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Fertilizer policy 2022

fertilizer policy 2022

*Fertilizer Policy 2022 to enable move to WACOG and leverage excess urea capacity in the country through exports*

Pakistan, being an agrarian state with 20% GDP contribution and around 70% 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% of its annual fertilizer requirements and had been a net importer till 2012. However, thanks to the Fertilizer Policy of 2001, which 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 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 annualized import substitution of USD 6 Bn, thereby monetizing indigenous low BTU gases in the best interest of the country.

In a recent press conference, Imran Ahmed – CFO Engro Fertilizers Limited, 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% & 47% respectively in 2021 versus last year.

At the same time, area under cultivation has reached to a record high of 24.3 Mn Ha depicting a significant growth of ~2 Mn Ha 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 Mn tons in 2022.

The Fertilizer 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. 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. Therefore, there is a need for a revised fertilizer policy which should aim to eliminate the subsidy on gas for the fertilizer sector and enable the much needed transition towards WACOG. Moreover, there should be incentives to promote debottle necking to maximize 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 programs to optimize gas use to produce fertilizers.

The fertilizer industry in Pakistan which is globally competitive will thrive under a completely deregulated environment. Following the intent of Fertilizer Policy 2001, the selling price of fertilizers 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 to effectively implement the subsidy mechanism through Kisan Cards which can going forward serve as a model for the rest of provinces.

Additionally, the upcoming Fertilizer 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 tons which has the potential to earn over USD 700 Mn in foreign exchange.

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