Fertiliser industry to get another Rs12b subsidy

ECC notes impact of subsidy has not been passed on to farmers so far

ISLAMABAD: Fertiliser manufacturers are expected to receive another subsidy of Rs12 billion on gas supply for urea production, despite increase in prices of urea, which has hurt many farmers as their cost of inputs has gone up.

The government has already given Rs4 billion in subsidy on liquefied natural gas (LNG) supply to two fertiliser plants in an effort to provide urea to farmers at lower prices, but fertiliser manufacturers have increased prices.

In addition to the subsidy, the fertiliser industry has failed to pay Rs120 billion in gas infrastructure development cess (GIDC) to the government by obtaining stay orders from court. The Pakistan Tehreek-e-Insaf (PTI) government has also waived 50% of the outstanding GIDC.

The Economic Coordination Committee (ECC) of the cabinet, in a recent meeting, noted that fertiliser manufacturers increased urea prices unjustifiably, which pushed up the cost of production for the farmers. It noted that ultimately it would lead to a hike in prices of different crops in the country.

It was pointed out in the meeting that fertiliser was a deregulated commodity, therefore market forces were taking advantage of the policy.

The ECC noted that the government was providing subsidy on urea manufacturing to the fertiliser plants in the form of subsidised re-gasified LNG. Therefore, urea should have been made available in the market at reasonable prices, it said.

However, the ECC was of the view, the impact of subsidy had not been passed on to the consumers due to the increase in urea prices.

Earlier, the ECC in a meeting on February 19 directed the Ministry of Industries and Production to ensure that two key fertiliser plants continued to run till the end of October 2019 and submit a plan along with the cost of subsidy required to run the plants compared to the financial impact if urea was imported.

The Ministry of Industries told the ECC that in line with its directive, the Petroleum Division and Sui Northern Gas Pipelines Limited (SNGPL) were advised to restore gas supply to the two plants - Fatima Fertiliser and Agritech Limited - which had remained shut from February 14-25, 2019 due to a halt to gas supply.

"Gas supply has been restored since February 26, 2019 and both plants are running now," it said.



Urea inventory was analysed in a meeting of the Fertiliser Review Committee, which noted that the agreed price of gas was Rs782 per million British thermal units (mmbtu) so the cost would be capped at that level by subsidising it and total subsidy was estimated at Rs11.9 billion.

It was calculated that the government at current market prices would have to provide a subsidy of Rs846 per bag if urea was imported from the Middle East. The subsidy would be Rs1,061 per bag in case of import from China.

The Ministry of Industries proposed that the two fertiliser plants connected to the SNGPL network should keep running on re-gasified LNG or locally produced natural gas till the end of October 2019.

The ministry also requested the ECC to allow the continuation of subsidy till October 31 and cap the price of gas supplied to these fertiliser plants at Rs782 per mmbtu. The ECC allowed continued supply of subsidised gas to the fertiliser plants.