Cabinet pushes for uniform gas tariffs for fertiliser makers to address disparity

PM orders stability in urea prices; status quo on gas tariffs until March

Federal Cabinet members have urged Prime Minister Shehbaz Sharif to implement uniform gas prices for all fertiliser manufacturers to eliminate disparities and alleged favouritism. The call comes as some manufacturers benefit from lower gas tariffs, while all companies sell fertiliser to farmers at uniform rates, raising concerns about profit imbalances.

According to a news report, during a recent cabinet meeting, one member stressed that uniform gas pricing is necessary to ensure fairness and avoid market distortions caused by varying gas tariffs. It was clarified that existing differences in gas prices stem from long-term contracts, which have been criticised for their adverse impact on farmers.

The cabinet also discussed renegotiating agreements with fertiliser manufacturers, similar to ongoing amendments with independent power producers (IPPs). 

The prime minister sought details on gas pricing and the final recommendations of the cabinet committee tasked with addressing the issue.

Deputy Prime Minister briefed the cabinet, stating that the Ministry of Industries and the Petroleum Division had reached a consensus after earlier opposing views. He revealed that the Economic Coordination Committee (ECC) had directed uninterrupted gas supply to Fatima Fertiliser and Agritech beyond September 30, 2024, while ensuring stable urea prices.

The committee, formed under Rule 173 of the Rules of Business, 1973, met twice to assess the situation. It concluded that domestic urea production, at a capacity of 6.25 million metric tons per annum, is sufficient to meet Rabi sowing season demands. 

However, shutting down Fatima Fertiliser and Agritech would create a 420,000-ton shortfall, necessitating imports costing $169 million and requiring an additional Rs22.45 billion in subsidies.

The committee directed the Petroleum Division and the Ministry of Industries to negotiate with the two plants to increase gas tariffs by Rs200-300 per million British thermal units (mmBtu). 

While the Petroleum Division proposed revised tariffs of Rs1,800/mmBtu and Rs2,000/mmBtu, the plants stated they could not operate profitably under these rates.

The Petroleum Division clarified that maintaining current tariffs at Rs1,597/mmBtu for the two plants would help avoid an increase in liquefied natural gas (LNG) prices and maintain the merit order for consumers. 

Consequently, the committee decided to maintain the status quo on gas tariffs until December 15, 2024, and continue gas supply to the plants until March 31, 2025, to ensure price stability and sufficient supply in the market.

The cabinet reviewed the report submitted by the Industries and Production Division and agreed to ban urea imports. It directed the Petroleum Division and the Ministry of Industries to work with the fertiliser industry to establish uniform gas tariffs moving forward.

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