Gas tariff obscurity has caused significant disparities in urea prices across Pakistan. The recent hike in gas tariffs has caused major fertiliser players to source gas from different networks, leading to an increase in the cost of production and ultimately causing a disparity in urea prices across the country.
The government of Pakistan recently raised gas tariffs for the Sui Southern Gas Company (SSGC) and Sui Northern Gas Pipelines Limited (SNGPL) network, in line with the International Monetary Fund (IMF) demand for electricity and gas tariff rationalisation, according to an Insight Securities research report. However, major fertiliser players source gas from the Mari network, for which an explicit notification of a price hike has not yet been issued.
Insight Securities, fertiliser sector analyst, Muhammad Kazim said, “Even Fauji Fertiliser Bin Qasim Limited (FFBL) and Engro Fertiliser (EFERT)’s Enven plants were hit by the cost escalation due to the hike in gas prices by 69% and 47% for feed and fuel, respectively, on the SNGPL and SSGCL networks.”
“The impact has been passed on to urea prices, and the increase is mainly attributable to the price hike for Enven and cost escalation on PP-12 billed gas due to rupee devaluation. In addition, rampant inflation in the country has also resulted in higher costs of production,” said Kazim.
Speaking to the Express Tribune, fertiliser sector analyst, Waqas Ghani Kukaswadia said, “Since mid-February 2023, there has been a lack of clarity among fertiliser manufacturers. As gas prices were not explicitly notified for Mari Petroleum Company Limited (MPCL) network fertiliser companies, the price increase for urea was put on hold by manufacturers on the Mari network.”
This leads to different prices for urea to prevail in the market, causing disorderly price increments. Due to the delays in clarification, middlemen were incentivised to pocket additional profit as urea prices have remained around Rs3,000 per bag in the market for farmers since February.
Despite these economic challenges, the demand for urea remains stable due to its price inelasticity as the nutrient offtake is necessary to ensure food security in the country.
Speaking to The Express Tribune, another fertiliser sector analyst Abdullah Umer Khan Lodhi said, “The fertiliser industry has strong pricing power, which enables it to easily transfer any cost increase to farmers.”
“In the current market scenario, there are three different quotes available for the bag of urea. However, it has been observed that urea is being sold at higher than retail prices by dealers i.e., Rs3,000-3,200 per bag. We anticipate that the industry will soon revert to the standard pricing model of identical urea prices,” said Kazim.
Published in The Express Tribune, April 7th, 2023.
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