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Fertilizer makers seek new policy, deregulation - Inside Financial Markets

Fertilizer makers seek new policy, deregulation

– The News

The average local urea demand in Pakistan is around 6.1 MT whereas the nameplate capacity of urea production is now over 7MT

Pakistan needs to introduce new fertiliser policy to jump-start urea production in the country, said one of the top executives of the industry on Thursday.

There is a need for a revised fertiliser policy, which should aim to eliminate the subsidy on gas for the fertiliser sector and enable the much needed transition towards Weighted Average Cost of Gas (WACOG), said Imran Ahmed, Chief Financial Officer of Engro Fertilizers Limited in an interaction with the media.

Moreover, he observed, there should be incentives to promote debottlenecking to maximise urea production from gas. “As globally there is an increasing focus on reducing carbon footprint and GHG emissions, there is a need to incorporate incentives for companies who can come up with investment programmes to optimise gas use to produce fertilisers,” he added.

The fertiliser industry in Pakistan is globally competitive, and will thrive under a completely deregulated environment. Following the intent of the Fertiliser Policy 2001, the selling price of fertilisers should become completely deregulated enabling free market forces to prevail.

Any subsidy going forward should be given directly by the government to the subsistence farmers to ensure continued affordability.

Imran commended the efforts of the government of Punjab in effectively implementing the subsidy mechanism through Kisan Cards which can, going forward serve as a model for the rest of the provinces. Additionally, the upcoming policy should focus on leveraging the excess capacity in the country by allowing the industry to export urea. The urea sector in Pakistan has the potential to become a top exporter with exportable capacity of over 800,000 tonnes, which has the potential to earn over $700 million, he said.

The policy introduced in 2001, ensured that the growing urea demand in the country could be adequately met with domestic indigenous gas-based production. However, depleting gas reserves in the country pose an alarming situation, the CFPO maintained.

As per recent estimates, the gas shortfall currently at around 720 million cubic feet per day will peak closer to 1 billion cubic feet per day in January 2022. The increased reliance on imported gas is creating a huge gas subsidy burden on the government.

Hence, he added, there is greater need of introducing new fertiliser policy to kick-start excess urea production in the county. Pakistan, being an agrarian state with 20 percent GDP contribution and around 70 percent of the total population depending on agriculture for its livelihood, the role of urea industry has been of pivotal importance. Prior to 1980-81, Pakistan imported well over 50 percent of its annual fertiliser requirements and had been a net importer till 2012; however, the 2001 policy led to investment in new plants and increase in production capacity.

Average local urea demand in Pakistan is around 6.1 MT whereas the name plate capacity of urea production is now over 7MT. Hence, he said, these investments have enabled the country to achieve self-sufficiency in urea production thereby ensuring food security in Pakistan.

At current prices, the industry is all set to provide an annualised import substitution of $6 billion, thereby monetising indigenous low BTU gases in the best interest of the country.

Imran praised the PTI government’s far-sighted policies to improve the agricultural landscape in Pakistan. The government’s efforts have clearly reaped results as he shared that wheat and sugarcane earnings have increased by 59 percent and 47 percent, respectively in 2021 versus last year, CFO Engro said.

At the same time, area under cultivation has reached to a record high of 24.3 million hectares, depicting a significant growth of 2 million hectares in the last 2 years. Moreover, better farm practices and increased use of hybrid seeds has led to enhanced yields. These factors have contributed to the growth in urea demand in the country, which is now forecasted to reach 6.3 million tonnes in 2022, he concluded.

Syed Zaki Hussain

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