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July 1, 2020

ECC set to approve RLNG supply to fertiliser plants

Business

July 1, 2020

ISLAMABAD: The Economic Coordination Committee (ECC) of the cabinet is likely to approve supply of re-gasified liquefied natural gas (RLNG) at concessional tariffs to fertiliser plants, in a meeting slated for Wednesday (today), informed sources said on Tuesday.

The sources told The News that RLNG would be supplied to Agritech and Fatima Fertilizer that remained closed due to unavailability of feedstock for seven months.

The government may offer Rs756/million metric British thermal unit (MMBtu) as gas price with variable contribution margin at 119 percent of the revenue to both the units of Agricteh and Fatima for three months (July to September). The fertiliser plants with approximately one million tons production capacity were closed because of unavailability of local gas, while imported gas was costly and economically not viable for them.

Another option presented by the ministry of industries to the ECC is to allow import of 200,000 metric tons of urea to ensure sufficient national stocks. Urea inventory is expected to be below the buffer stock level of 200,000 metric tons in December and January and February next year, according to the National Fertilizer Development Centre.

“The ECC may opt for operationalising the plants to save foreign exchange and help the local industry,” a senior official of the ministry said. Subsidy on import by the government at current cost and freight price has been estimated at Rs3.44 billion with a foreign exchange requirement of $47.6 million.

An official document said LNG consumption in power and fertiliser sectors will be maximised to keep smooth operations of LNG supply chain. “Due to COVID-19 pandemic resulting in reduced gas demands, the existing LNG operations face challenges,” it added.

Currently, the average LNG price for August delivery is around $2.2/MMBtu. It even dropped below $2/MMBtu last month due to low demand and lack of storages. But, the government failed to exploit this price opportunity.

Islamabad is in a 15-year agreement with Doha to import LNG at a price currently higher than the spot price. Two state-run companies Pakistan State Oil (PSO) and Pakistan LNG Limited (PLL) have been importing LNG for the last several years and have full monopoly on import business.

In FY20, around 6.9 million tons of LNG were procured against nine million ton of imports. PSO handled 4.4 million tons and PLL 2.5 million tons. In December 2018, the government allowed private sector to directly import LNG to meet energy demand and end monopoly of the state-owned enterprises over multimillion dollars imported fuel market.

But, private sector has been kept out of this business despite the government permission.

“State-run companies are creating hurdles in LNG private import,” an industry representative said, requesting anonymity.

The official, who attended the ECC recent meeting in which a financial support for agriculture sector was approved, said the committee had directed ministry of industries and production to timely make arrangements for averting possible shortages of fertiliser, while expecting high demand after the package.

“With this support package, recently increased wheat and sugarcane support prices and government plan to procure more grains from farmers this year, demand of fertiliser will definitely increase,” said the official. “Farmers will use additional fertilisers to get bumper crops.” Under the package, subsidy of around Rs37 billion would be offered to farmers on purchase of fertilisers. This would include subsidy of Rs925 per bag of diammonium phosphate and other phosphatic fertilisers and Rs243 per bag on urea and other nitrogen fertilisers. Official circles said the government planned to gradually move out of import business, while licence applications for LNG imports are under consideration. Under the new code, compressed natural gas, textile, fertiliser and other sectors can import LNG, re-gasify and inject it into the gas pipelines system for supply nationwide. A private party intending to import LNG will have to take licence from the Oil and Gas Regulatory Authority and other relevant authorities and pay pipeline use charges to Sui Southern Gas Company or Sui Northern Gas Pipelines Limited.