Fertilizer manufacturers oppose cutting gas supply to their plants

Karachi: Pakistan would have to spend approximately 452 billion rupees annually on account of urea import if the government decides to close down fertilizer industry by permanently disconnecting gas to 7 fertilizer plants with annual production capacity of 6.9 million tons, said Shahab Khawaja, Executive Director Fertilizer Manufacturers Pakistan Advisory Council (FMPAC) here Tuesday.

He said the cost of importing 6.0 million tons of Urea for the country would be approx 312 billion rupees and if the government also decides to subsidize this imported urea, as is the practice with imported urea, it would need additional 140 billion rupees to match the prevailing urea prices.

Shahab Khawaja said that our current economic condition doesn’t allow us to spend approximately 452 billion rupees 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.

Shahab said that out of total 4.3 billion cubic feet daily gas production, fertilizer sector’s total gas allocation is just 818 MMCFD but they hardly get 600 MMCFD through MARI and SSGC network as all four fertilizer plants on SNGPL network with 240 MMCFD gas allocation remained shut 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 utilized by domestic fertilizer plants saving it from being wasted.

He said that gas allocation for Fertilizer Sector is not just for the 7 fertilizer plants as claimed by some vested interest but it is for the agriculture sector of the country that represents 21.4% in the GDP and also ensures food security of 190 million population of this country.

He said if we permanently shut down our fertilizer plants, not only more than US$ 10 Billion investment in fertilizer sector will be lost, but the national exchequer would also be deprived of Rs. 28 billions of tax money annually as Fertilizer Industry has paid over Rs. 140 billion taxes in last five years. Fertilizer 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 privatization program as well.

Shahab said that 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/bag. Govt provides Feed/Fuel differential through concessionary feed gas of Rs. 250/bag and remaining Rs. 765/bag is passed to farmers by the Fertilizer 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 fertilizer usage in the country which touched 6.5 million tons mark in 2009 has phenomenally decreased to 5.3 Million Tons in 2012. This lower consumption/demand is due to higher urea prices owing to imposition of GST, GIDC and unprecedented gas curtailment of over 88% for SNGPL based four fertilizer plants with an aggregated production capacity of approx 2.3 Million Tons.

He said 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. Fertilizer 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 CNG se6ctor.

If government curtails/minimizes 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.

Using gas for producing urea is the most efficient and judicious usage as fertilizer 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.

Fertilizer 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. Fertilizer 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 fertilizer sector that 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 that 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.