PTI govt notifies GIDC relief for fertiliser sector

Reduction will lead to Rs360-400/bag decline in urea prices

ISLAMABAD: The government has notified to waive off almost entire Gas Infrastructure Development Cess (GIDC) on gas consumed by fertiliser manufacturers to provide relief to the farmers.

The Ministry of Energy (Petroleum Division) issued a notification in this regard on Tuesday. Earlier, the government had imposed GIDC amounting to Rs300 per mmbtu and Rs150 per mmbtu on feed stock and fuel stock consumed by fertiliser manufacturers, respectively through the GIDC Act 2015. Now, the GIDC rate has been reduced from Rs400 to Rs5 per bag.

The reduction in GIDC applicable to fertiliser manufacturing will lead to Rs360-400/bag decline in urea prices, said industry officials. Urea is currently being sold at Rs2,040 per bag inclusive of 2% sales tax.

In 2012, the Pakistan Peoples Party (PPP) had introduced GIDC for different industries that were using gas as a source of energy or raw material for manufacturing their products. However, the GIDC Act was challenged in court where the companies obtained stay orders and stopped paying the cess.

However, the Pakistan Muslim League-Nawaz (PML-N) government introduced the GIDC Act 2015 and re-imposed the cess on different sectors. Both the governments stated that the main objective of GIDC collection was to generate funds required for the expansion of gas transmission and distribution network.

In August 2019, the Pakistan Tehreek-e-Insaf (PTI) government introduced the GIDC Amendment Act 2019 in order to settle GIDC dues, by waiving 50%, but withdrew it later due to public pressure.

The PTI government increased urea prices approximately by Rs210 per bag due to a rise in gas prices in July 2019 in order to meet pre-conditions for the IMF programme.

In the current scenario, any gas price hike for the fertiliser sector will increase the cost for the farmers given the inflationary pressure. The cost of living is surging while farmers’ income is declining due to lower yields of major cash crops, as was evident from cotton and rice harvests.

Industry officials say that the government, in its effort to appease farmers, has decided to reduce GIDC, claiming impact of around Rs400 per bag of urea. However, the benefit is less likely to reach farmers considering the rumours of gas price increase in the offing. Amid reports of increasing gas prices, reduction in GIDC is likely to have only impact of only Rs120 per bag impact on urea prices.

The GIDC withdrawal will also hold positive to neutral impact for fertiliser manufacturing companies said Usman Arif at Foundation Securities in a research note. Arif has said that the GIDC reduction will be positive for Fauji Fertilizer Bin Qasim Limited (FFBL) while GIDC settlement will hold neutral for Fauji Fertilizer Company and Engro Fertilizer. GIDC will be neutral for Engro Fertilizer as they have assumed imposition of GIDC on concessionary flows of EFERT in base case scenario as per GIDC Act 2015 against market consensus. 

Published in The Express Tribune, January 29^th, 2020.

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