Fertiliser industry: Country to import Rs 452bn urea yearly if gas supply falls

July 24, 2013

By Razi Syed

Fertiliser industry
Fertiliser industry

KARACHI: The country will have to spend approximately Rs 452 billion annually on import of urea if the government further cuts the supply of gas to seven fertiliser plants that have production capacity of 6.9 million tonnes urea.

The cost of importing 6.0 million tonnes of urea for the country would be approximately Rs 312 billion and if government also decides to subsidise this imported urea, as is the practice with imported urea, it would need additional Rs 140 billion to match the prevailing urea prices.

Fertiliser Manufacturers Pakistan Advisary Council (FMPAC) Executive Director Shahab Khawaja said our current economic condition does not allow us to spend approximately Rs 452 billion on urea import while our country is self-sufficient in urea production and we can even export our additional production for earning foreign exchange for the country.

Regarding propaganda campaign against fertiliser industry, he said, out of a total of 4.3 billion cubic feet daily gas production, fertiliser sector’s total gas allocation is just 818 million cubic feet per day (MMCFD) but they hardly get 600 MMCFD through Mari and Sui Southern Gas Company (SSGC) network as all four fertiliser plants on Sui Northern Gas Pipelines Limited (SNGPL) network with 240 MMCFD gas allocation remained shut for over 300 days throughout 2012.

The gas allocated at Mari network is low MMBTU gas (inferior quality gas), which cannot be used for power generation or domestic consumption hence this low MMBTU gas field is being utilised by domestic fertiliser plants saving it from being wasted.

He said gas allocation for fertiliser sector was not just for the seven fertiliser plants as claimed by some vested interests but it is for the agriculture sector of the country that represents 21.4 percent in the gross domestic product and also ensures food security of 190 million population of the country.

If we permanently shut down our fertiliser plants as advised by some vested interests, not only more than $10 billion investment in fertiliser sector would be lost, but the national exchequer would also be deprived of Rs 28 billion of tax money annually as fertiliser industry has paid over Rs 140 billion taxes in last five years.

Fertiliser plants are also listed at local stock exchanges with market capitalisation of billions of dollars hence their closure will result in loss of investors’ confidence, bank defaults and will affect government’s privatisation programme as well.

By producing urea locally, Pakistan is not only saving billions of dollars of foreign exchange annually but it is providing affordable urea to its farmers that helps in keeping the crops production cost in control.

In 2012 average delta between domestically produced and imported urea price was Rs 1,015 per 50 kilogrammes (kgs) bag. The government provides feed or fuel differential through concessionary feed gas of Rs 250 per 50kg bag and remaining Rs 765 per 50kg bag is passed on to farmers by the fertiliser sector voluntarily. Urea is a form of energy and the cost of imported urea is significantly higher than other forms of energy including coal and Restrictive Flow Orifice (RFO).

The fertiliser usage in the country, which touched 6.5 million tonnes mark in 2009, has phenomenally decreased to 5.3 million tonnes in 2012.

This lower consumption and demand is due to higher urea prices owing to imposition of general sales tax, Gas Infrastructure Development Cess and unprecedented gas curtailment of over 88 percent for SNGPL-based four fertiliser plants with an aggregated production capacity of approximately 2.3 million tonnes.

The fertiliser industry sector is the ‘most energy efficient in comparison to others which include power sector (including government operated power generation companies GENCO’s, IPPs etc), industries, captive power plants and compressed natural gas sector.

If the government curtails or minimises gas losses in the country, the current gas crisis can be brought under control without reducing supplies to any sector at all.

The ‘system inefficiencies’ in SNGPL and SSGC distribution networks are the crux of the problem and have never been addressed properly, he added.

Fertiliser is the only sector, which has zero percent ratio of Unaccounted for Gas (UFG), it never defaults on its payment obligations to gas utilities, which are positive for cash flow of SNGPL and SSGC. Fertiliser sector is also one of the highest tax paying sectors of the economy in private sector of Pakistan.

The fertiliser sector uses gas as raw material to produce the key farm input, urea, for the farmers that ensure food security of the masses as well as provide raw material to important industries like textile and food processing.

He warned so far we have only seen the anger of people deprived of electricity and should avoid actions that would result in experiencing the wrath of public with empty stomachs. Courtesy Daily Times

Published in ZaraiMedia.com

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