Fertiliser firms threaten to hike prices

Manufacturers warn of raising urea prices by 17% if govt tries to recover GIDC

ISLAMABAD:

Fertiliser companies on Friday threatened to increase urea prices by 17% or Rs500 per bag in case the government tried to recover the gas infrastructure development cess (GIDC) in light of a judgement of the Supreme Court, challenging the writ of the state.

Representatives of fertiliser manufacturing companies and the textile sector held separate meetings with cabinet members, according to a statement issued by the Ministry of Finance.

Special Assistant to Prime Minister on Petroleum Nadeem Babar and Minister for Industries Hammad Azhar were also present during the meetings, chaired by Adviser to PM on Finance Dr Abdul Hafeez Shaikh.

“After detailed deliberations, the chair (Hafeez Shaikh) decided that the issue will be resolved in light of the decision of the court but the government will also support the industry in the post-corona environment,” said the Ministry of Finance in a statement.

Fertiliser manufacturers plainly told the meeting that in case of recovery of outstanding dues, they would increase prices. The threat came despite the fact that fertiliser companies had already recovered the dues from farmers.

Fertiliser companies owed Rs180.3 billion to the government, which comprised 34.4% of the total outstanding dues of Rs523 billion as of the end of June this year.

Fertiliser manufacturers threatened that if the government tried to recover the GIDC dues within two years, they would increase urea prices by Rs500 per 50kg bag to Rs3,440, according to officials of the finance ministry.

Fertiliser manufactures said they were ready to pay the outstanding GIDC dues but over 10 years as against the court’s decision to recover the arrears in two years. However, even in the 10-year period, they threatened to increase prices by Rs100 or about 3.5%.

Fertiliser manufacturers warned of possible urea price hike despite having already recovered the GIDC dues from farmers - a fact reiterated by the minister for industries in the meeting.

But Shaikh emphasised that the decision of Supreme Court had to be implemented.

Last month, the Supreme Court of Pakistan ordered the recovery of outstanding GIDC dues from the industrial and commercial sectors in two years. Total outstanding dues are estimated at around Rs523 billion as of end-June 2020.

A year ago, the government had promulgated a presidential ordinance to waive half of the outstanding GIDC dues and recover the remaining. But the prime minister had to withdraw the ordinance after much hue and cry in the media.

After the Supreme Court’s judgement, the Ministry of Energy directed fertiliser companies, government’s power companies, independent power producers (IPPs), K-Electric and gas companies to deposit the GIDC arrears estimated at around Rs523.6 billion.

The fertiliser sector owed Rs180.3 billion, captive power plants Rs116 billion, compressed natural gas (CNG) sector Rs83 billion, general industry Rs50.5 billion, K Electric Rs40.4 billion, government-owned power companies Rs27.7 billion and IPPs Rs10.5 billion.

A Fauji Fertiliser representative claimed that his unit was a non-profit entity, which was challenged by government ministers.

The company was making 48% to 60% return on equity, said finance ministry officials. Ministers told the Fauji representative that they should pay dividends to the stakeholders on the basis of actual profit and not on the basis of inflated profit.

Fertiliser manufacturers claimed that they did not recover GIDC from the farmers, which Special Assistant to Prime Minister on Petroleum Nadeem Babar called a “lie” during the meeting.

Officials said the industries minister pointed out that after imposition of GIDC the fertiliser companies immediately increased prices and started recovering the dues from farmers. Even when courts gave stay orders against the recovery of GIDC, the companies did not reduce urea prices. The additional finance secretary verified from the companies’ published balance sheets that GIDC was collected and showed in the balance sheets.

The finance adviser gave directives that two separate sub-groups would be formed to look into the GIDC issue and propose two to three workable options for an amicable solution, stated the Ministry of Finance.

First group will have representatives from the fertiliser industry, finance ministry, Federal Board of Revenue (FBR) and the petroleum adviser.

Second group will have representatives from the All Pakistan Textile Mills Association (Aptma), finance ministry, FBR, petroleum adviser, adviser on commerce and minister for industries. The minister for industries will chair both the groups and present recommendations in a meeting to be held next week, according to the finance ministry.

Fertiliser Manufacturers of Pakistan Advisory Council (FMPAC) Chairman Tariq Khan and Aptma Chairman Dr Amanullah Kassim Machiyara represented their sectors in the meetings.

They asked “to extend the time limit for the payment of GIDC so that both industries have a better liquidity position”, according to the finance ministry.

Published in The Express Tribune, September 12^th, 2020.

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