Import of urea from China: Provinces to be asked to share subsidy

ISLAMABAD: Federal government has decided to ask provinces to provide their share towards expenditure to be incurred on import of 0.2 MMT urea from China on government-to-government basis, official sources told Business Recorder.

On July 20, 2022, Ministry of Industries and Production (MoI&P) had proposed to the ECC of the Cabinet to allow TCP to import 200 KMT from China on deferred payment basis and sign Memorandum of Understanding (MoU) with counterpart Chinese agency. ECC on May 28, 2022 authorized TCP to sign MoU with M/s CNAMPGC.

While ratifying the ECC decision, Federal Cabinet had directed the Ministry of Industries and Production to engage with Chinese authorities to negotiate at a discounted rate. Subsequently, Ministry of Foreign Affairs on June 29, 2022 informed two Chinese Companies i.e., M/s Sinochem Fertilizer and M/s CNAMPGC that had been authorized by Chinese Government for export of 200KMT urea to Pakistan.

According to sources, Secretary MoI&P along with Trading Corporation of Pakistan (TCP) held meetings with Chinese companies on July 2, 2022 and July 7, 2022, wherein after negotiations both the companies had agreed to export 200 KMT granular urea to TCP at $500/MT FoB (China) on G2G basis on 90-day deferred payment basis inclusive of markup.

The Ministry noted that from the first offer of $606.525/MT (FoB) to $500/MT (FoB), it has been estimated that GoP would be saving approx. $21.305 million (Rs4.5 billion at exchange rate of 1$ = Rs210) for import of 200 KMT of urea from China.

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The ECC also observed issues related to smuggling of the subsidized urea and delay in payment to TCP. On the issue of need for taking the provinces on board to share liability for providing subsidy, MoI&P noted that the provinces either did not agree or were non responsive.

Ministry of Industries and Production indicated the urgency for import of urea as timely import of urea was critically important for food security and requested the ECC of the Cabinet to authorize TCP to import 200 KMT of granular urea from M/s Sinochem Fertilizer and M/s CNAMPGC at negotiated rate of $500/MT FoB on basis of 90 days deferred payment with markup.

After detailed discussion, the Economic Coordination Committee authorised TCP to sign agreement with Chinese firms for import of 200 KMT urea on G2G basis with the stipulation that the matter shall be taken to the Federal Cabinet for discussion with the following observations: (i) the required Rs22 billion allocation is not earmarked in the CFY budget; (ii) $100 million foreign exchange cover has not been catered to; and (iii) since agriculture is a provincial subject, provinces may be asked to provide their due share in grant of subsidy.

The sources said, Federal Cabinet, in its meeting held on July 21, 2022 has ratified the decision of ECC with respect to import of 0.2 MMT of urea from China on deferred payment and G2G basis. The Cabinet also approved ECC recommendation to request provinces to provide their due share of subsidy as agriculture is a devolved subject, in addition to expenditure of Rs22 billion over and above budget and $100 million foreign exchange cover.

Copyright Business Recorder, 2022