Ministry of Petroleum & Natural Resources is contemplating to give concessions to Engro Fertilizers Limited for next 10 years on account of gas infrastructure development cess (GIDC) and gas tariff under the Fertilizer Policy 2001.

A copy of the Petroleum Ministry’s summary sent to the Economic Coordination Committee (ECC) for approval, available with TheNation, disclosed that the ministry is mulling to extend concessions of Rs 231.97/mmbtu to Engro Fertilizer under the heads GIDC and gas tariff. However, this concession is likely to be made also according to the Fertilizer Policy 2001, under which an agreement to supply 100mmcfd of gas by Mari Petroleum Company Limited (MPCL) to the old plant of Engro Fertilizer would witness an end and the supply of natural gas to the new plant of Engro Fertilizer would be made by Sui Northern Gas Company Pipelines Limited (SNGPL). And, supply of gas by the SNGPL to Engro is likely to give annual loss worth Rs7.1 billion to national kitty, which in ten years would reach Rs71billion.

“M/s Engro’s existing Mari Gas allocation be reallocated to SNGPL for onward supply to Engro’s new plant on a dedicated basis which may be supplied under Engro’s existing SNGPL contract with all terms and conditions staying unchanged including concessionary price for feed gas at actual feed consumption,” the summary said.

Earlier in 2010, the SNGPL had inked a deal with Engro Fertilizer for the supply of 100mmcfd gas from Qadirpur gas field to its new plant. But, the gas utility (SNGPL) remained failed to supply the gas from Qadirpur gas field to the new plant of Engro Fertilizer in 2011 and 2012.

Ruhail Muhammad, Chief Executive Officer (CEO) Engro Fertilizers, in his note on the sent summary, said, “If SNGPL pays Mari based on existing prices, there would be no loss to the govt on account of GIDC and GDS as Mari would continue to collect GIDC and GDS and deposit the same with the government treasury. Engro is extremely thankful to the ministry for taking the initiative to resolve our issues related to our gas contract with SNGPL”.

At present, the provision of gas to Engro Fertilizer under Fertilizer Policy 2001 for feedstock at 70 cent per mmbtu is necessary. And, to ensure the supply of gas to Engro Fertilizer, it has become also essential to make an end to the deal of providing 103mmcfd of gas by Mari Petroleum Company to an old plant of Engro Fertilizer and further to ensure the supply of gas at cheap price to a new plant of the Engro Fertilizer.

Ministry of Petroleum & Natural Resources was of the view that Engro’s entitlement of said concessionary pricing can only be allowed in case the gas is supplied by SNGPL in terms of its agreement whereas gas supply from any other source cannot entail such dispensation. Since SNGPL cannot supply the required quantity of gas from its system, hence Engro is not getting the benefit of concessionary price in addition to the loss suffered due to non-supply of gas as per GSA.

Available summary of Petroleum Ministry further revealed that allowing the necessary gas sale price of US$0.70/MMBTU for feed stock gas to the Engro as provided in the GSA between SNGPL and Engro would entail following financial implications:

As MPCL will be selling gas to SNGPL at its prescribed price which at present is Rs88.44 per MMBTU instead of directly selling to Engro at prevailing sale prices i.e Rs 123.41 per MMBTU for feed stock and Rs 488.23/MMBTU for fuel stock, it will reduce Gas Development Surcharge by approximately Rs 2.9 billion per annum.

Moreover, the current gas sales price to Engro includes a component of Gas Infrastructure Development Cess (GIDC) at Rs 197/MMBTU, which will not be applicable in case of Engro’s stance is accepted resulting in reduction in potential collection of GIDC by Rs 4.2 billion per annum.

“Since SNGPL remained unable in supplying contracted volumes of gas to Engro, provision needs to be made for concessionary pricing for a total of 10 years as per GSA between Engro and SNGPL,” the summary said. Petroleum ministry’s summary also said that Engro has been maintaining that its new plant is entitled to a concessionary price of US$0.70/MMBTU as envisaged in Fertilizer Policy 2001 which has also been approved by ECC at the time of initial allocation of 100MMCFD gas to Engro and the same has been reflected in its GSA with SNGPL, the document said. It further said that Engro’s old plant may be allowed to join consortium of remaining three fertilizer plants on SNGPL system on terms and conditions approved by ECC on December 12, 2012.

It is worth mentioning that there were ten fertilizer plants in the country. Two plants namely Fatima Fertilizer and Engro Fertilizer are new plants established under Fertilizer Policy 2001 of Ministry of Industries which are entitled to a subsidized fixed gas price of US0.70 per MMBTU for ten years from date of commercial operation under the said policy.