Subsidy on fertilizer: MoI&P heavily censured for benefiting manufacturers

ISLAMABAD: The Economic Coordination Committee (ECC) of the Cabinet has reportedly grilled Ministry of Industries and Production (MoI&P) for using subsidy to benefit fertilizer manufactures instead of farmers.

This criticism came at a recent meeting of the ECC when a summary of MoI&P on revision of price of imported urea came under discussion on August 11, 2022.

“Minister of Commerce, Minister of State for Petroleum and Minister of State for Finance observed that the real purpose of the subsidy was to provide relief to the farmers, which was not being met as envisioned, rather fertilizer manufacturers were capitalizing on the subsidy,” the sources added. The ECC urged the need for rationalization of prices.

According to sources, Ministry of National Food Security & Research also observed that MoI&P did not consult the Ministry on the proposal as required under the terms of rule of Rules of Business, 1973.

Ministry of Industries & Production, in its summary, stated that the Dealer Transfer Price (DTP) for imported urea at Rs 1718/bag (exclusive of dealer margin of Rs 50/bag) was fixed in February with approval of the ECC, later ratified by the Federal Cabinet.

The Ministry added that the retail urea price increased to Rs 1950/bag (inclusive of dealer margin of Rs 145/bag). Since price of imported urea stored in National Fertilizer Marketing Ltd (NFML) warehouses was lower than locally manufactured urea, NFML proposed to remove disparity between prices of imported and locally manufactured urea price by revising the price of imported urea upwards.

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Ministry of Industries and Production proposed the following: (i) Dealer Transfer Price (DTP) of 50 kg imported urea bag may be revised upwards at Rs 1805/bag by NFML (exclusive of dealer margin of Rs 145/bag) for the stocks sold between June 23 to July 25, 2022. Further, as recommended by Finance Division, DTP of remaining stocks held with NFML, may further be revised upwards to Rs 2150/bag (exclusive of dealer margin of Rs 50/bag) from July 26, 2022.

The MoI&P proposed an increase of 18 percent in incidental charges by NFML to Rs 538 per bag from Rs 456 per bag. This includes revised transportation charges of Rs 320 per bag, TWPP of Rs 75 per bag and stock handling warehousing and labour Rs 161 per bag.

MoI&P noted that prior consultations were held with the Finance Division, followed by meetings with the four provinces, represented by the respective Chief Secretaries.

The Special Advisor to the Prime Minister on Government Effectiveness informed the ECC that Ministry of Planning, Development and Special Initiatives had carried out a detailed study on this matter and a presentation could be arranged for the forum.

The ECC was informed that the Finance Division had endorsed the proposal with the observations that the DTP for imported urea may be adjusted with the prevailing retail prices of urea which have recently increased.

It further argued that the Dealer Margin may be justified keeping in view the existing market conditions and added that MoI&P may also incorporate the financial implications (savings) due to proposed revision of the DTP.

With reference to another proposal of the summary Finance Division stated that NFML was allowed to retain Rs.456/bag, as per earlier approval of the ECC on provisional basis. However, final determination of the incidental charges was to be made by the Finance Division later on the basis of actual cost based on submission of audited financial accounts duly endorsed by the Ministry of Industries and Production.

Commerce Division contended that determination of incidental charges of NFML have to be finalized in consultation with Finance Division based on actual expenditure. However, MoI&P was requested to ensure that dues of TCP on account of procurement of urea were paid to TCP at the earliest, by arranging supplementary grant from the Finance Division.

The MoI&P explained that while the summary was under circulation to Finance and Commerce Divisions, from June 28, 2022, retail prices of urea were revised by manufacturers from previous DTP of Rs 1805/bag to Rs 2150/bag.

During the course of time, NFML had booked imported urea at Rs 1805/bag and shipped a total of 83,294.6 MT, leaving a balance of approx. 16,904.2MT with NFML till July 25, 2022. Upon receipt of comments from Finance Division, NFML was directed to book the remaining stock at revised DTP of Rs 2150/bag (exclusive of dealer margin of Rs 50/bag). It was added that proposed increase would result in increased recovery of Rs 116.64 million on the remaining stocks held with NFML. MoI&P, responding to the observations of the Commerce Division, stated that it had requested the Finance Division for allocation of Rs 43.2 billion in the budget for CFY 2022-23 for payment to TCP; however, no allocation was made. Ministry of Commerce requested the ECC to allow TCP to import DAP for all sectors with no cost to Government of Pakistan on G2G basis.

After detailed discussion, the ECC approved the proposal of MoI&P with respect to increase in urea prices being sold by NFML with the following directions: (i) Ministry of Industries & Production to seek prior approval of the ECC for fixing urea pricing and dealer margin in future; and (ii) considering the requirement of DAP fertilizer in the country and the higher international prices, TCP should assist private sector to procure DAP fertilizer at G2G rates without any cost to the government.

On recommendation of the Special Advisor to the Prime Minister on Government Effectiveness, Dr. Jehanzeb Khan, the forum agreed for Ministry of Planning, Development & Special Initiatives to make a presentation to ECC on the study on pricing of urea, dealer margin and other related matters.

Copyright Business Recorder, 2022