Unprecedented cut in gas supply: fertiliser plants faced 89 percent production loss in 2012

Fertiliser sector in Pakistan has faced yet another year of dismal performance due to unprecedented cut in gas supply as SNGPL based fertiliser plants lost production by 89 percent in year 2012. Out of total production capacity of over 2.2 million tons, SNGPL based fertiliser plants produced only 256,500 tons of urea in year 2012, which is lowest ever production by these fertiliser plants in the history of this sector. 

Producing only 11.6 percent of the total urea production capacity of SNGPL based fertiliser plants shows the worst ever gas curtailment being faced by the fertiliser plants in the country, said Fertiliser Manufacturers Pakistan Advisory Council (FMPAC) spokesman here on Thursday. 

The combined urea production figures are also very dismal as the whole fertiliser sector on SNGPL as well as Mari network only produced 4.1 million tons of urea compared to 4.8 million tons it produced last year against an installed capacity of 6.9 million tons. The overall production loss of 2.8 million tons in a year has never been witnessed before. Currently, all four fertiliser plants on SNGPL network are facing a complete shutdown, which has resulted 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 chaotic gas situation in the country. 

Year 2011 and 2012 have been the worst years for fertiliser sector as instead of providing gas to local fertiliser plants to produce economical and affordable urea domestically, the government preferred to import Urea by spending a hefty amount of over US $1 billion from precious foreign exchange. 

Spokesman said that fertiliser sector has been witnessing a steep fall in its production as it produced 5 million tons of urea in 2009 against a capacity of 5 million, 5.15 million tons against 5.6 million tons of capacity in 2010, 4.9 million tons against 6.9 million tons capacity in 2011 and finally 4.1 million tons against the total production capacity of 6.9 million tons in 2012. 

According to Fertiliser Manufacturers Pakistan Advisory Council (FMPAC) spokesman, despite the unprecedented gas curtailment in last two years, domestic urea manufacturing plants have provided Rs 365 billion benefit to the farmers over the last 5 years, by keeping local urea prices significantly below international levels. 

He said that there is a misconception that fertiliser manufacturers enjoy raw material subsidy from the government in the form of reduced feed gas prices. This subsidy is not for the manufacturers, but is in fact passed on to the farmer via reduced prices. 

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 difference between price of domestic and international urea is more than Rs 1,000 per bag. Therefore, he said that 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 government. 

He said that of the total urea price increase in last two years, about 80 percent has resulted from imposition of GST on urea and cess on gas, and general inflation. Only 20 percent of the price increase is due to gas curtailment as government did not honour its gas supply contracts with the fertiliser manufacturers despite the fact that industry has recently invested $2.3 billion in the country based on the government approved policy designed to encourage investment in the sector. 

FMPAC spokesman said that not just the fertiliser plants who suffered losses due to gas curtailment but the government has also incurred significant losses by importing urea worth over $1 billion and providing subsidy of over Rs 50 billion on imported urea in the last 2 years. Urea is the most expensive form of energy that is imported costing around $23/MMBTU, whereas RFO and LNG would be 30-50% less expensive than urea on a MMBTU basis, he added. 

He said that government must realise that agriculture contributes around 24 percent to the GDP of Pakistan and it also provides raw materials to all the major industries of Pakistan including, textiles and sugar. For the economy of Pakistan to prosper, it is important for agricultural yields to go up which is only possible through the application of fertilisers in the right quantity at the right time. The decline in urea production poses a severe threat to the crops yield, resultantly the country might miss its agriculture and export targets and further risks the food security of the country by depending on imported food items. 

Copyright Business Recorder, 2013

Muhammad Ramzan Rafique
Muhammad Ramzan Rafique

I am from a small town Chichawatni, Sahiwal, Punjab , Pakistan, studied from University of Agriculture Faisalabad, on my mission to explore world I am in Denmark these days..

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