Government summons fertilizer players in a bid to bring down urea prices

The Ministry of Industries and Production (MoI&P) is said to have again summoned local fertilizer players. The move aimed at forcing them to reduce urea prices by Rs 400 per bag, as the justification for an expected increase in gas prices has died down after the government decision not to raise gas prices till June 2020, well-informed sources told Business Recorder.

The domestic fertilizer industry has already pocketed huge profits by denying passing on the full impact of GIDC of Rs 400 per bag to the consumers.

Razak Dawood, sources said, is facing criticism from his cabinet colleagues in cabinet meetings for not twisting the arms of fertilizer manufacturers. According to sources, Dawood has already expressed his anger to Managing Director Fauji Fertilizer in this regard and summoned the CEO Engro on Monday to convey the cabinet's ire.

The sources said the government is under immense pressure on the economic front as headline inflation touched a historic 10-year peak of 14.6% in January 2020. With the emergence of wheat and sugar crisis, it failed to keep a check on the prices of essential commodities and PM Imran Khan had to intervene to check the rising inflation.

To control food inflation, in January, the government had announced a reduction of GIDC on fertilizer manufacturers' to bring down the prices of urea by Rs 400/bag for the benefit of farmers. However, as the cost impact of GIDC varies for each fertilizer company due to their different gas mix, the urea prices did not come down as desired by the government.

After the government decision, Engro Fertilizers passed on the full impact of GIDC by reducing price by Rs 160/bag , while FFC brought down the price by PKR 300/bag as it awaits the Government's decision on gas pricing before it can transfer the full impact of PKR 400/bag. As a result, the new rate of FFC urea is Rs 1, 740 per bag while that of Engro Fertilizers is at Rs 1,880 per bag.

However, there is considerable confusion in the market as urea dealers are not ready to incur a loss on their inventory of about PKR 4 billion. The total urea inventory currently stands at approximately 550,000 tons, with 400,000 tons at the manufacturers end and remaining built in the channel due to record sale of around 6.2 million tons.

According to market reports, urea dealers are buying at the lower rate and selling at higher rates as there is no mechanism to check market prices. As a result, the farmers have only benefited by PKR 19 billion through PKR 160 per kg reduction in urea prices.