ECC okays 48% urea price differential

Also succumbed to OMCs’ demands, withdrew decision to cap premium on diesel

ISLAMABAD:

The government on Friday approved the import of 160,000 metric tonnes of urea at two varying rates of $480 and $710 per metric tonnes under government-to-government (G2G) deals after a private bidder defaulted on its obligation.

It also succumbed to the demands of oil marketing companies (OMCs) and withdrew its earlier decision to cap the premium on high-speed diesel (HSD) at $16.75 per barrel, which will put an additional burden of billions of rupees on consumers.

The Economic Coordination Committee (ECC) of the Cabinet, on Friday, had to take the difficult decision of importing urea with a 48% price differential in two different deals in a bid to meet the input needs of the agriculture sector. The total import value of the urea is $84.9 million or Rs19 billion.

On October 28th, the ECC had given the contract for the import of 300,000 metric tonnes of urea to M/s Makhdoom Logistic Services at the rate of $520 per tonne. The ECC was informed, however, that the party had defaulted on its supplies.

The Ministry of Industries submitted a summary on the procurement of 200,000 metric tonnes of urea. According to the Finance Ministry, the industries’ ministry also shared that it negotiated different options, including the option of importing from Chinese firms that committed to supplying the negotiated quantity of urea fertiliser at the lowest rate.

After discussions, the ECC allowed the Trading Corporation of Pakistan Limited (TCP) to proceed with importing 125,000 metric tonnes, on a G2G basis, from China to meet the demand for urea fertiliser, said the Finance Ministry.

The ECC also allowed the import of another 35,000 metric tonnes on G2G basis via M/s Socar from Azerbaijan. It further directed the TCP to explore feasible options to import the remaining quantity of urea to meet strategic reserves of 200,000 metric tonnes.

China will provide the 125,000 metric tonnes of urea through M/s Sinochem and M/s CNOOC at $480 per tonne. The secretary industries had managed to convince the Chinese companies to reduce their price by $90 per tonne, saving the national exchequer about Rs2.5 billion. The country will also be given the provision of paying for the import three months after delivery.

The government, however, had to swallow the bitter pill of accepting the Azerbaijan deal at $710 per tonne for 35,000 metric tonnes, which was 48% more expensive than the deal struck with the Chinese companies. The ECC was informed, however, that Azerbaijan would provide the urea within five days.

Last month, the ECC allowed the import of 300,000 tonnes of urea at the price of $156 million. The TCP had been authorised to sign a contract for the lowest bid of $520 per tonne to import 300,000 tonnes of urea. The Ministry of National Food Security and Research had recommended the deal.

There is an immediate need to import urea to ensure that there is no shortage of the essential input especially for wheat sowing.

The ECC also considered a summary submitted by the Ministry of Energy on high-speed diesel (HSD)/gas oil premium.

According to the decision, “Considering the increasing demand for HSD in the country, the ECC recommended that Pakistan State Oil’s (PSOs) weighted average premium (KPC and Spot) may be applied for HSD price computation as per the federal government’s applicable policy guidance. And in case of higher HSD premium paid by importing OMCs other than PSO, the differential of premium will be computed in the price.”

By virtue of the fresh decision, the ECC has withdrawn its previous decision to cap the OMCs margin first at $15 and then at $16.75. It is now expected that the OMCs will get a minimum $22 per barrel margin.

The ECC also approved a technical supplementary grant of Rs115 million in favour of the Ministry of Housing and Works for the construction of the Gujrat-Lalamusa Road – a scheme recommended by a politician.

 

Published in The Express Tribune, November 19^th, 2022.

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