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Gas-starved fertiliser industry

July 30, 2012


THE fertiliser industry in the throes of crisis is suffering a drop in production, sales and profits. Last week it issued an SOS call, pleading for more gas to become viable.

According to industry sources, in the first six months of 2012, four plants (Agritech, DH Fertilizers, Pakarab and one of Engro’s two plants) on the Sui Northern supply system faced a collective revenue loss of Rs5.5 billion. Their total sales dropped to 150,000 tons against 316, 000 tons during the corresponding period last year — representing 52 per cent decline in terms of sale.

The total urea production by the SNGPL based plants in the first half of 2011 stood at 297,000 tons which declined by 33 per cent (198,000 tons) till June this year as these plants operated at 18 per cent of their capacity against 25 per cent last year. This is a worrying situation for all — the industry, the government, farmers and, the most importantly, national economy.

At the heart of this crisis is gas distribution formula and the federal government is only itself to blame for the mess it finds itself in. National distribution of natural gas has been settled by the 2005 Gas Distribution Policy, which, by and large, managed the increasing shortages in the country.

When the present government took over in 2008, everyone knew the causes and the extent of gas shortages that were going to grip the country with the passage of time,; drying up existing wells and stalled exploration never augured well for the country.

The government reopened the entire distribution issue in the middle of the crisis period. It naturally had its own complications.

The second layer was added to the crisis by the mode in which it reopened the issue. It altered 2005 gas distribution policy under pressure from business lobbies, all the claimants of national gas formed lobbies to either save, or expand, their share of the pie.

One of its allied parties in the coalition has exhibited special interest in import and distribution of urea. During the current year, the federation was forced to import 553,000 tons of urea despite a healthy domestic inventory at the turn of the year. The government has spent $247 million on these imports and paid Rs15 billion in subsidies to the keep prices down. This money is in addition to Rs30 billion subsidies that it provided last year.

For containing these interests, one, and perhaps the most viable, option is to return to the Gas Distribution Policy, 2005, which set the priorities; in descending order, domestic, fertiliser, power sector and industry were prioritised.

It is not to argue that a certain industry deserves more importance or profit than others. But to argue that in times of shortages, the commodity should be put to the best and the most efficient use.

The role of fertiliser in agriculture sector has become critical because of its direct link to productivity and cost of production.

For example, an acre of cotton, which used to cost Rs30,000 four years ago, has gone up to Rs48,000 per acre. In the last one year alone, the cost has increased by Rs5,000 – from Rs43,000 to Rs48,000. These calculations are official. The fertiliser prices are the main reason for increasing cost of production of these major crops.

Food security, cash crops, exports and rather entire economy and total social fabric of the country depends on agriculture. The only minor change that can be made in 2005 policy perhaps is some additional supplies, that too temporarily, for the power sector. In the last four years, this sector too has become equally vital for political, social, commercial and business reasons. It has also been affecting the entire business cycle, trade, industry and common man with disastrous effects.

Apart from these exceptions (power and fertiliser), economic experts say,all other sectors can, and should, wait till the government increases gas production and supplies.