Karachi, May 28, 2012 (PPI-OT): The Petroleum Ministry has sought an increase in the Gas Infrastructure Development Cess (GIDC) in order to generate maximum funds from industries to finance the development of recently entered gas pipeline agreements (i.e. IP and TAPI gas pipelines) and subsidize alternate fuels.
According to Alfalah Securities Limited, the Ministry has proposed an increase of PkR 103/mmbtu (up by 52.3%) on feedstock gas supplies for fertilizer plants from the current level of PkR 197/mmbtu, after which the applicable cess would reach to PkR 300/mmbtu. GIDC on Compressed Natural Gas (CNG) in Region-I would be raised by PkR 156/mmbtu (up by 108.33%) to PkR 300/mmbtu from the existing cess of PkR 144/mmbtu while in Region-II, GIDC would be raised massively by PkR 121/mmbtu (up by 153%) to PkR 200/mmbtu from PkR 79/mmbtu currently. Furthermore, the ministry plans to raise GIDC on general industries by PkR 87/mmbtu to PkR 100/mmbtu from existing PkR 13/mmbtu, by PkR 73/mmbtu to PkR 100/mmbtu for KESC and GENCOs from the current cess of PkR 27/mmbtu and an increase of PkR 30/mmbtu to PkR 100/mmbtu for IPPS from the current cess of PkR 70/mmbtu.
Alfalah Securities Limited believes, an increase in GIDC would bode negatively for the fertilizer sector particularly old fertilizer plants like FFC, FFBL and Engro as they would incur increased cost of production which would hurt profitability to a considerable extent since the manufacturers have lost pricing power to raise urea prices. On the other hand, their would be no impact of an increase in GIDC for Fatima Fertilizers and Engro Enven1.3 since the new plants are provided feedstock gas at a subsidized rate (USD 0.77/mmbtu) as per the Fertilizer policy 2001.