Cabinet Discussion on Gas Supply to Fertilizer Plants

The Economic Coordination Committee (ECC) and the Federal Cabinet reviewed the supply of subsidized gas to fertilizer plants, noting its impact on circular debt and the need to stabilize urea prices.

Key Highlights

1. Gas Supply Continuation:
   • The Cabinet ratified the ECC’s August 2, 2024 decision to ensure uninterrupted gas supply to Fatima Fertilizer and Agritech beyond September 30, 2024, to maintain urea production for the Rabi season.
2. Rabi Urea Production Insights:
   • Domestic production capacity: 6.25 million metric tons per annum.
   • Potential shortfall of 420,000 metric tons if Fatima Fertilizer and Agritech were shut, necessitating:
     • Urea imports worth $169 million.
     • Subsidy of Rs. 22.45 billion to align import prices with locally produced urea.
3. Committee’s Efforts:
   • The Committee convened twice (August 17 and September 25, 2024) under the Deputy Prime Minister.
   • Key findings:
     • Continuous operation of Fatima Fertilizer and Agritech is critical.
     • Misalignment in views of Industries & Production Division (advocating for exports) and Petroleum Division (opposing exports).
4. Gas Tariff Negotiations:
   • Petroleum Division proposed two options to increase gas tariffs for Fatima Fertilizer and Agritech:
     • Rs. 1800/MMBTU (SNGPL revenue: Rs. 466 million/month).
     • Rs. 2000/MMBTU (SNGPL revenue: Rs. 932 million/month).
   • Both plants rejected these options, stating operations would be unfeasible at the proposed rates.
5. Current Gas Tariff:
   • Status quo maintained at Rs. 1597/MMBTU until December 15, 2024.
   • Petroleum Division and Ministry of Industries & Production tasked to negotiate a uniform gas price with the fertilizer industry.
6. Key Concerns and Discussions:
   • Differentiated gas prices create market distortions but are tied to long-term binding contracts.
   • Committee stressed avoiding unilateral urea price hikes to protect the agriculture sector, already affected by recent wheat price increases.
   • It was clarified that continuing current gas tariffs would increase LNG prices by $0.5744/MMBTU, affecting consumer merit order.
7. Prime Minister’s Remarks:
   • Stressed on uniform gas pricing across all manufacturers to prevent favoritism.
   • Emphasized efficient management of fertilizer supply and pricing without resorting to imports.
8. Next Steps:
   • The Committee, headed by the Deputy Prime Minister, will hold its next meeting to finalize uniform gas pricing arrangements.