As the government struggles to bridge the widening trade deficit, exports of surplus urea produced using RLNG or gas priced at Petroleum Policy 2012 can immediately narrow the gap through $300 million in export proceeds.
Latest figures of the Ministry of Commerce show that the country’s trade deficit, which has been widening since December 2020, has now reached $3.43 billion in May 2021 compared to $1.46 billion in the same period last year. Moreover, between July and May 2021, the trade gap has grown by 29.5% to $27.27 billion in the 11 months of 2020-21 versus last year. This trend is expected to pose significant challenges for the government in managing the foreign exchange reserves and external liabilities.
Pakistan was a net importer of urea till 2012 as the domestic manufacturers faced capacity constraints to meet the country’s high urea demand. However, the Fertilizer Policy 2001 incentivized the local industry to invest around Rs 162 billion in new plants and capacity expansions. As a result, the domestic production capacity increased by approximately 1.9 million tons and helped Pakistan attain self-sufficiency to meet its urea demand.
According to industry sources, the fertilizer industry has idle capacity of 0.9 million tons for urea exports on an annual basis. If granted permission by the government, the industry can start making exports within 30 days, which will create additional jobs and result in foreign exchange inflows.
Currently, the total production capacity of urea manufacturing in Pakistan stands at 7 million tons, out of which 5.5 million tons is based on Fertilizer Policy 2001 gas and 0.9 million tons imported LNG, while 0.5 million metric tons is based on Petroleum Policy 2012. With an average urea demand of 6.1 million tons, the local industry has sufficient capacity to not only cater to the local market. At the rate of $344/T, Pakistan can earn up to $300 million by exporting up to 0.9 million tons of surplus urea.
“Earlier this year, the government extended a subsidy of over Rs 13 billion to restart the RLNG-based plants from March till November 2021 (Dec’21 subject to gas availability), despite the local market being sufficiently supplied. It would have been more prudent to divert this RLNG or gas priced at Petroleum Policy 2012 to utilize the full capacity of plants and export the surplus urea quantities,” according to Sunny Kumar, analyst at Topline Securities.
He added that, “The pandemic hit global supply chains and urea prices touched record highs, which can be counted as a missed opportunity to earn export revenues as no additional investment is needed by the local players to produce exportable urea. Previously in 2017 and 2018, Pakistan has exported 650,000 tons of urea to earn $160 million in foreign exchange as well.”
These urea exports can enable Pakistan to benefit from higher international prices and support the government to achieve export-led growth.