Seven fertiliser plants: Rs 452 billion to be spent on urea import if gas supply disconnected

Pakistan would have to spend approximately Rs 452 billion annually on account of urea import if government decides to close down fertilizer industry by permanently disconnecting gas to 7 fertilizer plants with annual production capacity of 6.9 million tons. 

The cost of importing 6 million tons of urea for the country would be approximately Rs 312 billion and if government also decides to subsidise this imported urea, it would need additional Rs 140 billion to match the prevailing urea prices. Shahab Khawaja, Executive Director Fertiliser Manufacturers Pakistan Advisory Council (FMPAC) claimed this in a press statement issued here on Tuesday. He said that our current economic condition doesn’t allow us to spend this precious money when our country is self-sufficient in urea production and we can even export our additional production to earn foreign exchange. 

Responding to propaganda against fertiliser industry Shahab said that out of total 4.3 billion cubic feet daily gas production, fertiliser sector’s total gas allocation is just 818 MMCFD but they hardly get 600 MMCFD through MARI and SSGC network as all four fertiliser plants on SNGPL network with 240 MMCFD gas allocation remained shutdown for over 300 days throughout 2012. 

He said that 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. 

Gas allocated for fertiliser sector is not just for the 7 fertiliser plants as claimed by some vested interest but it is for the agriculture sector that represents 21.4 percent in the GDP and also ensures food security of 190 million population. ‘If we permanently shut down our fertiliser plants as advised by some vested interest groups, not only more than US $10 billion investment will be lost, national exchequer would also be deprived of Rs 28 billions of tax money annually. Fertiliser plants are also listed at local stock exchanges with market cap 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,’ he said. 

Shahab said that by producing urea locally, Pakistan is not only saving billions of dollars 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/bag. Government provides Feed/Fuel differential through concessionary feed gas of Rs 250/bag and remaining Rs 765/bag is passed to farmers by the fertiliser sector voluntarily. 

He said that urea is a form of energy; the cost of imported urea is significantly higher than other forms of energy including coal, and RFO. He said that fertiliser usage in the country which touched 6.5 million tons mark in 2009 has decreased to 5.3 million tons in 2012 due to higher urea prices owing to imposition of GST, GIDC and unprecedented gas curtailment of over 88 percent for SNGPL based four fertiliser plants. Instead of closing down any sector of the economy, government should focus on cost benefit analysis of using gas for different sectors of the economy. Fertiliser industry sector is the ‘most energy efficient in comparison to others which include power and CNG sectors, he added. 

If government curtails/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 advised. 

Using gas for producing urea is the most efficient and judicious usage as fertiliser sector offers maximum value addition by converting the raw gas into precious urea grains and country hugely benefits from this import substitution. Gas should be provided as priority to the sector which creates maximum value addition, he added. Fertiliser industry 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/SSGC. Fertiliser sector is also one of the highest tax paying sectors of the economy in private sector of Pakistan. All other industries have alternative fuel options except fertiliser sector that uses gas as raw material to produce the key farm input, urea, for the farmers. 

Copyright Business Recorder, 2013

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