Urea Exports: Excellent opportunity to immediately bridge trade imbalance

Karachi, November 20, 2019: Commerce Secretary Sardar Ahmed Nawaz Sukhera recently asserted that the country’s exports cannot grow as per expectations until increase in export surplus is available. He was briefing the National Assembly Standing Committee on Commerce and Textile headed Naveed Qamar.

“I think when Commerce Ministry is asked for exports (and rightly so), we should go two steps back. Commerce can do only two things, ie, market access and market reforms. If export surplus will increase, then it could be exported, and if export surplus will not increase, which the world needs, then whatever efforts Commerce Division makes, exports will not increase. Commerce is doing whatever it can as per its capacity,” he added.

Pakistan has an exportable surplus urea manufacturing capacity of almost 20% over and above the local demand of 5.8 Million MT. Improving the utilization of these facilities by providing them with RLNG, the country has been able to build up urea inventories of 900,000 Metric Tons. This presents an excellent opportunity for the country to make use of its excess urea to earn upto US$250 Million foreign exchange for the country.

At present Pakistan suffers from precarious balance of payment situation. Its exports are too paltry to finance imports. Though, remittances are reasonable, meeting debt service obligation has got out of control. Even the recently acquired facility from International Monetary Fund (IMF) and other countries will soon prove insufficient.

In the prevailing situation the country has to expedite the two-pronged strategy of boosting exports and containing imports. While boosting exports may not be easy, one industry stands distinguished in terms of its ability to support the cause and that industry is urea manufacturing. Through production of one million tons of exportable urea, the industry is well poised to fetch US$250 million per annum for the country, at the least. For any other industry, developing such capability will require significant outflow of forex for capital investment and substantial time.

In another recent meeting in Beijing, Haroon Sharif, former Minister of State and Chairman of Board of Investment said that Pakistan-China industrial cooperation should focus on technology transfer, textiles, agriculture, and Information Technology (IT) sectors. According to the China Customs, the total import volume of urea has increased by 41.95 percent in 2018 from previous year. This presents a great opportunity to export Urea to China. Other countries across the regions also present this opportunity to boost exports of Pakistan.

Reportedly, the nameplate aggregate capacity of urea manufacturers in Pakistan is 7 million tons. At present the production on locally available indigenous gas hovers around 5.5-5.8 million tons, enough to meet the local demand. This below optimum capacity utilization is because of interruption/non-supply of gas to plants, which include Engrofert base plant, Fatimafert and AgriTech, the aggregate unutilized capacity of these three plants is in excess of 1 million tons per annum.

Exports averaged approximately $25 billion between 2011 and 2013 but since then, they have declined. In FY 2019, their amount was recorded at $22.9 billion. Efforts to boost exports have to be highly prioritised with policies for invigorating exportable surplus capacities in the country.

Local suppliers are very competitive to export urea in the international market. It is imperative for the Government to encourage the fertilizer industry to compete in the international market and generate foreign currency for the country through enhanced exports. Assuming exports of 1M MT, the industry may easily generate US$ 250Million for the country. In addition to the incremental foreign currency generation, the exports may help bridging the fiscal deficit as upto Rs 5 Billion of taxes may be generated for the country on the profits made by the fertilizers sector on these exports.

Textile industry presents a good model to replicate, where based on locally available gas under the Petroleum Policy, the country is benefitting from significant foreign currency inflows contributing positively and improving balance of trade. Fertilizer sector with its multi billion dollars investments over the past decades is well poised to export value added urea by monetizing gases.

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