FERTILISER KEY TO ACHIEVE FOOD SECURITY

THE GOVT SHOULD RESTORE FULL GAS SUPPLY TO FERTILISER UNITS

SHABBIR H. KAZMI
(feedback@pgeconomist.com)
July 19 - 25, 20
10

One of the prerequisite for guarding sovereignty of Pakistan is achieving food security. This target cannot be achieved without overcoming nutrient deficiency of cultivable land. Over the years the conducive government policies and active participation has helped the country to achieve self-sufficiency in urea, barring a few years when the commodity has to be imported. The difference in the price of indigenously produced urea and international prices demand self-sufficiency in urea. Some of the experts go one step further and say that country must produce exportable surplus to finance import of DAP. They also say that instead supplying gas to thermal power plants, government should ensure meeting full requirement of fertiliser manufacturers and use the export proceeds from fertiliser to finance furnace oil import bill.

By end 2010 Pakistan is likely to achieve an installed production capacity 7.5 million tons urea. However, by 2015 the country will again start facing shortfall. Therefore, there is an urgent need to initiate work for establishing a plant capable of producing million tons urea per annum. One of the objections is that the country faces gas shortage therefore fertiliser plant can't be established in the country.

Experts have the consensus that gas supply has to be guaranteed. They have three suggestions 1) burning of gas in power plants should be stopped as most of the power plants have dual firing systems; 2) indigenous gas supply can be increased by curtailing UFG and resolving litigation cases of already discovered gas fields and 3) gas should be imported through Iran or LNG project be expedited.

During CY09 Pakistan imported about 1.5 million tons urea. It was estimated that with the commencement of Fatima Fertilizer and Engro's expansion project import would be reduced to half a million tons. However, curtailing gas supply of fertiliser plants is likely to hike the quantum of urea import to one million tons. Urea is being imported by the Trading Corporation of Pakistan at around $300/ton as against a cost of $150/ton of the locally produced one. This means that foreign exchange of $300 million would be wasted on imported of urea and over Rs12.5 billion subsidy will also have to be paid by the government. This is certainly a very bad decision, which needs to be rectified at the earliest by restoring full gas supply to fertiliser plants.

One of the reasons of low crop yields is imbalanced use of fertiliser. While nitrogenous component (urea) is most important, it has to be complemented by potassium and phosphate. In the recent past when DAP prices went up most of the farmers applied extra doze of urea, which was not only waste of resources but also impaired yield. Fauji Fertilizer Bin Qasim is the only producer of DAP and meets around 30 percent requirement of the country and remaining quantity has to be imported. Engro's Bin Qasim plant also produces composite fertiliser. Fatima also produces CAN.

In the Fertiliser Policy 2001, the government dedicated Mari gas field for the fertiliser industry. However, one of the power plants is still getting gas from this field. Instead of supplying gas to Engro's expansion project from Mari, allocation has been made from Qadirpur gas filed. Experts fail to understand the rationale because gas from Mari is most suitable for fertiliser manufacturing and its burning in power plants is highly unadvisable.

On top of this supplying gas to Engro from Qadirpur spurs gas load shedding, if and when the government decides to curtail gas supply of fertiliser plants.

It is also necessary to clarify a myth that gas is supplied to fertiliser plants at subsidized rate. This impression is incorrect because gas extracted from Mari field is inferior and does not fall in the category of 'pipeline quality gas'. As regards units getting gas from SSGC and SNGPL networks, the quantum is low and the subsidy is worth paying. The country cannot afford to import urea at higher cost and pay billions of rupees subsidy. There cannot be any compromise of the issue because achieving food security is just not possible without keeping input costs low. Fertiliser is the most important input.

Full gas supply to fertiliser plants must be restored immediately. It was a bad decision which must be taken back at the earliest. The government should also announce fresh fertiliser policy immediately; the last policy was announced in 2001. It must focus adding one million tons urea production capacity with a timeline of commercial production by 2015. It may create a temporary surplus, which can be exported to finance import bill of DAP as well as furnace oil.

Over the years gas supply to fertiliser factories used to be curtailed during winter to ensure adequate supply for the domestic consumers. Under the prevailing circumstances, the situation is likely to deteriorate further. Therefore, all the options from exploration to import and from containing wastages to stopping use of gas in power generation have to be exercised. Outstanding payments of SSGC and SNGPL also need to be cleared on priority basis to enable the gas marketing companies to revamp their transmission and distribution networks.

Though, Iran-Pakistan gas pipeline provides the ideal solution to overcome gas shortage, yet Pakistan is most likely to succumb to the US pressure. The LNG project being implemented is not sufficient to cater to the growing need of gas in the country, particularly if pipeline project has to be abandoned. Therefore, to overcome short supply of gas, fertiliser units should form a holding company for establishing an LNG project. They are cash rich and also enjoy the confidence of local as well as international finance institutions.