Price controls: Equalisation tax on fertiliser plants under study

Minister sees urea prices coming down by Rs400 as a result of the levy.

ISLAMABAD:

The government is studying a proposal to slap an equalisation tax on fertiliser plants running on gas in an effort to check unhealthy rise in fertiliser prices and windfall gains being made by manufacturers.

Petroleum and Natural Resources Minister Dr Asim Hussain has presented this plan to the finance ministry after urea prices shot up to unprecedented levels above Rs2,200 per 50kg bag.

“Yes, I have recommended to the finance ministry to impose fertiliser equalisation levy on fertiliser manufacturers, which may lead to reduction of Rs300 to Rs400 in urea prices per bag,” the petroleum minister said while talking to The Express Tribune.

The levy on the fertiliser sector like petroleum products would generate money which would be utilised to subsidise those fertiliser plants making less profit or running into loss, Hussain added.

He also asked the finance ministry to take measures for regulating prices of urea as fertiliser plants got gas at cheaper rates but sold the commodity to farmers at higher prices.

He said the petroleum ministry would seek approval of the Economic Coordination Committee (ECC) for conducting an energy audit, aimed at providing gas on priority basis to the most efficient plants.

“We want an audit of fertiliser plants which are getting cheaper gas and the assessment will be carried out by gas companies through a third party,” Hussain said.

Under the programme, fertiliser plants operating at low production capacity will be penalised and their share of gas will be reduced and diverted to the most efficient plants.

The plan had to be tabled in the ECC meeting today (Friday), but it was postponed due to absence of Finance Minister Dr Abdul Hafeez Shaikh.

The petroleum ministry has already resumed gas supply to four fertiliser plants and is expected to seek the ECC’s go-ahead for reversing its earlier decision of providing gas to fertiliser industries on rotational basis.

According to sources, an efficient fertiliser plant produces 42 tons of urea by utilising one million cubic feet of gas per day. However, some plants are producing 38 tons with the same gas supply.

Through the energy audit, the government will work out the urea production capacity.

Hussain said the ECC had already given its green signal to supply of gas to efficient power plants while penalty would be imposed on those operating at low capacity.

The most efficient power plant generates six megawatts of electricity with the help of one million cubic feet of gas per day, but some power plants produce 3 to 3.5 megawatts with the same gas supply.

According to sources, one million cubic feet of gas per day meets needs of 10,000 domestic consumers and six compressed natural gas filling stations.

The government is importing 700,000 tons of urea to meet its shortage, but it is trying to avert further purchases by improving gas supply to domestic fertiliser manufacturers.

Four fertiliser plants, on the network of Sui Northern Gas Pipelines Limited, need 240 million cubic feet of gas per day, but they are currently getting 162 mmcfd.

Published in The Express Tribune, November 18^th,  2011.