ISLAMABAD: The government is likely to de-allocate 110 MMCFD indigenous gas of Guddu Thermal Power Station (GTPS) Genco-II to supply it to two fertilizer plants, i.e., M/s Fatimafert Limited and Agritech, well informed sources told Business Recorder.

Mari Petroleum Company Limited (MPCL) is the operator of Mari Gas field, which is located in district Ghotki, Sindh. MPCL is producing and supplying gas mainly from three gas reservoirs: (i) Habib Rahi Limestone (HRL), (ii) Sui Upper Limestone (SUL) Sui Main Limestone(SML) shallow reservoirs and (iii) Goru-B deep reservoir’.

ECC on December 28, 2016 allowed MPCL to supply unutilized gas volumes of HRL reservoir, which become available due to operational exigencies from time to lime, to its existing consumers with preference to the fertilizer sector.

Later, CCOE on November 26, 2020 allowed MPCL to supply up to 50 MMCFD of Thermal Power Station Guddu (TPSG)/ GENCO-II’s un-drawn/ underutilized HRL gas volumes to SNGPL on ‘as and when available basis’ while Engro Fertilizer Ltd (old unit on MPCL)) was also being supplied un-drawn volumes from other MPCL customers including TPSG/ GENCO-II.

Currently supply to SNGPL is being made through the infrastructure of Fatima Group, which comprises of dehydration unit, compression and pipeline connecting MPCL field with SNGPL’s network. The said pipeline has capacity of 110 MMCFD and it currently carries upto 100 MMCFD gas for supply to Pakarab Fertilizer Ltd and SNGPL.

Upto 110 MMCFD gas allocation made to TPSG/GENCO-II in year 2016 from Mari field’s shallow reservoir has witnessed a consistent erratic gas offtake, which depicts the uneconomic, sub-optimum utilization of available gas, as well as, non-monetization of produced gas of MPCL.

The contractual arrangement under a Term Sheet for supply of 110 MMCFD gas has expired on February, 2020 and TPSG/ GENCO-II is unwilling to execute/ extend the present arrangement on take-or-pay basis while on the contrary it continues to off-take gas at its convenience.

GENCO-II plant carries MPCL payables of Rs. 72.55 billion as of June 30, 2022 including Rs. 18.75 billion take-or pay claims and Rs. 19.996 billion of interest on late payment.

The documents reveal that the average off-take of TPSG/ GENCO-II which was 110 MMCFD reduced to 63 MMCFD in 2017, 98 MMCFD in 2018, 94 MMCFD in 2019, 45 MMCFD in 2020, 49 MMCFD in 2021 and 38 MMCFD in 2022.

Most of units of TPSG/ GENCO-II have outlived their useful lives. CCoE has already advised Power Division for decommissioning and de-licensing the inefficient units except for units of Combined Cycle Power Plant (CCPP) 747MW and Power Division has sought separate gas allocation of upto 155 MMCFD, as well as, a separate Gas Sale Agreement (GSA) for these units. The dedicated line supplying Mari Gas to TPSG is very old and prone to leakages besides it has developed integrity issues with the passage of time.

Gas supply priority revised for 3 months: Fertilizer sector now on a par with export sector

Considering the requirement of urea in the country, Ministry of Industries and Production (MoI&P) in year 2018 with the approval of ECC, decided to provide subsidized RLNG to M/s Fatimafert Limited and Agritech Ltd. The tariff differential was picked up by the Government as a budgeted subsidy. At a price of Rs. 839/mmbtu, Government during last financial year picked up a subsidy of Rs. 33 billion excluding the claim of Rs. 6.7 billion for June-22 which is being processed in current financial year (CFY).

Urea price in the international market is hovering at US$ 710 per/ MT (Rs. 8,165 per 50 kg bag) whereas local urea selling price in the country is US$ 200 per MT (Rs 2,200 per 50 kg bag). For the CFY, Government has budgeted Rs. 15 billion in the demand of MoI&P for supply of subsidized RLNG to both M/s Fatimafert Limited and Agritech Ltd, which is insufficient against pending claims for May 22 to August-22 amounting to Rs. 19.16 billon.

The estimated impact on forex for importing 70,000 MT per month of urea equivalent to production of both plants at current international price is $ 53 million per month besides providing a subsidy of around Rs. 9 billion per month for supply of imported urea to farmers in comparison to estimated subsidy of RLNG Rs. 6 billion per month. M/s Fatimafert Ltd has requested for gas allocation of upto 68 mmcfd (45,000 mmbtu/day) out of TPSG/ GENCO-II gas supply whereas M/s Agritech Ltd has also requested 38 mmcfd gas (32,000 mmbtu/ day).

