$5.3bn import substitution likely: Fertilizer industry providing urea at 84pc discount: Engro CFO

KARACHI: The local fertilizer industry is providing urea at around 84 percent discount, equivalent to Rs 9,823 per bag, and is expected to enable import substitution of $ 5.3 billion in 2022.

Discussing the latest business results and future outlook in first quarter analyst briefing, Imran Ahmed, Chief Financial Officer of Engro Fertilizers, said the fertilizer sector is passing on a benefit of Rs 900 billion per annum to farmers through the provision of urea at significant discount to current global prices.

Over the last 10 years, the industry has passed on benefits of over PKR 1.4 trillion to the farmers through lower urea prices. This amount is four times higher than the benefit that industry has received through gas pricing under the Fertilizer Policy 2001, he added.

At the same time, he said that the industry has been playing a significant role towards reducing the country’s trade and fiscal deficit as the country is self-sufficient in urea production.

He said in the last annual general meeting of the company, shareholders expressed concerns over the sharp disparity between international and local urea prices. Shareholders further added that the company has been losing shareholders’ value by pricing urea at a significant discount to import parity.

Imran emphasized that urea demand has increased by 17 percent in the first quarter of 2022 compared to the same period last year. The company’s research indicates that, as per crop mix and cultivated area for the first quarter, there has been an estimated increase of 2 percent in agronomic demand. He further said that this situation may in part be due to advance buying by the farmers, but also indicates a strong probability of product movement across borders emanating from significant disparity among local and international urea prices.

Imran also highlighted the challenges faced by fertilizer industry, including recoveries of outstanding subsidy and sales tax receivables from the Government, disallowances made under income & sales tax for sales to unregistered dealers, and the FBR clarification on Concessionary custom duty withdrawing the concession/relief given earlier.

Copyright Business Recorder, 2022