Pakistan: Fertilizer sector faces 2.7mn ton loss in 2012

http://www.brecorder.com

Fertilizer manufacturers in Pakistan faced over 2.7 million tons urea production loss in 2012 mainly due to gas curtailment, as they could only produce 4.2 million tons of urea against a total production capacity of over 6.9 million tons per annum. Industry sources told Business Recorder on Thursday that during last five year fertilizer industry invested $2.3 billion in the country based on the government approved policy designed to encourage investment in the sector. However, unprecedented gas curtailment to fertilizer plants, in violation of existing supply contract of 12 months a year, has caused significant loss to the manufacturers during the year 2012. They informed that so far the industry had suffered a production loss of over 2.7 million tons in 2012. The domestic fertilizer plants produced only 4.2 million tons of urea against a total production capacity of over 6.9 million tons per annum. Decline in domestic production of urea also compelled the government to import huge quantity of urea to meet farmers’ demand, they said and added “to meet this production loss government imported over 1.23 million tons of urea spending 566 million dollars and also paid over 24 billion rupees subsidy to keep the imported urea’s prices at par with locally produced urea.” On the other hand, sources said, cash strapped Ministry of Finance is not very happy over this situation as Pakistan has all the required production facility to meet the domestic demand and even Pakistan can export over one million ton of urea to earn hundreds of millions of dollars every year if domestic fertilizer plants are provided with uninterrupted gas. The country’s overall urea production capacity is about 6.9 million tons annually, as against the demand of some 5.8 million tons, providing an opportunity to export some one million ton of urea annually. Industry sources said that despite all the pressing problems, domestic urea price is still Rs 1331 per bag below international urea price, which is six times larger than feed gas subsidy of Rs.216 per bag. “The current domestic urea price is Rs 1,659 per bag, including company price Rs 1,422 per bag and Rs 237 per bag General Sales Tax and advanced tax, as against average international urea price of Rs 2,990 per bag inclusive of GST during 2012,” they informed. The encouragement of fertilizer industry by the government was meant to pass on benefit of domestic manufacturing to the farmer. This is evident from the fact that during 2012 domestic urea sold at $311 per ton while it received gas at $3.8 per MMBTU. In comparison Middle Eastern producers sold urea at $470 per ton while paying approximately $0.7 per MMBTU for gas. They said that over the last five years the farmers have received benefit of Rs 500 billion, of this Rs 140 billion was contributed by the government in form of feed gas subsidy and Rs 360 billion was contributed by the fertilizer manufactures by keeping urea prices significantly lower than the international prices. Sources claimed that SNGPL-based plants were facing the worst-ever crisis of their history as such gas curtailment was never witnessed before 2012. They said that the sector despite making an investment of $2.3 billion in last 4-5 years on new production capacity, making Pakistan world’s 7th largest urea manufacturer country, is sitting on an idle urea capacity of over 2.5 million tons. They also claimed that if the same gas curtailment continues during 2013, the SNGPL-based fertilizer plants may force to shut down permanently resulting in lay off of highly skilled manpower, increase in bad debts and huge burden on national exchequer, to import urea to meet the urea shortfall. A fertilizer sector official commented that it’s not just fertilizer plants that would face the burnt, the whole farmers’ community as well as the government would be the ultimate losers if fertilizer plants with over 2 million tons of capacity were shutdown due to unavailability of gas. They said that government needs to support fertilizer industry to ensure inexpensive local urea to farmers and import fuel for the power sector and the industry which is more cost effective.