Petroleum Division argues that indigenous gas allocation to both of these fertilizer plants is likely to eliminate Government’s incidence on RLNG subsidy as well to ensure availability of urea in the country.

Engro Fertilizer Ltd (old plant on MPCL network) is being provided upto 74 mmcfd gas which becomes available on as and when basis from other customers of MPCL including TPSG/ GENCO-II. Engro management maintains that its old fertilizer plant (production capacity of 800,000 MT/annum), which was commissioned in 1968 has outlived its useful life as it did not go through revamping in the past; therefore, for continuity of its operations it has to go through Balancing, Modernization and Revamping (BMR) process for which they require firm allocation of upto 74 mmcfd to commit for investment of upto US$ 50 million for sustainable operation of the plant moving forward and raising its production capacity by 100,000 MT/ annum.

The prescribed price for MPCL’s HRL reservoir is determined under a two tier pricing mechanism, whereby presently applicable prices (for period from July to December 2022) according to which benchmark production was 525 MMCFD with wellhead price of Rs 423, Excise Duty 10 per/ MMBTU which makes prescribed price of Rs 433 per MMBTU.

However, with incremental price mechanism, production will be 115 MMCFD, with wellhead price of Rs 1,4416 and with Rs 10/ MMBTU as excise duty, prescribed price would be Rs 1,426/ MMBTU ($5.8989 assuming Rs 240/ US$- subject to actual rate on the date of invoice of consumer).

Petroleum Division has submitted the following proposals for consideration of the CCoE: (i) current allocation of 110 mmcfd of TPSG/ GENCO- II may be de-allocated for its onward allocation to Fatimafert Ltd and Engro Fertilizer Ltd (old plant) in equal proportion of 55 mmcfd on firm basis.

Any additional gas requirements of both plants would be met by MPCL subject to availability of swing volumes which become available from other customers due to operational exigencies from time to time;(ii) considering the depletion profile of Mari Gas field and commitment to existing customers under executed contracts, the period of firm gas supply to Fatimafert and Engro fertilizers would be mutually agreed between, MPCL and the respective companies; (iii) Fatimafert Ltd would get its gas transported through its own 25-km pipeline from Mari Field lo SNGPL network and thereafter gas would be further transported at plant site by SNGPL under Third Party access arrangements whereby SNGPL is required to allocate firm pipeline capacity to Fatimafert.

Upon allocation of gas to Fatimafert, the switchover to indigenous can be readily made; therefore, existing subsidy on LNG supply to Fatimafert may be extended until October 31, 2022 for which an amount of Rs. 7 billion may be provided as supplementary grant demand under the Ministry of Industries and Production; (v) out of current allocation of 110 mmcfd from Mari Deep to SNGPL, equivalent gas of 38 mmcfd (32,000 mmbtu per day) would be supplied to Agritech Ltd subject to injection of gas by MPCL which is expected byApril,2023.

Till such time, the existing subsidy at LNG supply to Agritech Ltd may be extended until April, 2023 which amounts to Rs 24 billion for the period September, 2022 to April 2023 through supplementary grant under the demand of MoI&P; (vi) since the budgeted subsidy of Rs. 15 billion for supply of subsidized RLNG to Fatimafert and Agritech plants is insufficient to clear the subsidy claim of Rs. 19.158 billion until August 2022; therefore, additional amount of Rs 4.158 billion maybe provided as supplementary grant in the demand of MoI&P to clear the backlog until August, 2022;(vii) the price of gas for supply to Agritech, Fatimafert and Engro (old) plants would be Rs. 839/mmbtu for feed and fuel as is the case for subsidized LNG supply;(viii) the firm gas supply upon its allocation to Engro Fertilizer Limited (old plant)would be contingent upon Engro agreeing to waiving its right on concessional feed gas tariff for its new plant along with settlement of litigation on the said issue and to commit investment for BMR on its old plant;(ix) Petroleum Division in consultation with Industries & Production and Food Security & Research Divisions is working on the proposal for revision of gas prices for all the fertilizer plants on MPCL gas supply network; therefore, gas price for feed and fuel for allocations would also be revised as and when the proposal is finalized and approved by the competent forum; and (x) Petroleum Division to initiate amendment in Natural Gas Development Surcharge (GDS) Ordinance,1967 to address the issue of negative GDS (selling gas to consumers al lower than prescribed price) being faced by gas companies, i.e., MPCL, SSGCL and SNGPL.

Copyright Business Recorder, 2022


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