Acid Plant Database April 3, 2009

History of Pakistan Fertilizer Industry

The fertilizer sector in Pakistan currently comprises of 10 companies 4 of which are in the public sector (Hazara Phosphate Fertilizer (Pvt) Limited, Lyallpur Chemical & Fertilizer Limited, Pak Arab Fertilizer Limited, and Pak American Fertilizers Limited) while 6 are in the private sector (Engro Chemicals Pakistan Limited, Dawood Hercules Chemicals Limited, Fauji Fertilizer Company Limited and FFC-Jordan Fertilizer Company Limited, Pak China Fertilizer and Pak Saudi Fertilizer Company Limited — now owned by FFC).

Fauji Fertilizer Company Limited (FFC) is the largest fertilizer manufacturer in the country with a designed production capacity of 1,887 thousand tonnes of urea (including the production capacity of Pak Saudi Fertilizer).

Fertilizer production is concentrated in nitrogenous fertilizers, which comprise 85% of all fertilizers produced in the country. Although other types of fertilizers are also produced in Pakistan, the bulk of whose demand is imported. The main reason for this concentration on nitrogenous fertilizers is that its main raw materials i.e. natural gas, is cheaply available in the country. The raw material for other fertilizers such as potassium and phosphate has to be imported and thus local manufacturing is not economically viable as demonstrated by Fauji Jordan's problems.

THE FERTILIZER SECTOR BEFORE PRIVATIZATION

At the time of independence there were no fertilizer plants in Pakistan in spite of the fact that this country was largely agrarian. Recognizing the importance of proper use of fertilizer on agricultural production various governments in the past have made conscious efforts to attract foreign investment in this sector.

CHRONOLOGICAL HISTORY OF THE FERTILIZER SECTOR IN PAKISTAN

1952 - Pakistan Industrial Development Corporation (PIDC) is established

1957 - Lyallpur Chemicals and Fertilizers Limited (LCFL) is set up and designed to produce Single SuperPhosphate (SSP)

1958 - Pak American Fertilizer Limited (PAFL) is commissioned and designed to produce ammonium sulphate

1962 - National Gas Fertilizer Factory is set up producing Urea, Ammonium Nitrate, and Nitric Acid

1965 - Esso Pakistan Fertilizer Company Limited (EPFC) is incorporated and designed to produce urea 1968 Designed Capacity of PAFL is increased

1973 - National Fertilizer Development Corporation (NFDC) is established with an authorized share capital of 1000m. It's mandate is to manage the existing fertilizer factories and to establish additional factories.

1976 - Capacity of LCFL is doubled

1978 - NGFF is renamed Pak Arab Fertilizers after 48% stake is acquired by Government of Abu Dhabi

1980 - Pak Saudi Fertilizer Company is established designed to produce urea

1982 - Pak China Fertilizers Limited (PCFL) goes into commercial production. It is designed to produce urea
        - Fauji Fertilizer is established

1985 - Hazara Phosphate Fertilizer Limited is incorporated and is designed to produce Granulated Single Super Phosphate Fertilizer.

1986 - Government deregulates prices of nitrogenous fertilizers

1989 - Fertilizer Policy is announced providing incentives for fresh investment in the sector

1991 - Esso (Exxon) announces its intentions to sell 75% of its holdings in EPFC. Engro Chemicals Pakistan Limited is formed

1998 - FFC Jordan is established. It is the first company to locally manufacture Diammonium phosphate (DAP) in the country

The deregulation of the fertilizer sector began in 1986 and slowly the government has removed fertilizer price controls and subsidies, liberalized fertilizer imports and distribution and privatized fertilizer plants.

FERTILIZER SECTOR IN THE 1990'S

The deregulation of the fertilizer sector attracted considerable additional investment in the sector as a result of which the production capacity of the sector doubled from 2.95m tonnes in FY 1990.

1990's also saw the privatization phenomena with the fertilizer plants owned by the government and managed by NFC being sold to private parities. The first plant to be privatized was Pak-China Fertilizer, which was bought by the Schon Group in 1992. After this the process of privatization became very slow largely due to the political instability, which plagued the 1990s.

Pak Saudi Fertilizer was purchased by FFC in FY 2001 for a purchase price of PkR7.3bn rupees. This was the second fertilizer plant to be privatized. The government is in the process of privatizing Pak Arab Fertilizer, Lyallpur Chemicals and Fertilizers Limited (whose EoIs have been invited) and Pak American Fertilizer Company. However, no deadlines have been set for these privatizations.

Another factor that affected the fertilizer sector in the 1990's was the shift of the GoP's emphasis towards the energy sector. It started with the Fertilizer Policy of 1989, which fixed prices for new plants for 10 years and subjected old plants to rising feed stock prices. Also the 1990's saw the gradual decrease in the fuel gas subsidy provided to the sector.

Reference: http://www.pakistaneconomist.com/issue2002/issue27/market3.htm