Islamabad:
Cabinet members urged Prime Minister Shehbaz Sharif to introduce uniform gas prices in a bid to eliminate alleged favouritism, which benefited some manufacturers.
Currently, different gas prices are charged by urea manufacturers. Some pay lower tariffs while some others are asked to pay higher prices.
However, all manufacturers receive the same prices for supplying fertilizer to farmers, indicating that companies that pay lower gas tariffs make more profit.
During a recent cabinet meeting, one member insisted that all fertilizer manufacturers should be supplied with gas at a single price and there should be no favouritism.
Another member pointed out that if fertilizer manufacturers charged different prices in response to fluctuating gas prices, it would distort the market.
In response, it was clarified that the different gas prices were imposed due to long-term binding contracts. This signals that bogus deals were signed with fertilizer manufacturers to extract billions of rupees from farmers.
The government is now amending agreements with independent power producers (IPPs), so the issue of gas tariffs collected by fertilizer companies should also be discussed, experts say.
During the discussion that followed, the prime minister was asked about gas pricing and the final recommendations of the ministerial committee. The Deputy Prime Minister explained that sufficient work has been done to achieve the current arrangements, as earlier the Ministry of Industries and Production and the Directorate of Petroleum had completely different views.
He said one section insisted that fertilizers should be exported, while the other opposed any such proposal. He revealed that the ministerial committee had discussed all the issues and decided that there is no need for imports, but supplies and prices must be carefully managed.
The Economic Coordination Committee (ECC), in its meeting held on August 2, 2024 to review a summary titled “Fixation of Price of Imported Urea for Kharif 2024” related to the Ministry of Industries, directed the Directorate of Petroleum to ensure the uninterrupted gas supply to Fatima Fertilizers and Agritech after September 30, 2024.
In addition, a committee was constituted under section 173 of the Business Rules, 1973, to be convened by the deputy prime minister, to suggest appropriate measures to ensure stability of urea prices. It was also directed to submit a report on the matter within two days for consideration by the prime minister and the cabinet.
The cabinet was informed that the committee held two meetings – one on August 17 and one on September 25. In the first meeting, the committee was informed that the total urea requirement for the Rabi sowing season could be met entirely through domestic production. current capacity is 6.25 million metric tons per year.
However, if Fatima Fertilizer and Agritech were to shut down, domestic production would face a shortfall of 420,000 tonnes for the Rabi season, which would require imports of urea at a cost of $169 million. It would also require an additional subsidy of Rs 22.45 billion to price match locally produced urea.
It was pointed out that the committee stressed the need for continuous operation of the two plants and directed the Directorate of Petroleum, with the support of the Ministry of Industries, to negotiate with the two manufacturers to increase gas tariffs by 200 to 300 rupees per million British thermal units. . (mmBtu).
For the second meeting, the Petroleum Directorate presented two options to increase gas tariffs for the two units – Rs 1,800/mmBtu and Rs 2,000/mmBtu, under which the additional revenue for Sui Northern Gas pipelines would be 466 million and Rs 932 million per month, respectively.
Both options were discussed with the management of the plants, but they were of the view that it would not be possible for them to continue operating with higher gas tariffs.
During the meeting, the Petroleum Directorate clarified that maintaining the natural gas tariff at current levels would result in an increase in liquefied natural gas (LNG) prices by $0.5744 per mmBtu, reducing its value to consumers.
The Petroleum Directorate agreed that the current arrangements could continue for the next two months. Given the importance of the agricultural sector and the recent setbacks faced by farmers, particularly in relation to wheat prices, it was deemed important not to increase fertilizer prices.
After detailed discussion and for the reasons mentioned in the report, the committee decided that in terms of gas tariff, the status quo will be maintained and Fatima Fertilizer and Agritech will supply gas at Rs1,597/mmBtu till December 15 2024.
It was agreed that the Directorate of Petroleum and the Ministry of Industries would negotiate with the fertilizer industry to arrive at a single gas price.
The Cabinet considered a summary titled “Report of the Cabinet Committee on Ensuring Stability of Urea Market Prices” submitted by the Department of Industries and Production and directed that no imports of fertilizers be made.
Fatima Fertilizer and Agritech will procure natural gas until March 31, 2025 to ensure price stability and adequate supply in the market.
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