How gas shortage foils BCIC bid to cut urea import bills

The government corporation that looks after fertiliser production supposedly has everything in place – four previously built huge fertiliser factories, a brand new fifth state-of-the-art plant touted to be the largest urea manufacturing plant in South Asia, enough trained manpower, and the capacity to produce all of the country's fertiliser needs. 

But in the end, it all comes down to a three-letter word – gas. Or the lack of it.

The Tk15,500 crore Ghorashal-Palash Urea Fertiliser Factory was commissioned in November last year in Narsingdi with the aim to reduce dependence on urea imports to ensure that global price volatility and supply disruptions do not imperil the country's food security.

But the natural gas rationing to fertiliser factories did not let it happen as the scanty supply is only enough to run the new factory, keeping four others idle.

Severe financial strain

The state-owned Bangladesh Chemical Industries Corporation (BCIC) that operates these factories is now reeling under severe financial strain. It is unable to pay gas bill arrears to another state agency Petrobangla and has borrowed money to repay instalments of foreign loans for its new factory.

BCIC officials said its new factory's 9.24 lakh tonnes annual output would add to the strength of four others with nearly 18 lakh tonnes capacity— enough to meet the country's demand for the most-used nutrient of plants, mainly used in paddy cultivation.

They said if all the five state-owned urea plants were in operation, the country could save at least Tk10,000 crore in foreign currencies on annual import of urea and remove its supply uncertainties from any global shock like the pandemic or the war.

BCIC is trying to stay afloat as Petrobangla cut its gas supply to fertiliser plants to almost a fourth compared to two years ago.

BCIC Chairman Md Saidur Rahman told The Business Standard that the scanty gas supply will enable them to operate only the Ghorashal-Palash factory and forced them to lower production targets.       

New factory redundant?

This means Bangladesh will still continue to rely on urea imports, keeping its enhanced production capacity idle and the new factory built with foreign loans almost redundant.

The BCIC has already borrowed money to repay foreign loan instalments for its Tk15,500 crore new plant, the largest of its kind in Southeast Asia.

BCIC officials said they are now getting only 72 million cubic feet per day (mmcfd) of gas, down from 250 mmcfd it used to get in 2022 for four factories. Now, after the addition of a new factory, Petrobangla has cut its gas supply by 71% due to arrears.

The huge outstanding bills prompted Petrobangla, already struggling to meet the growing demand for gas from various sectors, to restrict its supply to BCIC, putting the latter in trouble to keep its four old factories--Jamuna Fertiliser Company Limited, Shahjalal Fertiliser Factory, Ashuganj Fertiliser and Chemical Company Limited, and Chittagong Urea Fertiliser Limited — running.

"We do not have any plan to supply gas to the remaining factories, except Ghorashal-Palash, next fiscal year. The fertiliser factories owe a significant amount of gas bills," Petrobangla Chairman Zanendra Nath Sarker told TBS.

Demand 27 lakh tonnes, production 10 lakh

Due to the gas supply crunch, the production target for the fertiliser factories has been set at 10 lakh tonnes of urea for FY25 against the country's demand for 27 lakh tonnes, said officials at the industries ministry.

If the four urea plants stay out of production, the deficit will have to be met by imports. The BCIC had to import 15.40 lakh tonnes of urea fertiliser in the 2022-23 fiscal year to meet the local demand, according to its financial statements for FY23.

If gas supply can be ensured, imports of urea can be avoided and the country's dwindling forex reserves be relieved of additional pressure, officials concerned said.

Moreover, they calculated, local factories produce urea cheaper than the imported one. At a cost of Tk65,490 per tonne, the total import cost for the fertiliser amounted to Tk10,085.46 crore. However, if the fertiliser had been produced domestically, the cost would have been Tk6,052.66 crore as per previous gas price.

Gov pays low for high priced product

Even if the cost is calculated at the increased price of gas, the production cost would have still been significantly lower than the import cost, they claimed.

Petrobangla had raised its gas price from Tk4.45 to Tk16 per unit in June 2022. But the BCIC did not pay the additional price, resulting in its gas bill arrears to reach Tk2,500 crore, according to official documents.

