KARACHI - The gas supply to four Sui Northern Gas Pipelines Limited (SNGPL)-based fertilizer plants has reduced substantially as compared to already curtailed supplies of 2011. Therefore, even though there is sufficient capacity in the country, about 1.4 million tons of urea is needed to be imported during the year. All four SNGPL-based fertilizer suffered major losses as a result with Engro Fertilizers bearing bulk of the brunt. Out of the four plants on the SNGPL network,  Pak Arab Fertilizers has received 110 days of gas,  Agritech 108 days of gas and Dawood Hercules Fertilizers has received 62 days whilst Engro Fertilizers which has the most gas efficient plant in the country, has received only 45 days of gas supply in 2012.

The year 2012 is being seen as one of the worst years for local fertilizer production and a crisis in general for the fertilizer industry and the economy according to industry sources.  Due to the national gas crisis, according to data shared by the Fertilizer Manufacturers of Pakistan Advisory Council (FMPAC), the fertilizer manufacturers have faced a production loss of over 2.7 million tons in 2012 with limited production of only 4.2 million tons of urea against a total production capacity of over 6.9 million tons per annum which would more than meet national demand of agriculture.

In terms of supply, DH Fertilizers supplies 37,500 tons per month consuming 39 mmscfd of gas whereas Pakarab Fertilizers consumes up to 50 mmscfd gas but produces only 7,000 tons of urea per month and utilises rest of gas for producing other fertilizer products which are low in potency and least required by farmers. The Pak Arab gas supply agreement is also up for renewal with SNGPL and it will be interesting to see what the terms and conditions will be agreed upon. Fatima Group which is the sister company of Pak Arab, also has a fertilizer plant on the Mari network, which receives most of its allocated gas at an incentivised price.

Sources in the Government who are worried about the high cost of imported urea and the subsidy given on it, find it hard to believe that one of the world’s most efficient fertilizer plants is lying idle and could potentially save the national exchequer billions.  Already in 2011 and in the first half of 2012 the Government has spent an exorbitant $1.1 billion and Rs 57 billion on importing and subsidising foreign urea.

Although Engro Fertilizers received a favourable judgment from SHC back in October 2011 for the restoration of its gas supply, the company received gas for only 45 days during 2012, which is effectively 10pc of contracted quantity and the least number of gas supply days of all fertilizer plants in the calendar year.

Even though Sindh produces bulk of the nation’s gas, the province does not provide gas to the Engro plant which is based in Sindh and contrary to Article 158 of the Constitution.  Engro won its gas allocation in 2006 in an open and transparent bidding process and entered into gas supply contract with effectively a sovereign guarantee and an incentivised gas price.

In financial terms, the SNGPL plants have been hit hard. In the first nine months of 2012, SNGPL-based plants that include Agritech, DH Fertilizers, Pakarab, Engro’s new plant as well as SSGC-based FFBL have faced a loss of revenue by 31pc compared with nine months of 2011, generating Rs 44.5 billion total revenue in nine months of 2012, compared to last years’ Rs. 64.3 billion.

In 2013 the fertilizer sector is banking on the long term plan supported by the Ministry of Petroleum which allows the supply of gas from dedicated gas supply sources. The ECC has approved this in principle and has constituted a committee to develop the modalities which include legal and financing arrangements for the project and to determine a better cost effective structure which includes gas from other sources.