FERTILIZER'S FEEDSTOCK UNSCATHED OF RISE IN GAS PRICE
TARIQ AHMED SAEEDI (firstname.lastname@example.org)
Jan 11 - 17, 2010
Oil and gas regulatory authority notified the sale price and minimum charges of natural gas sold by Sui northern gas pipelines limited and Sui southern gas company limited to their retail consumers with effect from 1st January 2010. The price was increased for most of the domestic, commercial, industrial, cement, and fertilizer sectors an average 18 percent. Notwithstanding, cost of gas feedstock of most of the fertilizer companies are not affected by the recent escalation in prices of natural gas.
According to the recent notification, sale price for Fauji Fertilizer Bin Qasim Limited was set at Rs102.01 per mmbtu for gas used as feedstock up to 60 mmcfd and for additional 10 mmcfd Rs56.70 per mmbtu. Ogra's notification issued on 12th August 2009 determined prescribed price in respect of SSGCL-gas supplier of Fauji Fertilizer-as same Rs.102.01 for gas used as feedstock for fertilizer. Notably, no notification was announced between the two dates. Similarly, price of gas used as raw material for fertilizer production by Pak Arab Fertilizer Ltd, Dawood Hercules Chemicals Ltd, Pak-China Fertilizer Ltd, and Hazara Phosphate Plant-Haripur remained unchanged. Only Pak American Fertilizer Company underwent price hike of gas used for feedstock from Rs.36.77 per unit to Rs102.01 per unit. Price for Engro Fertilizer Company Limited remained flat at Rs.56.70.
Thus, increase in ex-factory fertilizer's price should not find convincing justification in the rise in gas prices, which are said to be across the board.
It is however surprising that sale price for gas used by the manufacturers for generation of electricity, steam, and for usage of housing colonies for fertilizing factories was scaled up staggeringly. For example, price of gas for fuel for Fauji Fertilizers was jacked up to Rs382.37 per mmbtu from Rs288.13 per mmbtu in August 2009. Fertilizer manufacturers use gas for generating electricity and steam and as feedstock for fertilizers.
Price of gas supplied for former purpose to fertilizer factories increased to Rs382.37 from Rs315.57 for all other six-fertilizer companies on the supply line of SNGPL.
Prices of feedstock gas supplied to fertilizer manufacturers are not similar since some manufacturers are charged high and some less. This variation in supply prices creates different impact on cost of production of manufacturers. Government planned to wipe away the difference. It has started to equalize the gas price for fertilizer sector by making tariffs for gas for feedstock and fuel identical for all the fertilizer factories.
It is feared that fertilizer companies would increase the price of urea and DAP by Rs10 to 15 per 50 kilogram on the pretext of rise in gas prices. Already, subsistence farmers find it hard to purchase Rs700-Rs800 urea bag and any increase would discourage them to apply fertilizers in due quantity on farmlands. Adequate application is vital to enhance crop yield.
Fertilizer consumption in Pakistan is not significant as compared to other agriculture countries in the world. It stands at an average 162.5kg per hectare. This low consumption is largely responsible for low yield per hectare that is 1.44 tons per hectare, according to a review of IGI securities.
Pakistan's agriculture sector has the lowest consumption rate in the Asia, below than China, Indonesia, Thailand, India, Mexico, and Iran, suggests a graph by International Finance Corporation.
Consumption of fertilizer is directly interrelated to performance of the economy and population trends. Growth in population means more foods and fiber are needed to feed and cloth additional people. If economy grows, the consumption of fertilizers used for feedstock production increases. Additionally, bio-energy crops have substantial impact on the consumption of fertilizers; according to a forecast, such production will account for 27.6 percent consumption of fertilizers in 2010-11.
