The ECC directed to run two fertilizer plants on RLNG/ system gas up to August, 2019 subject to the condition that provision of LNG/gas to fertilizer plants should not affect the supply to power plants during peak summer seasons. According to sources, in pursuance of the directions of the ECC, Petroleum Division and SNGPL were advised to restore gas supply to two plants (Fatimafert and Agritech) which remained non-operational from February 14 to 25, 2019 and both plants are now operational. Closing inventory for urea at the end of October 2019 has been projected at 627,000MT. The cost of imported urea vis-à-vis local urea was analysed in a meeting of Fertilizer Review Committee (FRC) and the following observations were made: (i) the agreed feasible price of gas is Rs 782/MMBTU so that the cost may be capped at that level by subsidizing it and total subsidy for it is estimated at Rs 11.191 billion; (ii) it is calculated that GoP at current market prices shall have to provide subsidy of Rs 846 per bag if urea is imported from Middle East. It would be Rs 1061/bag in case of import from China. Quantum of subsidy per bag in case of local production is calculated at Rs 871/bag which implies that in case of urea import from Middle East, it is more than the subsidy for gas price differential, however, it is offset by tax/revenue; and (iii) besides, GST on RLNG which is being charged by FBR at OGRA notified tariff, should be charged at the subsidized price of Rs 782/ MMBTU.
The sources said, Ministry of Industries and Production proposed that two SNGPL-based urea plants may be kept running on RLNG or system gas/RLNG(if available) till end of October 31,2019 and cap the price of gas being supplied to SNGPL based plants at 782/ MMBTU. The ECC may also direct FBR to levy GST at Rs 782/ MMBTU.
On Monday, a meeting was held in the Ministry of Industries and Production to discuss continuation of RLNG supply on subsidized rates. However it did not reach any conclusion as the Finance Ministry argued that the projected subsidy is on higher side.
However, insiders in the Ministry argue that domestic urea fertilizer requirements can be met through utilization of idle manufacturing capacity on low quality, locally available gas by avoiding Rs 40 billion annual imports on subsidized RLNG.
According to official estimates, producing urea from imported RLNG is costing the country even more than the subsidy on expensive imported urea. The annualized burden of importing RLNG to produce urea amounts to Rs 40 billion (an outflow of $ 250 million) on imports and an additional Rs 20 billion in terms of RLNG price subsidy.
"Such a significant financial cost could have been easily avoided as the market is presently well supplied and the local fertilizer industry has the capacity to produce around 6.1 million tons of urea per annum from locally available gas, against a demand of 5.8 million," the insiders added.
On the top of it, imports of urea create an additional unnecessary financial burden in terms of both foreign currency outflow and subsidy.
By discontinuing the supply of subsidized RLNG for urea manufacturing from September 2019, in line with the ECC approval, the government can avoid additional expenditure on account of both subsidy as well as imports of urea.
According to official estimate of National Fertilizer Development Center, with the present level of urea production, ie, 3.3 million tons and imported supplies of 0.1 million tons, the availability of fertilizer during Kharif 2019 would be about 3.4 million tons against estimated demand of 3.0 million tons. Hence, market is flooded by surplus urea which would swell to 0.40 million tons by end of September, causing huge financial burden on fertilizer supply chain that is an integral part of the national economy.
