Under CPEC 2.0

ISLAMABAD: Pakistan and China have signed a $1.12 billion agreement for a coal-to-fertilizer project under the second phase of the China-Pakistan Economic Corridor. The deal aims to convert local coal into urea, reducing Pakistan’s dependence on imported natural gas for fertilizer production.

The agreement was signed between Pakistan’s Fauji Fertilizer Company and Chinese partners for the Front End Engineering Design (FEED) phase. It marks one of the early flagship projects under CPEC 2.0, focusing on industrial transformation and resource utilization.

The project will use 2.1 million tons of local coal annually to produce 717,000 tons of urea. This output is expected to cover approximately one-third of Pakistan’s current urea deficit. Officials estimate annual foreign exchange savings of between $500 million and $700 million by cutting fertilizer imports.

Pakistan currently faces acute natural gas shortages that have forced several fertilizer plants to rely on expensive imported LNG. This has strained foreign reserves and increased production costs for the agriculture sector, which employs nearly 40 percent of the country’s workforce and contributes around 19 percent to GDP.

The new facility will employ Chinese coal gasification technology to convert coal into synthesis gas, which will then be processed into ammonia and finally urea. This marks a technical shift from gas-based to coal-based urea manufacturing in Pakistan.

According to industry sources, the project will be located near ample coal reserves, most likely linked to the Thar coalfield. Pakistan holds an estimated 185 billion tons of coal reserves, among the largest in the world, yet these resources remain significantly underutilized for industrial purposes.

**Official Confirmation** The Board of Investment and the Ministry of Energy have welcomed the agreement as a strategic move toward energy security and industrial self-reliance. A senior government official stated that the project aligns with national goals to maximize indigenous resources and reduce the import bill.

Fauji Fertilizer Company described the partnership as a milestone in technological cooperation with China. The company noted that the project will create direct and indirect employment opportunities while supporting Pakistan’s agricultural productivity.

Chinese officials have emphasized that the initiative demonstrates continued commitment to CPEC’s second phase, which prioritizes agriculture, industry, and socio-economic development alongside traditional infrastructure projects.

**Background Context** Pakistan’s fertilizer industry has long depended on natural gas as feedstock. However, declining local gas production and rising domestic demand have created persistent supply gaps. Many plants operate below capacity during winter months when gas is diverted to household use.

Imported LNG has been used as an alternative, but its high cost and volatility have affected urea prices and farmer affordability. Urea consumption in Pakistan stands at around 6-7 million tons annually, with domestic production struggling to meet full demand.

The Thar coal project, developed with Chinese support in earlier CPEC phases, already supplies power plants. This new fertilizer initiative extends that model to the agriculture value chain, aiming for better resource integration.

**Economic and Agricultural Impact** Analysts project that successful implementation could stabilize urea supply and moderate price fluctuations in the domestic market. Lower production costs from indigenous coal may help reduce subsidy burdens on the government budget.

The project also carries potential environmental considerations. Modern Chinese gasification technology includes provisions for emission control, though detailed environmental impact assessments will be required during the implementation phase.

Market reactions have been cautiously positive, with fertilizer sector stocks showing measured movement following the announcement. Agricultural experts believe consistent urea availability could boost crop yields, particularly for wheat and rice, which form the backbone of national food security.

**Strategic Implications** This development reflects Pakistan’s broader strategy to address energy and resource constraints through CPEC 2.0. By shifting urea production to coal feedstock, the country aims to conserve natural gas for power generation and domestic consumers while leveraging its vast coal reserves.

The project timeline includes completion of detailed engineering and financial close within the next 12-18 months, with commercial operations targeted for 2028-2029. Total investment of $1.12 billion includes both Chinese financing and local equity components.

Regional observers note that the initiative strengthens industrial cooperation between P