Imported urea fertiliser: Hike in basket price approved by ECC

ISLAMABAD: The Economic Coordination Committee (ECC) of the Cabinet has approved increase in basket price of 220,000 MT imported urea fertiliser with the direction to Ministry of Industries and Production and its attached department- NFML to work out the implementation details of the scheme, sources in MoI&P told Business Recorder.

However, the ECC has distanced itself from imported urea distribution mechanism agreed between the MoI&P with the local fertiliser manufactures and decisions taken at Apex Committee of SIFC. The issue will be discussed by the Federal Cabinet in its next meeting when the ECC decision will be placed for ratification.

On January 9, 2024, Ministry of Industries and Production briefed that the ECC’s previous decision of November 23, in which it had allowed Trading corporation of Pakistan (TCP) to import 220,000 MT urea from SOCAR, Azerbaijan on G2G basis, was ratified by the Cabinet on November 25, 2023.

Govt decides to import urea on G2G basis

The ECC in its earlier decision of October 23, 2023 decided that subsidy on the imported urea would be borne by the provinces. The ECC in another decision of November 15, 2023 had also decided that cost recovery of the imported fertiliser would be made from the provinces.

Since then, government of Punjab conveyed that it would lift the imported urea by sharing subsidy at ratio of 50:50 between federal and provincial governments. Government of Sindh had committed to lift its share of supply, i.e., 52,800 MT (24% of 220,000 MT) on full cost basis. Reply from Balochistan and Khyber Pakhtunkhwa were awaited. In short, the provinces had not been able to commit to carry the entire burden of subsidy.

TCP had informed that cost estimates for import of urea for the quantity 220,000 would be Rs 27.489 billion. Landed price of 50 kg bag of urea had been estimated at Rs 6,248/bag. National Fertilizer Marketing Limited (NFML) had informed that the cost to be incurred by it on incidentals, i.e., transportation charges, TWPP bags, storage/ warehousing, etc., would be approximately Rs 4.918 billion (Karachi operation).

Ministry of Industries and Production further informed that the situation was discussed in a meeting chaired by the caretaker Prime Minister and attended by all the four Chief Ministers, as well as, caretaker Federal Minister for Finance, Commerce, NFS&R and Power on January 1, 2024 and the following decisions were made: (i) locally manufactured urea and imported urea will be treated as one basket. Based on previous practices regarding local urea and full cost recovery of imported urea, a price matrix will be determined for local manufacturers of urea and; (ii) a committee consisting of Secretary Petroleum (Chairman) including Secretary, MoI&P, Secretary NFS&R and Secretary Commerce as Members will engage urea manufacturers and finalise an implementation mechanism.

The issue of disposal of imported urea and sharing of subsidy by the provinces was again discussed during the Apex Committee meeting of Special Investment Facilitation Council (SIFF).

The forum was briefed about the earlier decision by the caretaker Prime Minister and subsequent discussions with urea manufacturers. Apex Committee directed that implementation mechanism be firmed up at the earliest with urea manufacturers and same should be submitted to the ECC. Thereafter, further discussions were held with urea manufacturers and following mechanism for disposal of imported urea had been agreed upon: (i) urea manufactures shall lift bagged imported urea of 220,000 (+/-) MT from the port and NFML warehouses, based on their share of local production as a one-time arrangement; (ii) all incidentals related to lifting and NFMLs associated cost shall be built in the current urea prices based on weighted average sale price concept for cost recovery which would be spread over 12 months’ time by local manufacturers; iii) manufacturers will make payment of lifted imported urea respectively within 45 days from the date of product lifting to NFML which is approx. Rs 30.344 billion; (v) since the industry will bear the financing cost, it would include financing cost in price calculation for recovery period till December 2024; (v) Government will continue its efforts to provide gas to all fertiliser plants enabling them to produce urea and recover the cost of imported urea over 12 months period to avoid further imports; (vi) urea manufacturers will ensure price disclosures and transparency till the disposal of entire imported stock so that any foreseeable distortion in the market could be avoided;(vii) there will be no bar on urea manufacturers regarding adjustments in prices as per past practice;(viii) agreement to be signed between TCP/ NFML and Urea manufacturers to formalise the transaction.

The Agreement would also include the payment schedule and; (ix) the entire implementation mechanism as well as the underlying principle of basket pricing shall be approved by the Cabinet in order to provide necessary comfort to all the public and private sector entities. Cabinet Division shall directly share the approved minutes of the Cabinet as well as implementation mechanism with PPRA board, office of the Auditor General and other accountability watchdogs.

Ministry of Industries and Production further apprised that the disposal mechanism stated would result in following price adjustments by different manufacturers;(i) Agritech Rs 159 per bag; (ii) Engro Rs 171 per bag; (iii) FFC Rs 171 per bag; (iv) FFBL Rs 158 per bag ;(v) Fatima (SDQ) Rs 168 per bag; (vi) Pak Arab Rs 160 per bag and; (vii) Fatima (SHP) Rs 160 per bag.

The ECC discussed the case threadbare. It was observed that the fertiliser manufacturers would charge financing cost on entire production of 6.2 million ton of fertiliser, which gave them undue benefit and increase the prices of fertiliser in the country. Further, the Ministry should resolve the issue at its own end. It was responded that the financing cost would be charged only on 220,000 M Tons of imported urea.

Regarding supply of gas to fertiliser manufacturers, the forum was appraised that as per past practice the Petroleum Division would assess the existing arrangement of supply of gas/ RLNG and would provide the gas to them on the best endeavour basis. The forum was further agreed that National Fertilizer Marketing Limited (NFML) should determine the release price of imported urea. Finance Division reiterated its stance that no additional subsidy will be provided on supply of urea, once the proposed mechanism of basket price is enforced.

Copyright Business Recorder, 2024