The government is considering re-prioritizing natural gas supply

Islamabad:

In response to the economic challenges and the rapid depletion of natural gas reserves, the government is considering re-prioritizing the Merit Order for natural gas procurement in various sectors. The Merit Order, which gives priority to domestic consumers, is under scrutiny as the economic decision-making body debates measures to address gas supply to fertilizer plants.

During a recent meeting of the Economic Coordination Committee (ECC), concerns were raised about the significant foreign exchange required to import both Regasified Liquefied Natural Gas (RLNG) and urea. Members stressed the need to re-prioritize the Merit Order for gas supply in light of the economic situation and depletion of natural gas reserves.

Natural gas reserves are depleting fast and supply of domestic gas to Fatima and Agritech fertilizer plants during Rabi season is becoming difficult. The committee suggested a 50:50 mix of RLNG and domestic gas for these units, stressing that the high cost of RLNG should not be borne by poor farmers but should be borne by the fertilizer factories themselves.

The committee urged the Petroleum Directorate to develop a mechanism to recover gas cost difference. In addition, the ECC has approved the import of 200,000 metric tonnes of urea through the Trading Corporation of Pakistan (TCP) to meet the demand during the current Rabi season.

Regarding fertilizer pricing, the ECC ordered a committee, constituted in an earlier meeting on October 3, 2023, to work with fertilizer manufacturers. The petroleum department has been directed to review the existing contracts and propose uniform pricing of natural gas, either full RLNG or blended, with a summary to be submitted to the ECC.

To address the subsidy on imported fertilizers, the ECC decided that the provinces should bear the cost and the Secretaries of the Finance Department and the Industries & Production Department were directed to involve the provinces in importing urea and share the burden of the subsidy.

The fertilizer industry in Pakistan has faced criticism for getting natural gas at discounted prices while raising the prices of urea and diammonium phosphate (DAP), making them unaffordable for farmers. Despite receiving funds from farmers to develop gas infrastructure, fertilizer manufacturers have not deposited the amount with the national treasury, leading to legal disputes.

Reading: ECC fails to stop cheap gas supply

The Ministry of Industries and Production has submitted a summary for the extension of Sui Northern Gas Pipelines Limited (SNGPL) based fertilizer plant operations beyond October 15, 2023 to March 31, 2024, to import 200,000 metric tons and supply maximum gas volume / pressure on Fauji Fertilizer Bin Qasim (FFBL). The Greek Cypriot Council is awaiting a decision of the Council of Ministers on this matter.

Due to the urgency of the situation, the Office of the Prime Minister has instructed the CEC to prioritize the summary for review. A meeting chaired by the finance minister on October 22, 2023, led to recommendations for uninterrupted gas supply to all fertilizer units. The petroleum department was tasked with proposing uniform natural gas pricing and a mix of RLNG and domestic gas, and a summary was to be submitted to the ECC.

He suggested the immediate import of 200,000 to 500,000 metric tons of urea, with the subsidy of imported fertilizers borne by the provinces.

Finance Department suggests that due to absence/depletion of system gas, RLNG may be supplied to Fatima Fertilizer (Sheikhupura) and Agritech at OGRA fixed price in short term. The difference on account of supply of RLNG to SNGPL based units can be incorporated in SNGPL’s Revenue Claims and recovered from other consumers.

Published in The Express Tribune, November 18^u2023.

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