Why spend Rs 452b more on fertilizer import?


Pakistan would have to spend approximately Rs 452 billion annually on urea imports if the government decided to close down the fertiliser industry by permanently disconnecting gas from seven fertiliser plants with a combined annual production capacity of 6.9 million tons.
The cost of importing 6.0 million tons of urea would be roughly Rs 312 billion while an additional Rs 140 billion would be needed to subsidize this imported urea to match the prevailing urea prices. Fertiliser Manufacturers Pakistan Advisory Council (FMPAC) Executive Director Shahab Khawaja said that the country’s current economic condition did not allow incurring approximately Rs 452b on urea imports.
Shahab said that of the total 4.3 billion cubic feet of daily gas production, the fertiliser sector’s total gas allocation was just 818 MMCFD, and moreover, the sector was receiving barely 600 MMCFD through the MARI and SSGC networks as all four fertiliser plants on the SNGPL network with an allocation of 240 MMCFD remained closed for over 300 days in 2012. He said the gas allocated via the MARI network was low MMBTU gas (inferior quality gas) which could not be used for power generation or domestic consumption, and was therefore being utilized by domestic fertiliser plants to prevent it from being wasted.
“If we permanently shut down our fertiliser plants as advised by some vested-interest groups, in addition to losing more than $10 billion in fertiliser sector investments the national exchequer would also be deprived of the fertiliser industry’s annual tax revenues of Rs 28 billion. The fertiliser industry has paid over Rs 140 billion in taxes in last five years,” Shahab pointed out.
Furthermore, he said that many fertiliser plants were also listed at local stock exchanges with a cumulative market capitalisation worth billions of dollars, and therefore, their closure would result in loss of investors’ confidence and subsequently raise bank defaults and in turn affect the government’s privatisation program.
Shahab added that by producing urea locally, in addition to saving billions of dollars in foreign exchange annually, Pakistan was also providing affordable urea to its farmers which aided in keeping the crops production costs in control.
In 2012 the average delta between domestically and imported urea prices was Rs 1,015 per bag out of which the government provided Rs 250 per bag in feed/fuel differential through concessionary feed gas and remaining Rs 765 per bag was voluntarily passed to the farmers by the fertiliser sector, he said. Shahab added that urea was a form of energy and that the cost of imported urea was significantly higher than other forms of energy including coal, and RFO.
He said the fertiliser usage in the country touched 6.5 million tons in 2009 but had since exponentially declined to 5.3 million tons in 2012.
This lower consumption/demand was due to higher urea prices owing to imposition of the GST, the GIDC and unprecedented gas restrictions of over 88 percent for the SNGPL based four fertiliser plants which possessed an aggregate production capacity of approximately 2.3 million tons, he pointed out. Furthermore, Shahab said that in contrast to the power sector (including government operated power generation companies Genco’s, IPPs etc), other industries, captive power plants and CNG the sector, the fertiliser industry was the most energy efficient sector.
Shahab said that if the government could minimise gas losses in the country the current gas crisis could be brought under control without reducing the supply to any sector at all. The ‘system inefficiencies’ in the SNGPL and the SSGC distribution networks were the core problem and had never been addressed properly, he added.