Import of urea may be allowed

Finance Minister, Asad Umar is likely to allow import of urea to meet domestic requirements after a deadlock was reached with local fertilizer industry on the issue of subsidy, well informed sources told Business Recorder. The final decision, however, will be taken by the Economic Coordination Committee (ECC) of the Cabinet, which is scheduled to meet on Monday (today).
According to sources, on September 7, 2018, Finance Minister Asad Umar conveyed to fertilizer industry that no one would be allowed to make windfall profits on sale of urea at the expenses of the poor farmers and last year's subsidy provided to the industry may be adjusted in the current fiscal year. Urea fertilizer is in short supply in the country but the government has yet to decide whether to run local plants or import the commodity. Urea reserves are depleted and the government requires an estimated $ 136 million to import urea which will reach Pakistan in two months time at the rate of Rs 2600 per bag.
According to industry sources, SSGCL has agreed to make available 60 MMCFD pipeline gas to SNGPL which will then provide 18 MMCFD to closed fertilizer units.
Fertilizer industry maintains that if GoP ensures supply of 78 MMCFD system gas, subsidy obligation of GoP will reduce substantially. In reply to a question put forth by Business Recorder the local fertilizer industry maintained that the government maybe tempted to import urea because of the option of deferred payment from Saudi Arabia however till the commodity is imported there would be a shortage that will jack up the price.
Sources revealed that it was agreed during the meeting to operationalize closed fertilizer plants for the two months that it would take to import to meet the demand of Rabi season. Industry sources further informed Business Recorder that they suggested to the Finance Minister to bear 50 per cent of the difference in price between RLNG and domestic gas whereas 50 per cent would be borne by the industry.
Asad Umar, sources said, clarified that he has approved 50 per cent subsidy on urea to be borne by the government and fifty percent by industry. The total impact of subsidy has been calculated at Rs 7-9 billion. "Local industry should pay 50 per cent of total subsidy. I have decided the issue, whether you take it or leave it, I will import the commodity," the sources quoted Finance Minister as saying.
One of the industry sources told Business Recorder that "the ball is in his (Finance Minister's) court as we cannot operate our plants on this mechanism."
A decision on whether there is a need to import urea or not will be taken after two months on the basis of demand-supply requirement for next season. Finance Minister does not want any increase in price of urea from last year's price of Rs 1610 per bag.
The Minister was quoted as saying that according to government estimates, the industry was making a fair profit even at Rs 1610 per bag of urea and the question of an increase in the price does not rise. An official said that available stock of urea will be adequate to cater for Kharif season and as per estimate about 2982 thousands tons of urea would be available during Kharif 2018 against the total off-take of 2,912,000 tons. This includes opening balance of urea at 316,000 tons and domestic production of 2,666,000 tons.
The sources said, Abdul Razak Dawood, Prime Minister's Advisor on Commerce, Textile and Industry who facilitated the meeting between the Finance Minister and fertilizer industry extended support to Finance Minister rather than the fertilizer industry. "It's very strange that Finance Ministry is ready to spend more money on import of urea instead of extending subsidy to local industry", the sources maintained.
In early 2017, the industry was carrying huge inventory (1.7 million tons) because all the plants were operating at full capacity after withdrawal of gas curtailment and provision of RLNG at reasonable prices. Moreover, National Fertilizer Marketing Limited was still holding considerable stocks imported during the previous year, which could not be liquidated in spite of highly subsidised rates. In view of the inventory position, the FRC during its meetings on 7 & 19 October 2016 concluded that the surplus inventory of over one million besides buffer stocks was likely to continue as all plants were operational and the possibility of shut down could not be ruled out. ECC initially allowed export of 300,000 tons by end March 2017, and subsequently enhanced quota to 600,000 tons to be exported by 31 October 2017, The industry exported 559,000 tons by the end of September 2017. Later, on the request of the government of Sri Lanka, an additional 34,000 tons of export was also allowed. Total 634,000 tons were exported by February 2018.