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Fertiliser Policy 2022 will enable movement towards WACOG

Fertiliser Policy 2022 will enable movement towards WACOG

Fertiliser Policy 2022 will enable movement towards WACOG

Flanked by Minister for Energy Hammad Azhar and the fertilizer companies’ owners, he was addressing a news conference in Islamabad on Friday. Image: File

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LAHORE: Urea industry’s role in Pakistan, being an agrarian state with 20 per cent GDP contribution and around 70 per cent of the total population depending on agriculture for its livelihood, has been pivotal.

Prior to 1980/81, Pakistan imported over 50 per cent of its annual fertiliser requirements and had been a net importer till 2012. However, thanks to the Fertiliser Policy 2001, which led to investment in new plants and increase in the production capacity.

The average local urea demand in Pakistan is around 6.1 million tonnes, whereas the nameplate capacity of urea production is now over 7 million tonnes; hence, these investments have enabled the country to achieve self-sufficiency in urea production and; thereby, ensuring food security in the country.

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

In a recent press conference, Imran Ahmed, chief financial officer of Engro Fertilizers Limited, praised the present government’s farsighted policies to improve the agricultural landscape in Pakistan.

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The government’s efforts have clearly reaped results, as he shared that wheat and sugarcane earnings have increased 59 per cent and 47 percent, respectively, in 2021, compared with the last year.

At the same time, the 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 two years.

Moreover, better farm practices and increased use of hybrid seeds has led to enhanced yields. These factors have contributed to the growth in the urea demand in the country, which is now forecast to reach 6.3 million tonnes in 2022.

The Fertiliser Policy introduced in 2001 ensured that the growing urea demand in the country could be adequately met with the domestic indigenous gas-based production. However, depleting gas reserves in the country pose an alarming situation. As per the recent estimates, the gas shortfall, currently at around 720 million cubic feet/day, will peak closer to one billion cubic feet/day in January 2022.

The increased reliance on imported gas is creating a huge gas subsidy burden on the government; therefore, there is a need for a revised fertiliser policy, which should aim at eliminating the subsidy on gas for the fertiliser sector and will enable the much-needed transition towards the weighted average cost of gas (WACOG). Moreover, there should be incentives to promote debottlenecking to maximise urea production from gas. Globally, there is an increasing focus on reducing carbon footprint and GHG emissions and there is also a need to incorporate incentives for the companies who can come up with investment programmes to optimise gas use to produce fertilisers.

The fertiliser industry in Pakistan, which is globally competitive, 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.

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Imran commended the efforts of the Punjab government to effectively implement the subsidy mechanism through Kissan Cards, which can serve as a model for the rest of the provinces.

Additionally, the upcoming fertiliser 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 in foreign exchange.

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