Pakistan: Fertilizer sector to invest US$100 million

In Pakistan fertilizer units getting gas from Sui Northern Gas Pipeline Limited (SNGPL) have expressed intentions to invest US$ 100 Million for the development of dedicated lower BTU gas fields. This is aimed at improving gas supply to fertilizer plants to improve capacity utilization of local plants instead of depending on costly imported urea costing hundreds of millions of dollars of foreign exchange every year. Fertilizer sector has been facing severe curtailment of gas since April 2010, one of the worst affected sectors, which has worsened rural economy over the last few years. 

Shahab Khawaja, Executive Director Fertilizer Manufacturers Pakistan Advisory Council (FMPAC) said that the new gas allocation through long-term arrangement is just continuation of existing policy. Now fertilizer plants getting gas from SNGPL network will get gas from different small fields as a replacement of gas which would be discontinued from existing sources. Getting required quantity of gas is the right as all the fertilizer companies have signed gas purchase agreements with the Government of Pakistan (GoP).

 He said that the decision to supply gas to fertilizer industry through dedicated small fields is in line with the strategy to reduce burden from the SNGPL network, and to ensure continuous supply to general and industrial consumers in the country. This decision has been taken after detailed deliberations from all the concerned stakeholders in the larger interest of the country which is an agriculture economy. Agriculture contributes around 24% to the GDP of Pakistan and it also provides raw materials to all the major industries of Pakistan including textiles and clothing and sugar.

He said that successful implementation of the long term plan will ensure self sufficiency of country in fertilizer production and would also bring substantial savings of half a billion dollars of foreign exchange annually and subsidy of approximately Rs20 billion that the GoP has to pay on one million tons imported urea.

He informed that the post ECC approval, GSAs between gas fields and fertilizer plants were inked carrying the reservoir risks and gas transportation agreements with both sui companies were signed under OGRA's TPA Rules, these agreements strictly comply the TPA rules. The arrangement is beneficial for Sui companies with additional stream of tolling income and saving on 240 mmscfd of gas allocated to 4 fertilizer plants under existing GSAs with SNGPL.

While dispelling the impression that fertilizer sector would get dedicated gas from different small fields without any additional investment, he informed that to facilitate this transaction fertilizer plants are investing more than US$100 million in increasing the pipeline capacities of Sui companies where bottleneck exists. The SNGPL based plants being large scale units are now at verge of closure with over Rs100 billions payable bank loans. Current arrangement is a win-win for all stakeholders as fertilizer plants upon receiving the regular gas from different small fields would provide farmers with cheaper local urea and gas companies would be selling this gas to new customers with better rates.

He informed that Fertilizer plants will also pay a higher gas price than the gas price available to them under the existing GSAs, and will also have to incur significant additional investment for the smooth transportation of gas from respective gas fields to their plants. In the past despite guaranteed contracts with the fertilizer industry gas was diverted from fertilizer companies to other sectors, however, with the implementation of this arrangement, certainty of gas supplies to the fertilizer sector would be ensured to get continuous urea production for Pakistani agriculture sector.