Jahangir Alam Khan, an agricultural economist, told TBS, "If we have full production capacity, we must definitely take advantage of that opportunity by supplying gas and stopping imports."

The economist also raised some questions. "If we import most of our needs even when we have the capacity, then why did we build a new factory at a cost of Tk15,500 crore?"

Petrobangla rigid, BCIC in trouble

According to a letter sent by the Ministry of Industries to the Ministry of Finance, the minimum production capacity of the five factories is sufficient to produce 27.14 lakh tonnes of urea.

But the drastic cut in gas supply has put BCIC in a tight spot.  "Our current production capacity exceeds the demand for usable urea fertiliser," said the BCIC chairman.

"Despite the introduction of the new factory, a target has been set to produce 10 lakh tonnes of fertiliser locally in the upcoming fiscal year," he told TBS,

BCIC officials said Petrobangla's gas production capacity was 2,300-2,400 mmcfd when it used to supply 250 mmcfd to the fertiliser factories. But despite an increase in production capacity to over 3,100 mmcfd, Petrobangla significantly reduced gas supply to BCIC, they said.

During the current fiscal year, two factories were operated intermittently throughout the year, only when gas was not needed at Ghorashal-Palash, said the officials. Following the resumption of gas supply to Ghorashal-Palash, Petrobangla provided gas to all factories for an average of only 2-2.5 months during the last winter, when gas demand in other sectors, particularly power generation, had decreased, they said.

Though the four urea factories—8 to 43 years old—now stand idle, they have to pay over a thousand employees and spend on maintenance, which requires BCIC a monthly expense of Tk12 crore.

On condition of anonymity, the managing director of one of the four old factories told TBS, "The factories are gradually closing down. The duration of downtime is increasing slowly. Various benefits, including overtime, have already been discontinued."

If gas supply could be ensured at least to Shahjalal Fertiliser Factory, which is 8-year old and in the best position, it could produce 5.80 lakh tonnes, significantly cutting the need for imports.

Shahjalal Fertiliser Factory enjoys another advantage due to its proximity to the Jalalabad gas field, facilitating easy gas supply.

BCIC struggles to pay Tk42 lakh in interest per day

BCIC officials argue that they sell fertiliser to the government at lower price than production cost. Before the gas price hike, BCIC sold urea fertiliser produced in its factories to the government for Tk25,000 per tonne, which was at least Tk2,000 less than the production cost.

Now the gas price has been raised almost four-fold by Petrobangla, raising their production cost to Tk39,000--- widening the gap to Tk14,000 per tonne, they said.

But the government continued the previous rate, making BCIC unable to pay Petrobangla additional gas bills and compelling it to borrow Tk1,388 crore from the government's fertiliser import subsidy funds to repay instalments for its new urea plant, built with Tk10,492 crore foreign currency loans from Chinese and Japanese lenders.

The BCIC was supposed to repay the loan from its own revenue, but the instalment period started even before the plant could be fully operational because of gas supply uncertainty. The state agency is now struggling to pay Tk41.83 lakh per day in interest on the loan it took to cover the first three instalments of foreign loan. Two instalments have already been paid and the third one is due by 21 May, officials said.

Rajiur Rahman Mallik, project director of the Ghorashal Palash Fertiliser plant, however, remains optimistic about the plant's potential to repay the foreign loan instalments from its own revenue from urea sales, provided adequate gas supply is ensured for a sustained production.

The industries ministry officials are in talks with the finance ministry to clear BCIC of its financial burdens, officials at the state agency said, as they pin hopes on the assurances of utilising the government's agricultural subsidy fund for debt repayment.

BCIC believes that if the government increases the price of fertiliser in line with the production cost, the crisis can be averted.

Tk25,000 cr bond may come to the rescue

An official from the Finance Department told TBS that a decision has been made to issue bonds worth Tk25,000 crore for electricity and fertiliser subsidies. Over Tk6,500 crore in bonds have been issued to 24 banks linked to the power sector, with the rest to follow gradually.

Efforts are underway to recover outstanding electricity bills from both government and non-government entities. These recovered arrears will partly fund the subsidy.

"The subsidy for the 2022-23 fiscal year in the power sector remains unpaid. More time is needed to process the subsidy for the current fiscal."