Islamabad:
The cabinet has expressed serious concerns over the alleged alienation of farmers by fertilizer manufacturers, despite heavy subsidy on gas supply.
According to sources, the cabinet in a recent meeting noted that high subsidy is given to fertilizer companies, but its impact is not passed on to farmers, who are forced to buy fertilizers at very high prices.
It was reported that there were other factors affecting fertilizer prices, such as provincial price control, curbing smuggling and the use of tax measures.
It was suggested that the issue of urea supply and prices be taken up in a separate meeting with all concerned, chaired by the chief minister.
The Economic Coordination Committee (ECC) of the cabinet recently approved a basket price mechanism for locally manufactured and imported urea after the provinces and the finance ministry refused to share the subsidy burden.
During the CEC meeting, it was observed that fertilizer manufacturers will charge the cost of financing their total production of 6.2 million tons per year, which gave them undue benefits and increased the prices of fertilizers.
Moreover, the relevant ministry should resolve the issue at its end. It was replied that the finance cost would be charged only on 220,000 tonnes of imported urea.
Regarding gas supply to fertilizer manufacturers, the ECC was informed that as per the past practice, the Petroleum Directorate would assess the existing arrangement and supply gas/regasified liquefied natural gas (RLNG) to them on an “optimal basis”.
The cabinet agreed that the National Fertilizer Marketing Limited (NFML) should fix the release price of imported urea, while the Finance Directorate reiterated that no additional subsidy would be provided for supply of urea once the proposed basket price mechanism is implemented.
The Ministry of Industries and Production informed the meeting that the ECC has allowed the Trading Corporation of Pakistan (TCP) to import 220,000 tonnes of urea from Azerbaijan’s Socar Company in a government-to-government (G2G) deal, which was approved by the cabinet.
The ECC had decided that the cost of subsidy on imported urea would be borne by the provinces. In another decision, it agreed that recovery of the cost of imported fertilizers would be done by provinces.
Reading ECC okays up to 5% hike in urea prices
The Punjab government has conveyed that it will lift imported urea by sharing the subsidy with the federal government on a 50:50 basis, while the Sindh government has pledged to lift its share of the supply, i.e. 52,800 tonnes (24% of 220,000 tonnes) on a 50:50 basis. full cost.
Responses were awaited from Balochistan and Khyber-Pakhtunkhwa ware. In short, the provinces could not commit to shouldering the entire burden of the subsidy.
TCP told the meeting that the import of 220,000 tonnes of urea was estimated to cost Rs 27.489 billion and the landing price of a 50 kg bag was estimated at Rs 6,248.
The Industries Ministry pointed out that the situation was discussed in a meeting chaired by the prime minister and attended by all the four chief ministers as well as the federal minister for finance, commerce, national food security and power on January 1, 2024.
It was decided that locally produced urea and imported urea will be treated as one basket. Based on past practices on local urea and full cost recovery of imported urea, a price matrix will be established for local urea producers.
It was agreed that a committee would engage in talks with urea producers and finalize an implementation mechanism. Further discussions were held with the manufacturers and a mechanism for disposal of the imported urea was agreed.
Urea producers will draw the 220,000 tonnes of imported urea from the port and NFML depots, based on their share of local production as a contingency arrangement.
All the incidentals related to raising NFML and associated costs will be incorporated into the current urea prices based on weighted average selling price concept for cost recovery spread over 12 months by local manufacturers.
Published in The Express Tribune, January 13u2024.
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