OUR STAFF REPORTER LAHORE - The fertilizer sector has agreed to pay Rs4.65 billion as a compensation cost to the Independent Power Producers (IPPs) for using their share of gas during the period of May to June 2011. Moreover, the federal government would also pay Rs1.55 billion on behalf of the IPPs to the Pakistan State Oil in advance for arranging 854 MT per day diesel for power plants. The Economic Coordination Committee (ECC) of the Cabinet has approved a summary moved by the Ministry of Petroleum and Natural Resources whereby SNGPL will be supplying 40 MMCFD gas to fertilizer sector by installing equivalent volume from IPPs. Representatives of fertilizer industry agreed that they will make direct arrangements with IPPs for payment of two third (2/3rd) of the total incremental cost as their share. The ECC of the Cabinet vide case No ECC-84/0/2011 has decided that in line with fertilizer industrys proposal to get at least 80pc of the allocated gas (192 MMCFD), 40 MMCFD gas from IPPs will be diverted to fertilizer plants. It was decided that the fertilizer industry will pay 2/3rd of the additional cost of IPPs to be incurred for using diesel while 1/3rd of the said cost shall be paid by the federal govt. In this way the govt would not have to pay subsidy on fertilizer import due to less local production. The estimated additional cost for IPPs for using diesel equivalent to 40 MMCFD gas works out to Rs84.6m per day. On this basis, total incremental impact would be around Rs4.65 billion from 6th May last up to 30 June, 2011. Fertilizer industry will make direct arrangements with IPPs for payment of two third (2/3rd) of the total incremental cost as their share. The IPPs will also make advance payment to PSO for supply of diesel equivalent to price of gas as their share plus two third (2/3rd) of the incremental cost as share of Fertilizer industry. One third (1/3rd) of the incremental cost for IPPs i.e. Rs1.55 billion will be paid by federal government directly to Pakistan State Oil (PSO) in advance for arranging 854 MT/day diesel for IPPs to be nominated by Water and Power Ministry. The federal government will effectuate its payments once the arrangements are finalized by fertilizer industry with IPPs and PSO. This cost picked up by the fertilizer industry will be a pass through for the industry resulting in increase in urea prices. In this regard the Ministry of Water & Power to nominate IPPs for diversion of 40 MMCFD gas for fertilizer sector. The ministry will also arrange issuance of a comfort letter from four IPPs to indemnify SNGPL from any penalty/LDs under the Gas Sales Agreement for diversion of 40 MMCFD gas to fertilizer sector till 30th June 2011. The fertilizer industry will have an agreement with IPPs for payment of their 2/3rd share of incremental cost of using diesel by IPPs directly to IPPs. The IPPs will make advance payment to PSO for supply of diesel equivalent to price of gas as their share plus two third (2/3rd) of the incremental cost as share of fertilizer industry.