MoI&P seeks Rs1.5bn LPS waiver

ISLAMABAD: Ministries of Industries and Production (MoI&P) has sought waiver of Late Payment Surcharge (LPS) amounting to Rs1.5 billion for delayed payment of RLNG bills to SNGPL supplied to two urea fertiliser plants from September 2018 to November 2019, sources close to Minister for Industries told Business Recorder.

Sharing the details, sources said that in order to address the shortage of urea fertiliser in the country, ECC of the Cabinet allowed operations of Fatima Fertiliser (Shiekhupura plant) and Agritech from September, 2018 to November, 2019 on cost sharing basis.

While allowing operations of both these plants in 2018, supplementary grant of Rs4.7 billion was approved by the Cabinet in December 2018, whereas in 2019-20 an amount of Rs1.5 billion was allocated for operations of these plants but the allocation was not sufficient, therefore, in order to clear the dues of cost differential for provisioning of RLNG to these two plants during FY 2019-20, Technical Supplementary Grant of Rs8.987 billion was approved in FY 2019-20.

After clearing the payment for cost differential for provisioning of RLNG during FY 2019-20, SNGPL raised the demand for clearing of Late Payment Surcharge (LPS) on account of late release of funds by the Federal Government. In this regard, a meeting was held with Petroleum Division and SNGPL on September 16, 2020 wherein SNGPL was requested to provide the exact LPS amount. SNGPL through Petroleum Division contended that a total of Rs1.517 billion is required from GoP on account of LPS from September 2018 to November -2019.

The MoI&P proposed that since the principal payment for operations of both these plants between September 2018 to November 2019 have been cleared and reconciled with SNGPL, the Late Payment Surcharge may be waived off for the period of 14 months.

Meanwhile, the ECC has also approved supply of RLNG to both these plants from March to November 2021 as the country would be experiencing shortage of around 370,000 MT in Dec-2021. In order to address expected shortage, and keep the buffer stocks above 200,000 MT, during the calendar year 2021, two options were available i.e. import or production from SNGPL based urea plants. National Fertiliser Development Centre (NFDC) was requested to workout the comparative analysis for import viz-a-viz domestic production of urea from two SNGPL based plants from March to December 2021, so that the anticipated shortage for urea fertiliser during the current year may be avoided. According to NFDC, import would be expensive as compared to local production by Rs13.6 billion. If operations of the two plants would be allowed from March onwards till December, 2021, it was expected that around 700,000 MT would be added to the national inventory, which would help in maintaining a downward pressure on prices if national stocks remain above the buffer stock level of 200,000 MT. The ECC, in its decision October 26, 2020 approved the Variable Contribution Margin (VCM) for running of two plants (Fatima Fert, Sheikhupura and Agritech). The same calculation of VCM was to be utilised for Operationalising these two plants with approximate period of 10 months from March-December 2022 (approximate contribution of these plants would be 70,000 tonnes urea per month).

On March 10, 2021, Ministry of Industries and Production submitted following options for consideration: (i) operations of two plants at SNGPL network i.e. Agritech and Fatima Fertiliser (Shiekhupura Plant) may be allowed from Mar-Dec, 2021. Gas rate for operations of these plants for the period Mar-Dec, 2021 may be at Rs805/MMBTU (with Variable Contribution Margin @ 186/bag, GoP's share at this gas rate has been estimated at Rs13.57 billion by NFDC, further actual payment by GoP for price differential sum may vary due to change in monthly rate of RLNG by OGRA) or; (ii) may allow import of 700,000 MT of urea, so that national stocks of urea remain above 200,000 MT of buffer stock during the year (total subsidy on import at current C&F has been estimated at Rs27.27 billion by NFDC, with a forex requirement of $253 million). The total budget allocated for FY 2020-2021 was Rs6.00 billion, under the ’Fertiliser Subsidy’. The existing balance under the head 'Fertiliser Subsidy' was Rs2.098 billion which was not sufficient for operationalisation of these plants, and if local production is approved technical supplementary grant of approximately Rs2 billion may also be accorded. The total cost of running of two plants would be Rsl3.57 billion for 10 months and cost for operationalisation for 3 months in this FY would Rs4.071 billion (the billing of month of June will be made in July).

During the ensuing discussion, the Minister for Planning, Development and Special Initiatives supported the proposal of domestic production. He however, also highlighted that there may be shortage of gas and LNG in December 2021. It may result in disturbing the planning and operations of fertiliser plants and a shortage of urea. Therefore, commitment for provision of gas to both plants may be made from March to November, 2021. The Adviser to the PM on Commerce & Investment commented that international prices of urea were on the higher side, therefore he supported the proposal. Finance Minister asked the Ministry of Industries and Production to ensure the availability of Urea as per requirement in future.

After detailed discussion, the ECC approved production of urea through both fertiliser plants with the modification that the period of operation shall be from March to November 2021.

Ministry of Industries and Production was directed to initiate operationalisation of the two fertiliser plants by utilising the funds available with them (Rs2.098 billion) and to consult Finance Division for the balance required (approximately Rs2 billion) as Technical Supplementary Grant. The Ministry of Industries & Production was also directed to submit relevant recommendations on requirement of import of urea in consultation with stakeholders.—MUSHATQ GHUMMAN