FERTILIZER SECTOR
Important Facts
Pakistan’s fertilizer sector is the largest contributor to the agriculture sector through provision of its key inputs in the of Urea, DAP and other fertilizers. Pakistan is an agrarian economy with agriculture sector’s contribution being 20% of the country’s GDP and providing 37% of the overall employment (27 million people).
An indigenous fertilizer industry has enabled Pakistan to ensure self-sufficiency via food security over the decades. Despite ranking 36th in terms of the area of arable land, Pakistan is the world’s 5th largest cotton producer, 9th largest Rice producer, 8th largest wheat producer and 4th largest sugarcane producer. (https://aari.punjab.gov.pk/pak_ranking)
The fertilizer sector produces 6.4 million tons of Urea (having installed capacity of 6.7 to 6.8 million tons) which fulfills the entire Urea demand for the country, barring minor seasonal fluctuations and plant / gas field turnarounds which sometimes result in 3% Urea imports by GOP. This import only becomes viable for GOP as the price is blended with 97% of locally produced Urea which is ~ 60% lower in price than imported Urea and the fertilizer industry fully supports this import through their supply chain and financing.
Local production has shielded the farmer from international commodity fluctuation providing Urea which is ~55% reasonably -priced compared to imported Urea.
This was enabled through the implementation of Fertilizer Policy 2001 by GOP which attracted timely investments and ensured allocation of the required gas.
B. Profile Pakistan Fertilizer Sector:
There are ten fertilizer manufacturing plants in the country and it is dominated by five groups, which occupy ~95% of the market share and have an oligopolistic arrangement in the market. These companies belong to the three Big Names of the Corporate Sector, Fauji Group (has 47% market share[1]), Engro Group (market share of 36%)[2] and Fatima & Agritech Group (market share 17%). These companies are:
· Fatimafert (Owned by Fatima Group)
· Pak Arab ltd (owned by Fatima Group)
· Fauji Fertilizer –Mirpur Mathelo (owned by Fauji Group)
· Fauji Fertilizer – Bin Qasim (FFBL) ( owned by Fauji Group)
· Engro Fertilizers- New (owned by Engro Group)
· Engro Fertilizers- Old (owned by Engro Group)
· Agritech Ltd
Fauji group is the market leader in Fertilizer sector with maximum shares. It is also the sole producer of DAP in Pakistan.
The Total Installed capacity for producing Fertilizer in the country stands at 6.408 Million MT (per annum) which is sufficient for meeting the annual demand of 6.3 Million MT ( provided gas supply is consistent). Details of Plant production capacity is at Annexure I. There are three main types of fertilizers produced by these manufacturing plants; these include Nitrogenous fertilizers such as Urea (73%) and CAN, Phosphorous fertilizer such as DAP (26%) and Potassium fertilizers including NP (1%). Their average consumption percentage is shown below:
Percentage consumption of different types of Fertilizers in Pakistan
Fertilizer Policy 2001 was announced to encourage new and existing investors to invest in fertilizer manufacturing so that agricultural output can be enhanced and reliance of imported fertilizers is reduced. Following Incentives were announced in the Fertilizer Policy 2001:
· Fixed Concessional gas rate for 10 years (new investment)
· Import of Second Hand Plant Machinery
· Tax concessions of import of Raw material for phosphate fertilizers
Selling price of fertilizer shall remain deregulated on the understanding that while manufacturers will allow free market forces to prevail they will pass the benefits in the form of lower price of fertilizer to the farmers.
|
Year |
Production Quantity (MT) |
Import Quantity (MT) |
Off-take Quantity (MT) |
|
2020-21 |
6,301,000 |
0 |
6,267,000 |
|
2021-22 |
6,426,000 |
100,000 |
6,691,000 |
|
2022-23 |
6,033,000 |
400,000 |
6,470,000 |
|
2023-24* |
5,632,000 |
220,000 |
5,696,000 |
*July 2023 to April 2024
Source: Ministry of National Food Security & Research
a. Strengths
• Availability of land and raw material
• Low-cost skilled and unskilled labor
• Capital-intensive sector
• Demand potential
• Strong dealership and distribution network
• Diversified portfolio (Urea, DAP, CAN)
• Producing more than 100% of the installed capacity
b. Weaknesses
• Reliance on depleting natural resources
• DAP- price elastic product
• Gas supply and international price dependency
• GIDC Challenge
• Dependency upon irrigation facilities and rainfall
• Lack of knowledge of farmers
c. Opportunities
• Growing population and food consumption
• Agri-based economy
• Government support programs for farmers
• Alignment of gas pricing to fertilizer policy
• Pakistan GDP recovery leading to opportunities for investment
• Development of value chains
• Capacity of horizontal & vertical integration
d. Threats
• Uncertain government policies
• PKR devaluation leading to increased costs
• Import of Urea and other fertilizers
• Shortage of Gas, especially in winters
• Fuel price hike
• Challenging farm economies
Potential Investment opportunity exists in the Joint Venture (JV) opportunities in the expansion of Fertilizer Sectors through BMR investments of existing plants and as well as Greenfield fertilizer complexes (as exhibited in above table that Pakistan’s export requirement are increasing)..
viii Coal Gasification
Pakistan has vast resources of coal at Thar of around 175 bn Tons (more than the resources of Iran and Suadi Arabia). Gasification is an established and environmentally better technology. Fertilizer sector has done initial studies of coal gasification for urea production. China is world largest coal user and bulk of nitrogenous fertilizer comes from coal gasification. Fertilizer sector of Pakistan is keen to work with Chinese companies in this area in matter of JVs and knowledge sharing.
