Business Recorder......................................OCT 11, 2011.
The four urea manufacturing plants on SNGPL network--Pakarab, Engro Enven, Agritech and Dawood Hercules Fertilisers--with a cumulative urea production capacity of 2.2 million tons, are facing complete shutdown as a result of a painful 'dip' unannounced in the supply of gas since October 1. This would lead to history's worst urea shortage and price escalation beyond the reach of farmers and would result in irreparable damage to agriculture output of Pakistan.
Sources told Business Recorder here on Monday that all the four plants on SNGPL network have not received gas since October 1 due to unannounced curtailment by SNGPL. As a result of gas curtailment, fertiliser manufacturers have also increased the price by up to Rs 200 to Rs 400 per bag and urea is now available at different prices in different parts of the country. This would badly hurt the economy of the farmers across Pakistan, they said.
Urea price increase has been caused primarily by gas curtailment, GST impact and shortage in the market. In the last 22 months, urea prices have increased from Rs 800 per bag to Rs 1,700 per bag. In the current scenario, if gas is restored to all four urea manufacturing plants on SNGPL network by October 15 and they get uninterrupted gas supply till November 30, the country would still face a shortage of 750,000 tons, for which it would require $400 million to import this quantity and further 21 billion rupees of subsidy to keep the imported urea price at a level of domestically produced urea, sources said.
In another situation, they said, if gas is restored to all the four urea manufacturing plants on SNGPL network by October 15 and they get uninterrupted gas supply till December 31, country would still face a shortage of 950,000 tons of urea for which it would require $509 million to import this quantity and further 28 billion rupees of subsidy to keep the imported urea price at a level of domestically produced urea.
Sources expressed fear that if the government restore gas to all four urea manufacturing plants on SNGPL network by October 15 and they get interrupted gas supply till November 15 only, the country would have to import 1,000,000 tons of urea to meet the domestic consumption for which it would require $536 million to import this quantity and further 29 billion rupees of subsidy to keep the imported urea's price at a level of domestically produced urea.
It is feared that on the one hand the government has shutdown the urea manufacturing capacity of around 2.2 million tons by suspending gas supply to four plants on SNGPL network, whereas on the other hand it is not taking any effective measures to import the urea to bridge the demand and supply gap which would give rise to a bigger agitation than was recently seen in Punjab on account of electricity load shedding.
Despite having an installed production capacity of 6.9 million tons vs 6.3 million tons demand in the country, the total annual domestic urea production for year 2011 is estimated at 5.0 million tons, dependent on gas availability in the remaining months of 2011. The country is faced with an estimated urea shortage of 1.3 million tons of urea in 2011 out of which the government has so far imported 500,000 tons. Sources said: "It is an open secret that the Government can save millions of dollars of foreign exchange by having a better strategy to use the natural resources for keeping all sectors of the economy moving.
According to industry analysts, from purely an economic angle, it is better for the country to supply gas to the fertiliser sector as a priority to ensure local urea production and supply of urea to farmers at a reasonable price. They said that it is cheaper to import furnace oil, which costs $18 per mmbtu (unit of energy) compared with imported urea which cost taxpayers and the government $23 per mmbtu. To look at it in another way, it is cheaper for the country to save heavy foreign exchange on imported urea and import furnace oil for industry, especially for textile and other industries which can use alternative fuels such as diesel and furnace oil for generating electricity, but fertiliser plants have no substitute of gas, as these plants use gas to make ammonia for the production of urea.
Analysts say these are very basic and easy to understand figures and people sitting at the helm of affairs know this quite well, but it is hard to understand why a proper strategy is not being evolved to avert urea shortage that would badly hit agriculture output of the country.
Agriculture is the single largest sector of Pakistan's economy that contributes 22 percent to GDP and employs nearly half of the labour force in the country. It is also the main supplier of raw materials to industry that produce goods to earn foreign exchange for the country.
It is also the major contributor to Pakistan's main industry--textiles--which gets its basic raw material, cotton, from agriculture. In order to support this important industry and also to ensure that millions of jobs remain intact, the government must envisage a policy that provides protection to agriculture sector so that it could produce the basic raw materials as well as food for domestic consumption.
Sources said that agriculture is also the main contributor in recent recovery from recession as agricultural commodities; led by record wheat harvest, in 2008-09 helped in recovery and also ensured food security for the country. Therefore, it should be the top priority of the government to make Pakistan's agriculture sector sustainable and competitive so that it continues to play its important role in country's economy.
A nightmare scenario is expected in January and February when farmers across the country will be looking for urea for the all important Rabi season and there will not be enough urea in the country as local production has been badly affected by curtailed gas supply. Farmers have been further burdened by the criminal act of many dealers who are hoarding urea and adding another Rs 300 to 400 per bag, hiking the price to Rs 1800-2000 per bag. This price reflects the pressure on the agriculture sector where just 20 months back, the price of a urea bag was Rs 850 per bag prior to gas curtailment of fertiliser manufacturers.
Full and immediate supply of gas to fertiliser sector will help offset the urea shortage in the country. Moreover, as per the government's own 2005 gas policy, fertiliser sector has priority after domestic consumers to receive gas. Continued curtailment of gas to fertiliser manufacturers will increase shortage of urea and increase the plight of the agriculture sector, the backbone of country's economy.
Pakistan has the capacity to produce around 6.9 million tons of urea per annum but government's decision to cut gas supply to fertiliser manufacturing plants has led to this crisis situation. Now the government has two options: either to supply required gas to fertiliser sector and produce cheap urea for the agriculture sector of the country, or take alternative measures and import urea to meet growing domestic requirements, else the agriculture sector of Pakistan would also face a fate like that of industrial sector of the country.