THE RECENTLY announced government policy to divert natural gas towards the energy sector and curtail it for Urea manufacturing and other sectors is a decision which may have serious consequences for the agriculture sector and further discourage the investors. The natural gas is a fossil fuel and it will ultimately deplete, this is all the more reason to be careful about its usage.
Manufacturing sector which is directly linked with agriculture is suffering. Urea which is a basic requirement for our crops faces severe production decline due to non-availability of gas. Textiles industry, dependent on cotton for raw material and natural gas is facing problems.
Natural gas is the basic raw material for Urea. Consequently, if gas is not supplied, the Urea manufacturing sector cannot sustain. Urea fertilizer is a very important input in cotton, wheat and virtually every crop grown in Pakistan. There’s no known alternate to it available to farmers currently. During the last decade, the government had encouraged the Urea manufacturing sector to grow and make the country self-sufficient. In this regard, Engro Enven plant and Fatima Fertilizer were the big projects set up during the past five years. About $3 billion worth of investment was made by the corporate sector. This is in doldrums now and will seriously hurt the country’s agriculture.
Local Urea production is under threat and subsequently farmers will suffer. The scenario is that either enough Urea won’t be available in the market or will have to be imported which will definitely raise the input costs and further increase agriculture production costs. Our decision makers seemed to have totally miscalculated the equation and now Pakistan faces serious issues due to Urea shortage in the future.
Any agri-scientist and farmer would tell you that Urea fertilizer is extremely important for agriculture. This is a known fact for all countries with substantial agricultural production. Till the late 1950s, Pakistan was an agrarian and rural country. Discovery of natural gas in Sui, Baluchistan and subsequently in other parts of Sindh and Punjab encouraged global companies to invest in the Urea manufacturing sector. The Dawood Hercules fertilizer plant set up in Sheikhupura in 1968 was the first project completed with the assistance of World Bank in Pakistan. Over the next 35 years, growth in this sector led to a positive situation whereby, about two-thirds of urea demand was met by local manufacturers and the remaining was imported. Since gas availability was not an issue about a decade back, CNG pumping stations for motor vehicles started coming up with virtually no regulatory oversight or long-term planning. The mushroom and unregulated growth in the CNG stations led to huge conversion of petrol and diesel vehicles to CNG fitted engines and in less than 10 years of time, and now CNG sector consumes more gas than Urea fertilizer manufacturers.
The result for agriculture has been catastrophic. Within two years, urea prices have increased by 141. The GST imposition @ 16 per cent and Gas Infrastructure Development Cess of 193 per cent has added Rs 384/bag. Gas curtailment also resulted in major price increase impact of Rs 537/bag. The increase in urea prices means increase in input costs to farmers and subsequently this will pass onto the consumers.
An argument put forth during the last 2-3 years implies that urea can be imported easily from abroad so why not do that? Definitely, it can be done but the economics make it very difficult for farmers and Pakistani consumers. Imported urea cost is about 3,158/bag and there’s no added value. The government provides a subsidy on this which results in a loss of Rs 55 billion to the national exchequer. The import costs the government $785 million in foreign exchange. Ultimately, the loss on imported urea comes to about Rs 15 billion and thus farmers suffer ultimately as the cost has to be borne by them. Importing Urea, therefore, is a problem not a solution especially in the wake of the fact that Pakistan has sufficient manufacturing capacity.
Local urea manufacturing capacity is 6.9 million tons and this happens to be the 7th largest in the world. The country is unable to utilize 2 million tons of local urea manufacturing due to gas supply issues. Urea is the guarantee to having better yields and food security plus fiber security in case of crops like wheat and Cotton. However, squandering a precious resource like natural gas on fuel burning in individual and transportation vehicles makes no sense.
The energy crisis requires serious attention. Pakistan must work to resolve the circular debt issue and not to make other industrial sectors suffer due to this problem. The continued and ever increasing use of CNG in vehicles is virtually bringing the industrial sector and agricultural manufacturing sector to a halt. Textile and urea manufacturing is getting seriously curtailed down and will have disastrous impact for the economy. It is time to rationalize the usage of precious natural gas resources. Agriculture and related Industry is the key to sustainable economy for Pakistan. If we are unable to rationalize the Natural gas utilization, it would imply and ensure that irrational policies have derailed our industry.