants have to pay back over Rs150 billion to the banking sector but they are unable to service their debt due to non-operating plants. This causes a great deal of stress to the banking sector as the debt becomes non-performing loans owing to closure of plants.

The closure of the fertiliser industry would lead to loss of 15,000 direct jobs and 50,000 indirect jobs and deprive the national exchequer of more than Rs100 billion in annual revenue, states the summary.

The summary proposes a long-term term, wherein the fertiliser plants could be allowed to negotiate directly gas agreements with gas producers and a dedicated line would ensure other sectors get gas on the SNGPL network.

It is important to note that the long-term plan draws entirely on relatively inferior- quality gas fields and new fields without affecting supply to any current consumer. Therefore, immediate benefits would be attained and the government would also be able to save significant foreign exchange and savings from subsidies by manufacturing local urea.

More local supply would also help bring urea prices down substantially. In the summary, there is also a short-term solution that allows gas to Engro by diversion of gas from Guddu. In this scenario, there would

be no loss to Guddu thermal plant in terms of current power generation capacity. This is because the Guddu plant would be able to draw additional gas from Kandkot gas field, which has spare capacity and other Mari plants would keep on operating at 88 percent of their allocation, while Engro’s new plant would run at 75 per cent.

The other three SNGPL plants have also been provided short- term solutions till the long-term solution is implemented, the summary concluded.

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