Pakistan’s economic administrators rejected a proposal to impose another license on natural gas consumers to cover 50% of the price difference in subsidized natural gas supply to fertilizer plants.
Among the different proposals, one was to recover the price difference for gas supply to two fertilizer factories – Fatima Fertilizer (Sheikhupura) and Agritech – by imposing an exemption on gas consumers.
The Directorate of Petroleum had submitted the proposal in a recent meeting of the Economic Coordination Committee (ECC).
It said Sui Northern Gas Pipelines Limited (SNGPL) may be allowed to resume gas supply to Fatima Fertilizer and Agritech plants with the regasified liquefied natural gas (RLNG) tariff notified by the Oil and Gas Regulatory Authority (Ogra). for urea production from 1 November 2023 to 31 March 2024 on a full cost recovery basis.
The ECC was informed that a committee consisting of secretary petroleum, secretary finance and secretary industry had met to discuss the supply of RLNG to Fatima Fertilizer and Agritech units.
During the conversation, a few options were considered. Full cost recovery of RLNG from the two fertilizer producers was proposed. The second option was to spread the difference between the prices of RLNG and domestic gas between the two stations.
Another option was to spread the difference between the prices of RLNG and domestic natural gas across the industry and the committee also suggested spreading the difference in gas price to captive power plants.
It was proposed that both plants be transferred to the Mari Petroleum network. Another proposal was the full contribution of the provinces to cover the price difference. The last option was to impose a commitment to cover 50% of the price difference while the remaining 50% would be financed by provinces.
The ECC observed that there was already a wave of appeals against the Gas Infrastructure Development (GIDC) process, hence the proposal to slap any further disruption would not be sustainable.
Fertilizer manufacturers had received billions of rupees from farmers on behalf of GIDC but did not deposit it in the national treasury. Instead, they filed lawsuits to stop the release.
The ECC members suggested that financing options like financing from the Islamic Development Fund and SABIC be explored for the import of urea as it would not affect Pakistan’s foreign exchange reserves.
It was noted that Fatima Fertilizer and Agritech could produce 350,000 tonnes of urea if operational from November 2023 to March 2024, provided they are supplied with gas.
The cost of importing 100,000 tons of urea was estimated at $40 million, so importing 300,000 tons would require $120 million. In addition, Rs 24 billion will be needed for the subsidy to sell costly imported urea at market prices to farmers.
It was pointed out that agriculture was subject to devolution, therefore, provinces should be considered to bear the cost of the subsidy. Apart from this, substantial foreign exchange would be required to import urea, while the provinces had not shared the subsidy in the past.
The ECC noted that during the past year urea was smuggled without any control, which led to its shortage. Therefore, its actual demand should be assessed through professional study.
The Petroleum Department highlighted that SNGPL-based fertilizer plants were being supplied with domestic gas at a tariff of Rs 1,050 per million British thermal units (mmBtu) till October 15, 2023, in compliance with the ECC decision.
It was pointed out that domestic gas supply could be extended only for 15 days i.e. till October 31 as SNGPL did not have domestic gas to continue supply to both the units after November 1 when domestic consumer demand would pick up because of winter.
“In the absence of domestic gas, only RLNG can be supplied at full cost recovery. If RLNG is supplied at the domestic gas tariff leading to a difference of Rs 1,050 per mmbtu, the same must be taken as subsidy to avoid further loss of revenue to SNGPL.”
In the absence of domestic gas supply, such a decision would have a financial impact of Rs 29 billion in terms of tariff differential between RLNG and domestic gas for five months from November 2023 to March 2024.
The ECC considered a summary submitted by the Petroleum Department titled “Measures to meet requirement of urea fertilizer for Rabi season 2023-24” and approved the proposal.
He clarified that since the production of urea would help mitigate the fertilizer demand in the provinces, the cost difference between RLNG and domestic gas would be borne by the provinces and the mechanism to reimburse the costs to the fertilizer units or direct payment to SNGPL, as per as the case may be, it will be developed by the Industries and Production Directorate, the Petroleum Directorate and the Finance Directorate.
Published in The Express Tribune, November 22n.d2023.
a href=”https://tribune.com.pk/story/2447526/ecc-rejects-gas-cess-proposal”>Source link