Islamabad:
As the Competition Commission of Pakistan (CCP) tightens its grip on fertilizer makers, the issue of their tax audit has reached the Special Investment Facilitation Council (SIFC) to investigate the companies that have failed to pay billions of rupees in gas dues. infrastructure development (GIDC).
The council is seeking updates on the tax audit of fertilizer businesses. In addition, the CCP found evidence that fertilizer producers engaged in monopolistic practices aimed at controlling urea prices. In this regard, it has issued show cause notices to them.
During the tenure of the previous Pakistan Tehreek-e-Insaf (PTI) government, the apex court had directed fertilizer companies to release GIDC installments worth billions of rupees. However, they failed to comply with the directive as lower courts issued stay orders against them.
Later, when the Pakistan Democratic Movement (PDM) government came to power, then Prime Minister Shehbaz Sharif formed a committee to deal with the GIDC issue, but it is yet to be resolved.
The PDM administration has pledged to expedite court proceedings to recover Rs 453 billion in outstanding GIDC dues from defaulters, mainly the fertilizer industry.
However, stay orders from lower courts, contradicting Supreme Court rulings, have allowed business tycoons, particularly from the fertilizer sector, to stop GIDC payments to the federal government.
The Prime Minister’s Office had in August 2022 set up a ministerial committee tasked with exploring various options, including a forensic audit of fertilizer manufacturers and other businesses, to recover GIDC’s arrears.
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At the time, it was revealed that a total of 2,496 petitions were pending in the courts, with more than 2,000 in the Sindh High Court and 474 in the Lahore High Court.
Two fertilizer plants, operating under a 10-year fixed price gas contract, claim that the reduced gas price of $0.70 per million British thermal units (mmBtu) offered to them under the Fertilizer Policy 2001 included all taxes, duties , levies, fees and charges, other than general sales tax or similar duty.
Though they were getting natural gas at discounted rate, they were charging farmers higher prices for urea and also failed to deposit billions of rupees to GIDC.
Currently, fertilizer companies pay different gas prices, with some manufacturers enjoying lower prices but receiving uniform fertilizer prices from farmers.
According to sources, Fauji Fertilizer is paying Rs 580 per mmBtu for its facility, while Engro is paying Rs 1,615 per mmBtu for its old plant and Rs 1,597 per mmBtu for the new plant. The price for Engro’s new plant has been increased from the previous price of Rs 120 per mmBtu.
Among other manufacturers, Fatima Fertilizer pays Rs 580 per mmBtu and Pak Arab Fertilizers incurs a cost of Rs 1,268 per mmBtu.
The caretaker government, which resigned after the general election in early February, raised the price of natural gas to over Rs 1,500 for the fertilizer industry.
Fauji Fertilizer has a 40% market share, Engro controls 35% of the market, Fatima Fertilizer 18% and Agritech Limited 7%.
Calculations show that farmers are required to pay over Rs 4,000 per 50 kg bag of urea in various cities across the country. In the past, governments have tried to introduce energy efficiency audits, but fertilizer manufacturers have rejected the request and threatened legal action, citing the absence of such provisions in their agreements.
Officials claim that fertilizer manufacturers are operating at low efficiency rates as they consume higher volumes of gas but produce less fertilizer.
Published in The Express Tribune, April 4u2024.
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