Fertiliser plant investments: MoP proposes using GIDC for expanding gas infrastructure
November 03, 2012: The Ministry of Petroleum has reportedly proposed to the government to adjust investments by fertilizer plants for the development of transmission infrastructure against Gas Infrastructure Development Cess (GIDC) from the fertilizer industry. Sources in the Ministry told Business Recorder that the proposal, subject to verification/audit by any of the four major chartered accountancy firms, had been made under its long-term plan for gas supply to the fertilizer sector.
They said that a dedicated transmission system (including compression and ancillary facilities) would be established in this regard by four fertilizer plants with Sui Northern Gas Company Limited (SNGPL), as a common header, for transportation of gas to fertilizer plants.
According to fertilizer industry”s estimates, the pipeline”s length will be nearly 1,000 kilometres, costing around $300-400 million and the laying and maintenance of pipeline will be done by gas utility companies. The Ministry of Petroleum was directed by the Economic Coordination Committee (ECC) of the Cabinet to work out a detailed plan in consultation with relevant stakeholders, including the Ministry of Water and Power and submit it for consideration and approval to the ECC.
The rationale for the proposal was to allocate gas quantities/ volumes from some alternate dedicated gas supply sources. The annual urea production loss on account of non supply of gas to the fertilizer plants was estimated at around 2.7 million tons which has to be otherwise arranged through imports at a landed cost of $1.3 billion (Rs 140 billion).
The subsidy on the imported fertilizer was estimated at Rs 61 billion to supply the same to farmers at domestic prices. The Ministry further stated that it is also important to realise that fertilizer sector is 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 ultimately impacting on all domestic financial markets.
The policy to stop gas to fertilizer industry needed to be reconsidered, as Pakistan was an agricultural country. It needed sustainable supply of fertilizer and could not afford to import in huge quantities. This resulted in a hike in the cost of urea, rendering agricultural products uneconomical as farmers were unable to afford to use urea in sufficient quantities for yield optimisation.
The closure of fertilizer industry will result in loss of 15,000 direct and 50,000 indirect jobs and negatively affect the GDP by Rs 100 billion. The Ministry identified that 202 MMCFD gas was needed to be supplied to closed fertilizer plants for operating them at reduced capacity under the long-term plan.