ISLAMABAD: The Federal Government has directed Sui Southern Gas Company Limited (SSGCL) to divert gas to Fauji Fertilizer Bin Qasim Limited (FFBQL) curtailed from export-oriented industry or any other source and also sign a Gas Supply Agreement (GSA) with it, sources in Petroleum Division told Business Recorder.
On February 3, 2021, Petroleum Division informed the ECC that FFBQL was the sole producer of Di-Ammonium Phosphate (DAP) in Pakistan and only fertilizer plant operating on SSGCL's system. For supply of gas, FFBQL in 1995 executed first principal Gas Supply Agreement (GSA) with SSGCL which was subsequently amended in 2007 and 2016 respectively.
In the last amended GSA, the second addendum to GSA came into effect from January1, 2016 with extension of gas supply period upto five years i.e., until December 31, 2020 with the condition that gas supply to the plant would be contingent upon availability of supply of indigenous and imported natural gas to SSGCL.
As per original allocation, FFBQL was to be supplied 85mmcfd gas (70 mmcfd for feedstock and 15 mmcfd for fuel-stock) which continued to be in field until April, 2010 when the Government decided to curtail 20% supplies of fertilizer industry across the board for diversion to power sector to meet power shortfall. In pursuance of the decision, SSGCL reduced the original allocation of FFBQL to 68 mmcfd and it was adequately covered in the respective GSA with the condition that no damages would be imposed by FFBQL if at times the supply made by SSGCL was below 68 mmcfd. Before the expiry of the GSA, FFBQL submitted written requests to SSGCL and Petroleum Division for renewal / extension of GSA for another term of five years on the same terms and conditions. However, SSGCL was consistent in its stance that owing to depletion of gas sources and increase in gas demand on its system it would not be able to supply indigenous gas to FFBQL instead RLNG can be offered at notified price and GSA can be extended on the latter proposition.
Petroleum Division held a few meetings with SSGCL and FFBQL on the issue and suggested various options to FFBQL including blended supply of RLNG and system gas but FFBQL argued that its current business model was unsustainable if gas tariff for fertilizer (feedstock) was raised beyond its current level of Rs. 302/mmbtu. Meanwhile, the GSA of FFBQL expired on December 31, 2020 while the plant proceeded on its annual maintenance activity in January, 2021. FFBQL had also made a request to Petroleum Division that SSGCL may be advised to continue indigenous gas supply while GSA terms may be decided in parallel. However, in the absence of executed GSA and persistent gas shortfall on SSGCL's system which is being bridged through supply of 150 to 200 mmcfd RLNG for past many months, gas supply to FFBQL could not commence. The issue was also raised in the Federal Cabinet in its meeting held on December 29, 2020 when it was highlighted that the plant would not be provided gas until a decision on allocation of gas was made by the Government.
Petroleum Division further noted the request from the sister concern of FFBQL i.e., M/s Fauji Fertilizer Company Ltd (FFCL) of a commitment from GoP for provision of 30 mmcfd natural gas for 20 years [concessionary price ($ 0.77/ mmbtu) period of first 10 years as per the Fertilizer Policy 2001] for setting up of a new DAP production plant. With respect to gas tariff charged to the fertilizer sector in the country, it was a highlighted that currently four types of gas tariffs were being charged to fertilizer plants which are as follows; (i) uniform tariff (indigenous gas supply, feedstock rate Rs 302 per MMBTU, fuel stock rate, Rs 1023 per MMBTU; (ii) concessionary tariff( indigenous gas supply), feed stock $ 0.70/ MMBTU( Rs 112), fuel stock, Rs 1023 per MMBTU; (iii) Petroleum Policy, 2012( indigenous gas) - feedstock rate, Rs 635 per MMBTU, fuel stock rate, Rs 635 per MMBTU and; (iv) subsidized tariff (RLNG supply), feedstock rate, Rs 772 per MMBTU and fuel stock rate, Rs 772 per MMBTU.
Petroleum Division apprised that the concessionary tariff of US$ 0.70/ mmbtu was currently being availed by Fatima Fertilizer Ltd (FFL) and Engro Fertilizer Ltd (EFL-Enven). The concessionary period of FFL's plant is set to expire in July, 2021 after completing 10 years from the date of its Commercial Operation Date (COD) whereas expiry of EFL's concessionary period is June, 2021 (which is disputed, SNGPL and EFL are expected to resolve it which will be mutually resolved).
It was also stated that once the concessionary period comes to an end for both the plants, Government would review the entire gas tariff of fertilizer industry consuming indigenous gas and existing distortions would be removed for creating a level playing field for all players. It was noted that the cost of gas being charged to FFBQL under the expired GSA was Rs. 302/mmbtu, while RLNG cost for the month of December, 2020 was Rs 1 ,306/mmbtu, resulting in a difference of approximately Rs 25 billion for the full 68 mmcfd per year. The existing cross subsidy based on the difference of tariff charged to FFBLQ of Rs 302/mmbtu and actual cost of supply of SSGCL of Rs. 750/mmbtu works out to be Rs 11 billion per year. The actual cross subsidy availed by FFBQL from July — December, 2020 was Rs 4.78 billion.
Petroleum Division further stated that with respect to gas supply to FFBQL's plant, Petroleum Division was of the considered view that it was the only DAP producing plant in the country and non-operation of the same would lead to import of additional DAP, thereby putting burden on foreign exchange reserves.
Hence, SSGCL may execute a GSA with FFBQL on indigenous natural gas "as and when available basis" for another term of five years. SSGCL may restore the gas supplies to FFBQL until December 31, 2021 or until a uniform price for the entire fertilizer sector is formulated (whichever is earlier).
During that period the Government may ensure allocation of an equivalent volume of gas to SSGCL from any other source or through curtailment measures as approved by the Cabinet Committee on Energy (CCoE) for captive units on January 21, 2021.
The ECC approved the proposal with the direction that supply of gas to M/s Fauji Fertilizer Bin Qasim Limited (FFBQL) will be consistent with the ECC's approved gas allocation and management priority order.
Copyright Business Recorder, 2021
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