ONE-STEP BELOW SELF-SUFFICIENCY

REQUIRED GAS SUPPLY WILL BUMP UP FERTILISER PRODUCTION

TARIQ AHMED SAEEDI  
(feedback@pgeconomist.com)
July 19 - 25, 20
10

On the eve of Kharif season economic coordination committee had directed trading corporation of Pakistan to import 400,000 million metric tonnes of urea to reduce the supply gap created due to fertiliser shortage in the country. Trading Corporation of Pakistan (TCP), a stat-run entity, subsequently floated local as well as international tenders to seek purchaser and supplier of urea.

For the Kharif season that has a span of nine months (sowing in April-June and harvesting during Oct-Dec) though starting variably in different agriculture fields of Pakistan's provinces, the government had estimated a requirement of approximately three million metric tonnes of fertilisers. The government stock stood at 2.5 million metric tonnes and therefore 400,000 is needed to meet the shortfall.

According to various media reports, TCP had finalised contracts of over 300,000 metric tonnes of urea with buyers to import urea from different countries. The rate per tonne agreed ranges from $250 to 300 dollar. That with a rough estimate would bring the total cost of 400,000 million metric tonnes of urea at 120 million dollars at the upper price of 300 dollar per tonne. It is not the end since government has to subsidise to make the consumer price of urea affordable to farmers.

Despite the price of local urea, a kind of fertiliser, has shot up because of shortage in recent past, it still is hovering around Rs700 to Rs800 per bag whilst that of imported urea comes to Rs1300 to Rs1400 per bag; a standout difference of 500 to 700 rupees.

Obviously, the government has to bear the price difference in order to encourage farmers to apply urea, a source of nitrogen, or fertiliser in farming.

Urea enriches the yields of crops and enhances the agriculture production. The application adds value to growth in plants. In Kharif season or summer, the usage of fertiliser becomes important since all major cash crops of Pakistan are cultivated during this season. Main crops of Kharif season include rice, sugarcane, and cotton. The consumption pattern of fertiliser in the country is in accordance with geography, water availability, and whether. Punjab has the largest agriculture area. Therefore, consumption of fertiliser in the province is high as compared to other provinces. Urea deliveries outweigh other types of fertilisers in the country. Indeed, urea and DAP are two major fertilisers being consumed in the country and private sector mainly handles urea production and marketing.

Local production capacity of fertiliser in the country despite expansion of local fertiliser industry of late is not enough to match the demand. Thus, import is contextually indispensable. In a recent past, government was claiming to have achieved self-sufficiency in fertiliser production and so far so that it would have surplus for exports after meeting the local requirements. In reality, the country needs to import a substantial quantity by spending foreign exchange.

A breakthrough was being expected from a joint venture of Fatima group and Arif Habib. Much to the chagrin, the production of fertilisers from JV plant has not started. It was expected that addition of fertiliser to local supply from this modern plant could have averted the imports. All eye on running of Fatima Fertiliser plant, which has 1.5 million tonnes annual production capacity. Government's reliance on the start-up is gauged from the fact that it had claimed there would be no need to import urea at all after Fatima Fertiliser started production. The proposed project has annual production capacity of 500,000 tonnes ammonia, 500,000 tonnes nitric acid, 500,000 tonnes urea, 360,000 tonnes NP, 420,000 tonnes CAN, and 300,000 tonnes NPK. The company says it has been allocated 75 mmcfd gas by Mari Gas.

GAS LOAD MANAGEMENT

On the other hand, government has planned to cut 20 to 30 per cent gas supply to fertiliser sector. This curtailment will not only hit in the belly of existing fertiliser companies by dampening their earnings but also discourage new entrant in local fertiliser market. Gas crisis has already debilitated industrial progress affecting mainly fertiliser companies that use natural gas as vital input in production of fertiliser. Listed fertiliser companies will reap the downsides of gas load management by the government since they may witness fall in values of their shares. Engro Fertiliser's earnings will slide 64 per cent to Rs3.9 per share in 2011, reported a local daily citing JS Global Capital analyst as saying.

SURGE IN GLOBAL DEMAND

An estimate says that fertiliser production in Pakistan can reach to over six million metric tonnes after starting of new production plants. In present circumstances and with available resources, the import growth would likely to surge this year. An analysis counts Pakistan amongst the countries such as Bangladesh, Thailand, Vietnam, and Mexico where import of fertiliser would witness a significant rise in 2011. Globally, United States of America and India are the key importing countries of fertiliser, accounting for almost 30 per cent of world's fertiliser trade while China accounts for 40 per cent world's production though its share in total export of fertiliser is not more than 10 per cent. Russia emerged a leading exporter in 2009 racking up 14 per cent of global trade of fertiliser. India, which had 20.9 million tonnes production last year, ought to continue with import in order to fulfil domestic requirements. Concisely, exporting countries will sustain pressures this year to scale up production to meet international fertiliser demand.

Pakistani government has to prepare a plan to facilitate fertiliser sector in making the country self-sufficient in fertiliser. This can only be done by uninterrupted gas supply to the sector. Government has to cough up at least one billion rupees subsidy to pull down imported price of fertiliser to local parity. A prudent approach demands shift of this subsidy to power sector that burns gas to mitigate furnace oil cost to make it secure a cushion against high oil cost. Fertiliser sector should be saved from gas curtailment to make it produce fertilisers to meet local and international needs.