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ISLAMABAD: Petroleum Division has proposed gas sale prices for Mari-based fertiliser plants at Rs.580/ mmbtu for feed stock and Rs.1,580/ mmbtu for fuel-stock from October 1, 2023, sources close to Petroleum Minister told Business Recorder.

Petroleum Minister Muhammad Ali has tailored a plan to unify feed gas prices of fertiliser industry at par with industrial rate of Rs 1,260/ MMBTU instead of subsidised rates, amid accusations that fertiliser industry is not passing on subsidy to the farmers.

The new proposal, if implemented, will result in an increase in urea price by Rs 800 per bag from Rs 3,800 to Rs 4,600 per bag whereas the imported price of urea is Rs 7,700 per bag.

Fertiliser industry: Govt mulling ending cheaper gas facility

“Unification of gas prices would result in saving of Rs 90 billion which may be routed to small farmers by the provinces,” the sources quoted Petroleum Minister as claiming in his draft papers.

However, fertiliser industry is of the view that the subsidy provision mechanism is the domain of Ministry of National Food Security and Research and not Petroleum Division, as in the past such schemes were massively misused by fertiliser dealers, who pocketed around Rs 60 billion without paying any tax.

There are ten fertiliser plants in the country, out of which six have dedicated supplies from Mari’s network while four plants are allocated gas through Sui’s network. The Gas Supply Agreements (GSA) of six Mari based plants are valid till June, 2024.

The Mari Petroleum Company Limited (MPCL) is entitled to receive wellhead gas prices in accordance with relevant agreements with the government, for gas produced from its various natural gas reservoirs (i.e. HRL, Goru-B and SML/ SUL). The Mari Field wellhead gas prices are determined and notified by OGRA on bi-annual basis, under Section 6 (2) (w) of Oil and Gas Regulatory Ordinance, 2002 read with Regulation (3) of Natural Gas (Wellhead Price) Regulations, 2009.

The wellhead prices so determined depends on the crude oil prices of the imports made in preceding six months as per international crude oil prices and the applicable rupee-dollar exchange rate, as per MPCL’s agreement with the Government. The federal government is empowered under Section 7(1) and Section 8(3) of the OGRA Ordinance, 2002 to advise category wise consumer gas prices.

The federal government has revised the gas sale price for the fertiliser plants on SSGCL and SNGPL from January 01, 2023. However, the gas price could not be revised for the fertiliser plants on MPCL since last OGRA’s notification of October 23, 2020 whereby gas sale price was notified as Rs.302/mmbtu for feed-stock and Rs.1,023/ mmbtu for fuel stock.

According to Petroleum Division, OGRA-notified gas sale prices are not sufficient to meet MPCL’s revenue requirement at notified wellhead gas prices and are consequently resulting in negative differential margin. The estimated financial impact of this negative differential margin during the period from January to June, 2023 is Rs 4.26 billion.

The prescribed price for Mari gas fields is determined by OGRA under a two-tier pricing mechanism approved by the government.

As per tier 1, benchmark production 525 MMCFD, wellhead price Rs 545 per MMBTU, excise duty Rs 10 per MMBTU- prescribed price, Rs 555 per MMBTU. Tier-2, incremental production 115 MMCFD, wellhead price Rs 1686, excise duty Rs 10 per MMBTU, prescribed price Rs 1,696 per MMBTU.

Petroleum Division maintains that sale price of gas supplied out of Mari Field’s incremental production to Engro Old plant and Pak Arab Fertiliser plant is based on Petroleum Policy, 2012, which is being fully recovered. Fauji Fertiliser plant I, II and Ill and Fatima Fertilizer are; however, being charged sales price of Rs.302/mmbtu and Rs.1,023/ mmbtu for feed-stock and fuel-stock, respectively under benchmark production.

Petroleum Division maintains that in case the sale price for fertiliser is not revised, the estimated annual net negative differential margin from fertiliser sector with current sale prices would be over Rs.16.77 billion for FY 2023-24 excluding previous year’s negative differential margin of Rs.4.26 billion.

The sources further stated that on a summary submitted by M/o Industries & Production, the ECC of the Cabinet on March 15, 2023 constituted a Inter-Ministerial committee for submission of recommendations on gas allocations and pricing for fertiliser sector to the ECC.

The committee conducted various meetings and submitted its report to the ECC. The ECC in its meeting held on August 08, 2023 approved the report, in principle, with the direction to refer the report to Petroleum Division for consultation with Ministry of Industries and Production, Power Division and private sector stakeholders and to resubmit a final implement-able summary before the ECC.

Accordingly, stakeholders’ comments have been requested and the matter will be resubmitted to the ECC in due course of time. However, this process is largely reformatory and may require threadbare deliberation and analysis whereas consumer price determination for Mari is a regular legal requirement, which has serious financial implications.

Keeping in view the current position, Petroleum Division has proposed that gas sale price for Mari based fertiliser plants may be fixed as Rs.580/mmbtu for feed stock and Rs.1,580/ mmbtu for fuel-stock from October1, 2023 or from the date of approval of ECC whichever is earlier. The prices would result in a positive Gas Development Surcharge.

However, gas volumes of Mari entitled to the pricing incentive of Policy, 2012 would continue to be priced in accordance with the Petroleum Policy, 2012.

Copyright Business Recorder, 2023

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Sher Shah Oct 03, 2023 12:54pm
To dispel the misperceptions that subsidy impact of lower gas price of feedstock is not being passed on to the farmers, following is submitted: price of gas used as feedstock for the fertilizer industry, presently stands at Rs 302 per MMBTU while the industrial rate of Rs 1260 per MMBTU. It translates into an impact of Rs 927 per bag of urea. However, when considering the gas provided to the fertilizer industry for both feedstock and fuel, the impact per bag decreases to Rs 690. It is essential to emphasize that this subsidy has a profound impact on the affordability of urea for our farmers. To put it in perspective, taking the average price of imported urea as Rs 7500 per bag and the domestic maximum price at Rs 3410 per bag, farmers are benefiting from a substantial reduction of Rs 4000 or more per bag. This stands in stark contrast to the intended subsidy of Rs 690 to Rs 927 per bag provided by the government. Therefore, please dispel the misperceptions in this regard.
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