Manufacturers claim: Domestic urea prices far below global levels

They say gas subsidy is passed on to farmers in shape of reduced prices.

LAHORE: Fertiliser manufacturers have insisted that they have kept urea prices significantly below international levels and provided a benefit of Rs365 billion to farmers in the past five years, despite the fact that four fertiliser plants have suffered hefty losses in the last two years due to lack of gas supply.

A spokesperson for the Fertiliser Manufacturers Pakistan Advisory Council (FMPAC), in a statement, said it was a misconception that the fertiliser manufacturers were enjoying a government subsidy in the form of reduced feedstock gas prices, which was actually passed on to the farmers.

“The subsidy is not for the manufacturers, but is in fact passed on to the farmers via reduced prices and this has protected the farmers and overall agricultural economy from urea price fluctuations in the international market, rupee depreciation and foreign exchange requirements,” he said.

Based on current feed and fuel gas prices, gas subsidy per bag of urea is estimated at Rs228 while the difference between domestic and international urea prices throughout 2012 has been more than Rs1,000 per bag.

This, the spokesman said, showed that the fertiliser industry was not only passing feedstock gas subsidy on to the farmers, it was also providing much larger benefit of local urea production.

Giving reasons for the increase in urea prices since 2010, he pointed out that about 80% had been the result of imposition of general sales tax on urea and cess on gas as well as high inflation rate. The remaining 20% was due to factors such as significantly less production following gas curtailment and other costs, which remained constant irrespective of lower production.

The spokesman criticised the government for not honouring its gas supply contracts with the fertiliser manufacturers and this came despite the fact that the industry recently invested $2.3 billion.

Domestic urea plants have faced a production loss of over 2.8 million tons in 2012 as they have been able to produce only 4.1 million tons compared to capacity of over 6.9 million tons per annum, leading to outflow of foreign exchange for imports.

In the last two years, the government imported urea worth over $1 billion and provided subsidy of over Rs50 billion.

Published in The Express Tribune, December 27^th, 2012.          

Like Business on Facebook to stay informed and join in the conversation.