Govt to reduce GIDC to protect fertiliser consumers

Decision aimed at offsetting impact of hike in gas prices


Usman Hanif August 27, 2019
Decision aimed at offsetting impact of hike in gas prices. PHOTO: FILE

KARACHI: The Pakistan Tehreek-e-Insaf (PTI) government has planned to offset the impact of hike in gas tariffs through a reduction in the gas infrastructure development cess (GIDC) to save end-consumers from an increase in fertiliser prices.

"The fertiliser industry is waiting for a decision from the government on the long-debated GIDC, which is expected to come in a week or a month's time," said Topline Research analyst Sunny Kumar.

Owing to the recent rise in gas prices, the fertiliser industry wanted to increase product prices by Rs210 per 50kg bag. However, the government asked the industry not to raise prices as that could hurt the end-consumers.

The government offered to make up for the gap of Rs200 through reduction in the accumulated GIDC, which the fertiliser companies had collected from consumers, but did not deposit in government coffers.

The outstanding GIDC, required to be deposited by compressed natural gas (CNG) filling stations, independent power producers (IPPs) and textile and fertiliser manufacturers, reached Rs452 billion before the PTI government made an announcement to waive 50% of the dues in its second mini-budget.

"Gas prices have been hiked from July 1, 2019 and the financial quarter of companies will end in September, therefore, the government's decision is expected before that," pointed out Kumar. "The compensation will have a retrospective effect taking all three previous months into account."

The cost of production for fertiliser companies rose from the day the government hiked gas prices because the fertiliser industry used gas as a fuel as well as raw material.

Feedstock gas prices soared 62% to Rs300 per million British thermal units (mmbtu) against the previous price of Rs185 while the price of gas used as fuel surged 31% to Rs1,021 per mmbtu against Rs780 earlier.

The price of a fertiliser bag was Rs1,800 with dealer's margin fixed between Rs30 and Rs40. The price could have jumped up to Rs2,040 - including the dealer's margin - had the government not intervened into the matter.

"The government has saved consumers from the fertiliser price surge," remarked the analyst.

The highest beneficiary of the GIDC concession will be Fauji Fertiliser Company (FFC), which will have a one-off gain of Rs12-13 per share, as it has the highest accumulated cess, followed by Fauji Fertiliser Bin Qasim Limited (FFBL) with a gain of Rs6 per share.

Similarly, Engro Fertilisers will register a gain of Rs3 per share and Fatima Fertiliser Rs0.60 per share.

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