Govt mulls local, imported gas mix to revive closed urea plants

LAHORE: To deal with a likely urea shortage of about 0.5 to 0.6 million tons, up to mid Rabi 2018-19, the government is mulling a mix of local and sourced gas to restore one million tons of idle manufacturing capacity, instead of opting for costly imports, an official said on Tuesday.

“We are expecting a shortage of about 0.15 million tons of urea during current Kharif season, while there could be a gap of approximately 0.45 million tons in demand and supply in early Rabi,” said an official.

Against the demand of two million tons in early Rabi till January 2019, it is estimated that there will be less than 1.8 million tons of local urea production. On the other hand, there should be about 0.2 million tons additional supply of fertilizer in the market to control its prices.

In order to bridge this gap, official circles disclosed that the government was considering an out-of-the-box solution that involves provision of natural gas to closed urea fertiliser manufacturing plants.

Fertililser Review Committee is expected to finalise the proposal of providing subsidsed gas to urea manufacturers, today (Wednesday).

According to proposal being prepared by National Fertiliser Development Center, a mix of 72 percent imported Regasified Liquefied Natural Gas (RLNG) and 28 percent local gas on subsidised rates is to be provided to three closed urea fertiliser plants having about one million tons production capacity.

These redundant plants are not working since last summer due to non-supply of nature gas at the network of Sui Northern Gas Pipelines Ltd (SNGPL).

The government will provide Rs950/bag subsidy on supply of natural gas, which is much less to the subsidy amount of Rs1,100 involved on importing urea, as per proposal.

In addition, to lower the amount involved in subsidy, there will be Rs 2.5 billion additional tax collection/annum on account of local manufacturing of fertiliser. On top of that, the government will not require any foreign exchange for importing urea if local manufacturing is being given a priority.

The local manufacturing also provide an added advantage as availability of urea can be ensured in minimum possible time against 2-3 months required for importing the fertiliser.

If this proposal is approved by the competent quarters, the supply of natural gas to closed plants will start within a week and urea will be available at retail level across the country within a fortnight.

Besides providing 10,000 direct or indirect jobs, money circulation will also increase due to greater economic activity on the back of local manufacturing of urea.

The revival of industrial output will directly add in economic growth of the country.

If this proposal gets a green signal, it will indeed result in huge benefits to all the stakeholders, the sources said.

“It would be insanity if someone opts for imports when local manufacturing capacity is available,” they added.

An official explained that as per calculation of the subsidy amount, as much as 1.5mmbtu gas is required for manufacturing a 50kg bag of urea.

“The per mmbtu cost of mixed RLNG and local gas would be Rs1,850 and out of this amount, government would bear Rs950 as a subsidy to manufacturers,” the official added.

The Sui Northern Gas Pipelines (SNGPL) has already given its consent for providing local gas as per share of 28 percent during winter months to the closed plants in order to mix it with local gas.

The resumption of gas supply will benefit plants such as Pakarab Fertiliser Ltd (PFL), Fauji Fertiliser (FF), and Agritech. These plants have experienced frequent shutdowns on account of non-availability or lack of affordability of gas.

All these plants remained non-operational during 2018 and also were out of operation for almost eight months during 2017, thus negatively impacting the production, which has resulted in price hike of urea by more than Rs 250/bag besides huge financial losses to the aforementioned companies.