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Government decides to end low gas tariffs for Fatima, Engro Fertilizer Cos

February 8, 2021

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The government has decided in principle to cancel preferential gas tariffs for the Fatima Fertilizer and Engro fertilizer plants by June-2021.

Two fertilizer companies currently enjoy a preferential gas rate of $ 0.70 per mmbtu. However, the concession period for Fatima Fertilizer will expire in July 2021 and the concession period for Engro Fertilizer is coming to an end by June 2021.

According to some media outlets, there is a dispute between the government and Engro Fertilizer over the expiration of a preferential gas supply agreement.

Once the concession for both plants expire, the government will revise gas tariffs for the entire domestic gas-consuming fertilizer industry and the existing imbalances will be corrected to create a level playing field for all players, the energy division said.

These fertilizer plants sold fertilizers to farmers at the same higher price as other plants, even though they were getting cheaper gas.
Other fertilizer plants were paying Rs 302 mmbtu for feedstock and Rs 1,023 mmbtu for fuel reserves. However, the new fertilizer plants in Fatima and Engro were paying Rs 112 per mmbtu for gas to be used as feedstock.

These new fertilizer plants didn’t even withhold the Gas Infrastructure Development Tax (GIDC). Thus, these factories turned out to be major beneficiaries as they paid less for gas and did not pay the GIDC to the government.

Meanwhile, the government has agreed to extend gas supplies to Fauji Fertilizer Bin Qasim (FFBQL) for the next five years. However, the delivery was made on an affordable basis, which means there is no guaranteed delivery.