Fertiliser industry fails to achieve optimum output: urea production declines to 4.1 million tons
January 09, 2013
The fertiliser sector’s performance remained dismal during 2012 because of an unprecedented cut in gas supply: hardly 4.1 million tons of urea was produced against an installed capacity of 6.9 million tons. The sharp decline in the overall production was mainly because of weak performance of SNGPL-based fertiliser plants, facing the worst-ever gas crisis.
Industry sources told Business Recorder on Tuesday that SNGPL-based fertiliser plants produced only 11.6 percent of their total urea production capacity. Urea production of such plants stood at 256,500 tons urea in 2012 against the total production capacity of over 2.2 million tons, which is lowest-ever output of these plants in any given year.
The sources said that if the gas curtailment continued this year, worst-affected fertiliser plants might be forced to default on their loan obligations. The overall urea production is also very frustrating as the whole fertiliser sector, including plants on Mari as well as SNGPL network, produced 4.1 million tons of urea against 4.8 million tons produced last year against an installed capacity of 6.9 million tons. The overall production loss, sources said, comes out to be 2.8 million tons in a year.
Currently, all four fertiliser plants on SNGPL network are facing a complete shutdown, resulting in severe production and financial losses for the sector. Four fertiliser plants on the SNGPL network, including Pakarab, Dawood Hercules, Engro’s new plant and Agritech, remained the main victims of the gas shortage. “Years 2011 and 2012 have been the worst years for fertiliser sector: instead of providing gas to local fertiliser plants to produce economical urea domestically, the government preferred to import urea by spending a hefty amount of nearly a billion dollars,” sources said.
The fertiliser sector produced five million tons of urea in 2009 against a capacity of five million tons, 5.15 million tons against a capacity of 5.6 million tons in 2010, 4.9 million tons against 6.9-million-ton capacity in 2011 and 4.1 million tons against a total production capacity of 6.9 million tons in 2012.
The country can become self-sufficient in urea production and save a huge amount of foreign exchange if SNGPL-based fertiliser plants were provided uninterrupted gas supply. With full capacity utilisation, Pakistan could even export a million tons of urea every year, earning a huge amount of foreign exchange instead of depleting it. “Despite the unprecedented gas curtailment over the last two years, domestic urea plants provided Rs 365 billion benefit to farmers over the last five years by keeping local urea prices significantly below international levels,” said an official of Fertiliser Manufacturers Pakistan Advisory Council (FMPAC).
Executive Director of FMPAC Shahab Khawaja said that there was a misconception that fertiliser manufacturers were enjoying raw material subsidy from the government in the form of reduced feed gas prices. This subsidy is not for manufacturers, but is actually passed on to farmers via lower urea prices.
Talking about the subsidy to the fertiliser sector, he said that based on current feed and fuel gas prices, subsidy per bag of urea works out to be Rs 228 per bag. In essence if government subsidy on gas price was taken away, urea prices would only increase by Rs 228 per bag.
On the other hand, the difference between the price of domestic and international urea was more than Rs 1,000 per bag. Therefore, not only is the fertiliser industry passing on feed gas subsidy to the farmer, it is also passing on a much larger benefit voluntarily in addition to paying taxes to the government, he claimed.
He said that of the total urea price increase, about 80 percent resulted from the imposition of GST on urea and cess on gas, and general inflation. He said that only 20 percent of the price increase is due to gas curtailment, adding that the government did not honour its gas supply contracts with the fertiliser producers despite the fact that industry had recently invested $2.3 billion based on the government-approved policy designed to encourage investment in the sector.
Khwaja said that all four SNGPL-based fertiliser plants incurred significant losses over the last two years because of non-supply of gas. The government, he said, also incurred significant losses by importing urea worth over $1 billion and providing a subsidy of over Rs 50 billion on imported urea over the same period.
He said that not billions of dollars in local and foreign investment and thousands of jobs were at stake because of unprecedented gas curtailment, but it is also indirectly affecting millions of farmers, who had been further burdened with rising urea prices.
“The government had assured fertiliser sector that gas would be provided for 11 months to produce maximum fertiliser for the agriculture economy, but the curtailment has exceeded beyond all limits in 2012,” he said. SNGPL-based plants, he said, were facing worst-ever crisis in the wake of gas outages in excess of 300 days in a single year. According to him, such shortages had not been witnessed before 2012.
He said that after making an investment of over $2.3 Billion on new production capacity, making Pakistan world’s 7th largest urea manufacturer. He said that if the gas curtailment persisted during this year, SNGPL-based fertiliser plants would be forced to default on their loan obligations worth over Rs 166 billion, besides forcing them to lay off a large number of highly skilled manpower, he maintained.
The decline in urea production poses a severe threat to crop yields, he said, adding that as a result, the country might miss its agriculture and export targets, besides aggravating inflation which was already higher than the regional peers, , Khwaja said.