Import of additional 100,000 tons of urea: Fertilizer industry trying to block government''s decision

The fertilizer industry is reportedly trying to block government''s decision regarding import of additional 100,000 tons of urea, giving the impression that the decision is anti industry. Fertilizer Manufacturers of Pakistan Advisory Council (FMPAC) has conveyed its reservations on the ECC decision, in a letter on April 5,2019.
Ministry of Industries and Production convened a meeting on April 19, 2019 to review the price mechanism. The ECC on April 3, 2019 had directed the Ministry of Industries and Production to hold a meeting with the local fertilizer manufacturers to ascertain the reasons/ justification of price escalation of urea fertilizer and submit a report for the consideration of the ECC. The local industry which attended the meeting argues that it found some points were not highlighted during the presentation made by the FMPAC.
According to the Advisory Council the object of Fertilizer Policy 2001 is "ensuring reasonable prices of fertilizer to the farmers below import price". It was highlighted that domestic urea price has been less volatile verses international price as industry has always tried to protect the farmers and ensure stability in the market. Prices have been generally steady unless impacted by government policy (imposition of GIDC, revision of gas price and grant of subsidy). The object of Fertilizer Policy was to be met through concessionary gas price for feedstock by referencing it to Middle East. However, the gas price has almost doubled for domestic industry on imposition of GIDC and industry has not been able to fully pass the impact of GIDC due to price intervention by the government.
FMPAC further stated that the benefit of concessionary gas price has been passed on to the farmers by maintaining delta between local and international prices. It highlighted that the industry availed concession of Rs 132 billion in terms of gas price over the past 8 years, whereas it passed on benefit of Rs 527 billion (difference between international and local prices) to the farmers.
The fertilizer prices remain deregulated as per Fertilizer Policy 2001, while industry has allowed free market forces to prevail the government''s interventions in terms of price capping has constrained the industry to pass on the impact of inflation/devaluation, being a norm in the industrial sector. Notwithstanding the disagreement of industry with the basis of calculation, even the rate of 9.4 % inflation as mentioned in the minutes (1830-405=1425 x 0.094 =133.95) justifies the recent price hike (Rs 90). Additionally, it was discussed that even on the most conservative basis, substantial part of the impact of inflation at average rate of 6 % taken for three years, has yet to be passed on in full. Besides this, following point was highlighted: the decision to import 100,000 tons urea without deliberation by FRC, may be reconsidered in view of adequate supply situation in the coming months. The continuity of operation of SNGPL based plants may be ensured through payment of subsidy to SNG PL to avert any possibility of shortage of urea supply.
FPMAC submitted the following recommendations for consideration of ECC: (i) gas price may be reduced for fertilizer sector;(ii) reduction of GIDC may be processed expeditiously and ;(iii). The outstanding subsidy and tax refunds may be released to reduce cost of borrowing to the manufacturers, while addressing the imbalance between input and output taxes.
Meanwhile prices of phosphate fertilizer have started escalation with the replacement of Asad Umar, Finance Minister with Dr Hafeez Shaikh, Finance Advisor. We may face imposition of flat 17 per cent GST on all phosphate products which translates into DAP bag price of Rs 4,000 against current price of 3600 per bag, indicating an increase of Rs 400 per bag.