Gas shortage to fertilizer sector may cost $450m to exchequer


Fertiliser Manufacturers Pakistan Advisory Council (FMPAC) has warned that if uninterrupted gas supply to all domestic fertilizer plants; especially the SNGPL-based four plants that faced more than 300 days of gas curtailment in 2012, is not restored, the country would have to import around one million tonnes of urea in 2013 which can cost the national exchequer $ 450 million dollars in addition to a subsidy of Rs 21 billion to equalise the imported urea price to domestic prices.
Massive losses in urea production due to excessive gas curtailment in the past 3 years has resulted in the government spending precious foreign exchange worth $ 1.5 billion and granting a subsidy of around Rs 80 billion on imports of 3.4 million tonnes.
Pakistan is self-sufficient in urea production and with consistent gas supply to production plants, the government can ensure timely availability of this key input to farmers at economical rates and would also reduce the government’s fiscal deficits and subsidy expenditures.
FMPAC Executive Director Shahab Khawaja said given the deplorable fiscal state of the economy, Pakistan cannot afford to spend hundreds of millions of dollars on a commodity that it is fully self-sufficient in to the point it can even export surplus production to earn the much needed foreign exchange for the country.
He said SNGPL dependant fertilizer plants, that include Pakarab, DH Fertilizers, Agritech and Engro’s massive new plant, faced around 90% gas curtailment in 2012 that significantly brought down urea production- to 4.2 million tonnes against 4.8 million tonnes produced in 2011. Pakistan currently has the capacity to produce 6.9 million tonnes of urea. He said SNGPL-based fertilizer plants were completely shut for 4 months. He said it was hoped that following winters, gas supply would be restored but currently only 2 of these plants are operating at 75% capacity with two days a week supply only.
He said the fertilizer sector is not merely burning gas to run plants but offers maximum value addition by converting raw gas into precious urea grains that are vital to Pakistan’s agricultural sector. He said by not producing urea locally we are hurting the interests of poor farmers, who ensure food security to 190 million people of the country. He added that this also implies that Pakistan has to import urea which is the most expensive form of energy on an MMBTU basis, costing around $23 per MMBTU, whereas RFO and LNG would cost 30 to 50% less than urea on an MMBTU basis.
He said that for the economy of Pakistan to prosper, it is important for agricultural yields to go up which is only possible through use of fertilizers in the right quantity and at the right time. The decline in urea production poses a severe threat to the crop yield, which will result in the country missing its yield and export targets, he said further. Khwaja added that all these factors can aggravate inflation in the country which is already higher as compared to other regional countries and also poses a threat the food security of over 190 million people.