ECC approves extension in gas supply to FFBL

Aftab Ahmed

The Economic Coordination Committee (ECC) on Wednesday approved an extension in gas supply to M/s Fauji Fertilizer Bin Qasim Limited (FFBQL) for the next five years.

However, SSGC will supply gas on and when available basis. The agreement between SSGC and FFBQL has been expired last month.

Petroleum Division placed a summary before ECC regarding renewal of Gas supply Agreement (GAS) between Sui Southern Gas Company Limited and Fauji Fertilizer Bin Qasim Limited.

After detailed discussion, the ECC approved with a condition that renewal would be allowed on an “as and when available basis” for a period of 05 years. SSGCL may restore the gas supplies to M/S Fauji Fertilizer till December 2021 or until a uniform rate for the whole fertilizer sector is formulated after rationalization of tariffs (whichever is earlier).

FFBQL is the sole producer of Phosphate (DAP) in Pakistan and only fertilizer plant operating on Sui Southern Gas Company Limited’s (SSGCL) system.

For the supply of gas, FFBQL  executed the first principal Gas Supply Agreement (GSA) with SSGCL In 1995. Subsequently, they amended in 2007 and 2016 respectively.

In the last amended GSA, the second addendum to GSA came into effect from January 1, 2016, with the extension of gas supply period up to five (5) years i.e., until 31″ December 2020 with the condition that gas supply to plant will be contingent upon availability of supply of indigenous and imported natural gas to SSGCL.

As per the original allocation, SSGC had a commitment to supply 85 mmcfd gas (70 mmcfd for feedstock and 15 mmcfd for fuel stock). It continued until April 2010 when the Government decided to curtail 20% of supplies of fertilizer industry across the board for diversion to the power sector to meet power shortfall.

In pursuance of the decision, SSGCL reduced the original allocation of FFBQL to 88 mmcfd.FFBQL committed not impose damages in case the supply is below 68 mmcfd.

Before the expiry of the GSA, FFBQL submitted written requests to SSGCL and Petroleum Division for renewal/extension of GSA for another term of five (05) years on the same terms and conditions.

However, SSGCL said it would not be able to supply indigenous gas to FFBQL due to a gas shortfall. However, it offered to supply RLNG at rates Ogra notified.

Petroleum Division held a few meetings with SSGCL and FFBQL on the issue and suggested various options to FFBQL Including a blended supply of RLNG and system gas. However, FFBQL was of the view that the current business model is unsustainable if the gas tariff (fertilizer feedstock) is over the current level of Rs.302/MMBtu.

Meanwhile, the GSA of FFBQL expired on December 31, 2020, while the plant proceeded on its annual maintenance activity in January 2021.

FFBQL has also made a request to the Petroleum Division to advise SSGCL to continue the indigenous gas supply. Meanwhile, they will decide  GSA terms in parallel.

However, in the absence of GSA and persistent gas shortfall on SSGCL’s system, the company is using  150 to 200 mmcfd RLNG for past many months to bridge shortfall.Therefore,it shows reluctance to commence gas to FFBQL.

The issue was also raised into the Federal Cabinet in its meeting held on December 29, 2020, highlighting that the plant will not be provided gas until a decision on allocation of gas is made by the Government.

Meanwhile, Petroleum Division is also in receipt of a request from the sister concern of FFBQL i.e., M/s Fauji Fertilizer Company Ltd (FFCL) seeking commitment GoP for provision of 30 mmcfd natural gas for 20 years [concessionary price (3 0.77/MMBtu) period of first 10 years as per fertilizer Policy 2001) for establishing a new DAP production plant.

https://newztodays.com/ffbl-increases-dap-price-by-rs550-per-bag/

With respect to the gas tariffs, gas utilities are charging four types of tariffs from the fertilizer sector in the country.

The cost of gas FFBQL is paying under the GSA is Rs. 302/MMBtu, while RLNG cost for the month of December 2020 is Rs 1,306/MMBtu, resulting in a difference of approximately Rs. 25 billion for the full 68 mmcfd per year.

While the existing cross-subsidy based on the difference of tariff charged to FFBLQ of Ra. 302/MMBtu and the actual cost of supply of SSGCL of Rs, 750/MMBtu works out to be Rs. 11 billion per year. The actual cross-subsidy availed by FFBQL from July-December, 2020 is Rs.4.78 billion.

With respect to gas supply to FFBQL’s plant, Petroleum Division was of the considered view that it is the only DAP producing plant in the country and non-operation of the same will lead to import of additional DAP thereby putting the burden on foreign exchange reserves.

Hence, SSGCL may execute a Gas Supply Agreement (GSA) with FFBQL on Indigenous natural gas “as and when available basis” for another term of five years. SSGCL may restore the gas supplies to FFBQL until December 31, 2021.