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Two urea plants: Ministry seeks Rs2bn grant for subsidy

ISLAMABAD: The Ministry of Industries and Production (MoI&P) has sought over Rs2 billion supplementary grant for...
Updated 08 Mar 2021

ISLAMABAD: The Ministry of Industries and Production (MoI&P) has sought over Rs2 billion supplementary grant for subsidy on provision of gas for production of 0.7 million tons of urea from two urea plants on SNGPL system.

Official documents available with Business Recorder reveal that a meeting of Fertiliser Review Committee (FRC) was held on February 19, 2021 under the chairmanship of Minister for Industries and Production, Hammad Azhar during which it was reported that the country would be experiencing shortage of around 370,000MT in December 2021.

In order to address this shortage, and keep the buffer stocks above 200,000MT, during the calendar year 2021, the meeting discussed two options i.e. import or production from SNGPL based urea plants.

National Fertiliser Development Centre (NFDC) was requested to work out the comparative analysis for import viz-a-viz domestic production of urea from two SNGPL based plants from March to December 2021, so that the anticipated shortage for urea fertiliser during the current year may be avoided. According to NFDC, import is expensive compared to local production by Rs13.6 billion.

The MoI&P in its summary estimated that if operations of the two plants are allowed from March onwards till December 2021, around 700,000MT would be added in the national inventory, which will help maintain a downward pressure on prices if the national stocks are to remain above the buffer stock level of 200,000MT.

ECC in its October 26, 2020 approved the Variable Contribution Margin (VCM) rate for running of two plants (Fatima Fert, Sheikhpura and Agritech). The same calculation of VCM may be utilised for operationalizing these two plants for an approximate period of 10 months from March-December 2021 (approximate contribution of these plants would be 70,000 tons urea per month).

Gas price of Rs805/MMBTU for these plants has been worked out with the rate of VCM at Rs186/bag (dealer transfer price of Rs1679/bag, as determined in FRC meeting of February 19, 2021).

Keeping in view the future scenario, the MoI&P has submitted the following options: (i) operations of two plants at SNGPL network i.e. Agritech and Fatima Fertiliser (Shiekhupura Plant) may be allowed from Mar-Dec, 2021). Gas rate for operations of these plants for the period Mar-Dec, 2021 may be at Rs805/MMBTU (with Variable Contribution Margin at 186/bag), GoP's share at this gas rate has been estimated at Rs13.57 billion by NFDC, further actual payment by GoP for price differential sum may vary due to change in monthly rate of RLNG by OGRA); or (ii) ECC may allow import of 700,000 MT of urea, so that national stocks of urea remain above 200,000 MT of buffer stock during the year (total subsidy on import at current C&F has been estimated at Rs27.17 billion by NFDC, with a forex requirement of $253 million).

The total budget allocated for FY 2020-2021 was Rs6 billion, under the head 'Fertilizer Subsidy'. The existing balance under the head Fertiliser Subsidy is Rs2.881 billion, which is not sufficient for operationalization of these plants, and if the proposal of gas allocation to these two plants is approved supplementary grant of approximately Rs2 billion may also be required. The cost for operationalization for 3 months in this FY would be Rs4.071 billion. The billing of total cost of running of two plants would be Rs13.57 billion for 10 months.

Copyright Business Recorder, 2021