Agriculture sector's growth pushes up consumption of fertilizers. World fertilizer consumption is to grow 1.7 percent per annum or 15 million tons until 2011-12, predicted a report on world's nitrogen, phosphate, and potash fertilizer medium term supply and demand projections for the period 2007-08 and 2011-12 by Food and Agriculture Organization of the United Nations. 69 percent of this growth will take place in Asia, it noted. Pakistan, India, and Bangladesh remain main fertilizer consuming countries in the South Asian region due to their astronomical population growth and problems with the agriculture productivity in these countries.
There is need of increasing productivity from agriculture lands in Pakistan fraught with water scarcity and low yield along with the efficient use of nitrogen fertilizer to feed large and burgeoning population and make agriculture economy prosperous.
Share of national agriculture sector in total gross development products is increasing, for example, it was 20 percent two year ago, but last fiscal year saw agriculture supporting the sagging economy of Pakistan spun down to 2-3 percent. It is worthwhile to note that agriculture GDP continued to rise during downturn.
High transport costs contribute to prohibitively high prices of fertilizers which despite subsidized are not within the buying capacity of majority of farmers. Crop yield in Pakistan is lowest as compared to international standard. FAO emphasizes on balanced consumption of fertilizers. Unbalanced consumption for example of more phosphate than nitrogen or potash or the other way round, fails in bringing potential agriculture outputs. Sometimes, random application of fertilizers on lands without soil testing or assessment of crop adaptability also bars it to produce desirable outcomes.
Rise in gas price increases the indirect input cost of production of fertilizer factories by pushing up cost of power, but direct input cost while gas is used as raw material for manufacturing fertilizer went unscathed of recent price hike. Since power generation' cost is swelled perceptibly following gas price escalation, this may be included in the final cost and the impact may likely to be passed on to fertilizer consumers. Cost effective alternate to gas-powered electricity can restrain the pass-on however.
JJVL REJECTS PAC MEMBER'S CLAIMS
LAHORE: Jamshoro Joint Venture Limited (JJVL) has rejected statements being attributed to a member of the National Assembly's Public Accounts Committee (PAC), according to a press release from the LPG producer on Wednesday.
"We are concerned about the statements being attributed to one member of the PAC," said JJVL Spokesman Fasih Ahmed. "We deny and reject these statements which betray an alarming lack of awareness about the LPG sector and the law."
He said that since deregulation of the LPG sector in 2000, LPG producers have been at liberty to enter into supply contracts with LPG marketing companies that are duly licensed by the Oil and Gas Regulatory Authority (OGRA), said the spokesman.
"The regularly updated and detailed list of all LPG marketing companies operating under license from OGRA has been and remains available on the website of the regulatory body," said the spokesman. "This helps ensure added transparency in the LPG sector."
The Deregulation Order of August 1, 2000, issued by the Ministry of Petroleum and Natural Resources states that the "Government would stop making allocation of LPG with immediate effect" and 'all new producers of LPG Ö have been given the right to either market their product by themselves or dispose of their LPG to the licensed marketing companies or to the new parties after their pre-qualification in accordance with the LPG Rules." Subsequent policies have preserved this basic free-market premise, said Ahmed.
"JJVL is a responsible organisation and operates strictly in accordance with government policy and the law," said the spokesman. "We regret that some seemingly responsible people have sought to politicize and personalize matters relating to the LPG sector," he said, adding that JJVL and its peers are available to assist interested parties attain a clearer understanding of the sector.
JJVL is a private sector company representing an investment of $100 million. JJVL brought in patented technology to Pakistan making its Plant one of the most efficient of its kind in the world. JJVL is a six-time finalist for the Platts Global Energy Awards. JJVL began production in March 2005 and has led to the creation of 25 LPG marketing companies, 1,500 LPG distributors and 30,000 jobs across Pakistan.
The LPG sector was deregulated in 2000 leading to an investment of $300 million across the value chain creating competition to the benefit of the end-consumer. Pakistan has 10 LPG producers, over 80 LPG marketing companies and over 5,000 LPG distributors nationwide.