Daily Times

Cabinet members have urged Prime Minister Shehbaz Sharif to introduce uniform gas prices in a bid to do away with alleged favouritism, which benefitted certain manufacturers.

At present, different gas prices are being charged from urea manufacturers. Some are paying lower tariffs whereas some others are asked to pay higher rates.

However, all manufacturers are receiving same prices for fertiliser supply to farmers, indicating that the companies paying lower gas tariffs are making more profit.

During a recent meeting of the cabinet, a member insisted that all fertiliser manufacturers must be supplied gas at a uniform price and there should be no favouritism.

Another member pointed out that if fertiliser manufacturers charged different prices in response to the variation in gas tariffs, it would cause market distortion.

In response, it was clarified that the different gas prices were being imposed due to long-term binding contracts. This signals that faulty agreements were signed with fertiliser manufacturers to pocket billions of rupees from farmers.

The government is now amending agreements with independent power producers (IPPs), therefore, the issue of gas tariffs collected from fertiliser companies should also be taken up, experts say.

During the ensuing discussion, the prime minister inquired about gas pricing and final recommendations of the cabinet committee. Deputy prime minister explained that adequate work had been done to reach current arrangements, as earlier the Ministry of Industries and Production and the Petroleum Division had completely divergent views.

He stated that one division insisted that fertiliser must be exported, while the other opposed any such proposal. He revealed that the cabinet committee had discussed all issues and decided that there was no need for imports, but supplies and prices should be carefully managed.

The Economic Coordination Committee (ECC), in its meeting held on August 2, 2024 to review a summary titled “Price Fixation of Imported Urea for Kharif 2024,” concerning the Ministry of Industries, directed the Petroleum Division to ensure uninterrupted gas supply to Fatima Fertiliser and Agritech beyond September 30, 2024.

Furthermore, a committee was constituted in accordance with Rule 173 of the Rules of Business, 1973, to be convened by the deputy PM, for proposing appropriate measures to ensure urea price stability. It was also directed that a report on the matter should be submitted within two days for consideration by the PM and the cabinet.

The cabinet was informed that the committee held two meetings – one on August 17 and another on September 25. In the first meeting, the committee was informed that the total urea requirement for the Rabi sowing season could be entirely met through domestic production, with the current capacity being at 6.25 million metric tons per annum.

However, if Fatima Fertiliser and Agritech were shut down, the domestic production would face a shortfall of 420,000 tons for the Rabi season, necessitating urea imports at a cost of $169 million. It would also require an additional subsidy of Rs22.45 billion to match the price with the locally produced urea.

It was highlighted that the committee emphasised the need for continuous operation of the two plants and directed the Petroleum Division, with support from the Ministry of Industries, to negotiate with the two manufacturers for enhancing their gas tariff by Rs200 to Rs300 per million British thermal units (mmBtu).

For the second meeting, the Petroleum Division came up with two options for increasing gas tariffs for the two plants – Rs1,800/mmBtu and Rs2,000/mmBtu, under which the additional revenue for Sui Northern Gas Pipelines would be Rs466 million and Rs932 million per month, respectively.

Both options were discussed with the management of the plants, but they were of the view that it would not be possible for them to continue to run at higher gas tariffs.

During the meeting, the Petroleum Division clarified that maintaining the gas tariff at current levels would result in an increase in liquefied natural gas (LNG) prices by $0.5744 per mmBtu, lowering its merit order for consumers.

The Petroleum Division agreed that present arrangements could continue for next two months. Given the significance of the agriculture sector and the setbacks farmers faced recently, particularly in relation to wheat prices, it was deemed important that fertiliser prices should not be increased.

After detailed deliberation and for the reasons stated in the report, the committee decided that as far as the gas tariff was concerned, status quo would be maintained and Fatima Fertiliser and Agritech would be supplied gas at Rs1,597/mmBtu until December 15, 2024.

It was agreed that the Petroleum Division and the Ministry of Industries would negotiate with the fertiliser industry to arrive at a uniform gas price.

The cabinet considered a summary titled “Report of the Cabinet Committee to Ensure Stability of Urea Prices in the Market,” submitted by the Industries and Production Division, and directed that there would be no fertiliser imports. Fatima Fertiliser and Agritech would be supplied gas until March 31, 2025 to ensure price stability and adequate supply in the market.