ISLAMABAD, Aug 24: The Economic Coordination Committee (ECC) of the Cabinet on Tuesday decided in principle to re-allocate a large quantity of natural gas to a private fertilizer firm at cheap rates despite strong protest from various government agencies, Dawn has learnt.
The decision, said a senior government official, would cause about Rs2 billion loss to Wapda at the rate of Rs330 million per annum as a result of price differential, cause an unspecified additional expenditure of laying a new gas pipeline, reduce its power generation capacity by 550 mw and ultimately result in higher consumer prices both for electricity and gas.
There would have been a revenue loss of Rs3.5 billion in the form of gas development surcharge and Rs517 million in the form of GST per annum to the government, but the finance ministry has asked the petroleum ministry to recover this amount from consumers.
Besides, the provision of 110 mmcfd at cheaper rates to the company would also cause cash flow problems to the Mari Gas Company Limited, official documents suggest.
The fertilizer company would have an annual production capacity of 1.5 million tons of urea, NP, NPK and CAN fertilizers. The project is in an advanced stage of implementation.
The ministry of petroleum and natural resources had earlier rejected the company's request for allocation of 85 mmcfd gas for setting up a fertilizer plant in Multan.
The request was rejected due to the cost differential between the market rate of Rs157.72 per mmbtu (million British thermal unit) for pipeline quality gas and the concessional rate of Rs40.10 per mmbtu for fertiliser plants under the 2001 fertilizer policy and the resultant implication of subsidy.
The firm later modified the request by asking for allocation of 110 mmcfd of gas instead of 85 mmcfd from Mari Gas field. Under the fertilizer policy, the cheap gas rates for fertilizer would remain unchanged for seven to 10 years.
The water and power ministry said the Mari gas was supplying 110 mmcfd gas to Wapda's Guddu Thermal Station since 1986 under an agreement which is valid up to December 2010. "Reallocation of this commitment is, therefore, a violation of the agreement," said the ministry.
The power ministry also pointed out that as a result of the change Wapda would incur an additional cost of around Rs330 million per year because of higher prices of gas from the SNGPL, "which will ultimately be passed on to the utility consumers hence causing increase in electricity bills."
Wapda's own 60 km pipeline of 20-inch diameter from Mari to Guddu will be abandoned. As a result, there will be disruption of 20 mmcfd of additional gas from Sari gas field presently going to Guddu station. This would further reduce 100 mw power capacity.
"In case allocation of gas to the TPS Guddu is made from any other alternative source, a new pipeline will have to be laid, which will involve huge expenditure," said the power ministry.
Moreover, if the allocation of 110 mmcfd of gas from Mari field to Guddu is withdrawn, alternative fuel will be high speed diesel which is too costly and is not advisable to use for power generation. "Due to non-availability of gas, there will be reduction/shutdown of 550-mw generation", the ministry said.
There is an ever increasing trend in power demand. Currently the demand has significantly increased and it is anticipated that it would further go up due to higher growth rate, hence the reduction in the generation due to non-availability of gas would result into severe load-shedding in the country, which is not affordable, the power ministry stated.
The petroleum ministry confirmed all these objections. It added that the decision would result in the loss of Rs3.5bn per annum in the form of GDS. "Besides 15pc sales tax is applicable and proposed change would reduce sales tax by Rs517 million per annum. This would also affect cash flow of the Mari Gas Company," the ministry stated.
