Selling imported urea thru local firms: Cabinet approves principles of basket price mechanism

ISLAMABAD: The Economic Coordination Committee (ECC) of the Cabinet has approved principles of basket price mechanism for sale of imported urea through local fertiliser companies, well informed sources told Business Recorder.

Ministry of Industries and Production submitted a summary on ‘mechanism for sale of imported urea at a basket price locally manufactured urea’ wherein the agreed mechanism for disposal of imported urea was submitted to ECC.

The Economic Coordination Committee (ECC) of the Cabinet, in its decision of January 9, 2024 directed the Ministry of Industries and Production to refine the mechanism for disposal of imported urea in view of the observations of members of ECC for approval of principles of mechanism. Implementation of the mechanism shall be carried out by the Ministry of Industries and Production, and National Fertiliser Marketing Limited (NFML), being outside the mandate of ECC.

Weighted average price mechanism: Local, imported urea put in one ‘basket’

The ECC had approved increase in basket price of 220,000 MT imported urea fertiliser with the direction to Ministry of Industries and Production and its attached department, NFML, to work out the implementation details of the scheme.

However, the ECC distanced itself from imported urea distribution mechanism agreed between the MoI&P with the local fertiliser manufactures and decisions taken at Apex Committee of SIFC

The sources said, based on the observations of ECC, Ministry of Industries and Production proposed following principles of basket pricing for disposal of imported urea without any subsidy from the government of Pakistan: (i) locally manufactured urea and imported urea shall be treated as one basket.

A price matrix shall be determined by National Fertiliser Marketing Limited in consultation with local urea manufacturers for a period of one year, based on previous pricing practices regarding local urea and full cost recovery of imported urea including the financial cost incurred for the time lag between import and sale of imported urea; and (ii) NFML in consultation with local urea manufacturers and under the guidance of Minister (Incharge) (I&P) shall workout the implementation details, i.e., recovery of cost of incidentals; recovery time period and payment schedule; accuracy of financing cost; measures for price disclosure and transparency; price adjustment in case of unforeseen events and tentative share for lifting of imported urea by local manufacturers.

After discussion on the Ministry of Industries and Production’s proposed mechanism for sale of imported urea at a basket price along with locally manufactured urea, the ECC gave its approval.

Sources in Ministry of Industries and Production noted that the disposal mechanism stated would result in following price adjustments by different manufacturers; (i) Agritech Rs 159 per bag; (ii) Engro Rs 171 per bag; (iii) FFC Rs 171 per bag; (iv) FFBL Rs 158 per bag; (v) Fatima (SDQ) Rs 168 per bag; (vi) Pak Arab Rs 160 per bag and; (vii) Fatima (SHP) Rs 160 per bag.

There is a fear within the caretaker government that fertiliser manufacturers would charge financing cost on entire production of 6.2 million ton of fertiliser, which gave them undue benefit and increase the price of fertiliser in the country. Further, the Ministry should resolve the issue at its own end.

Meanwhile, Commerce Ministry has sought the Finance Ministry’s support to recover 50pc share of cost of imported urea from Sindh and Balochistan as both provinces have refused to pay their shares.

In pursuance of ECC of the Cabinet’s decision of July 20, 2022 and November 18, 2022 duly ratified by the Cabinet on July 21, 2022 and November 24, 2022 the Trading Corporation of Pakistan (TCP) imported 200,000 MT and 195,000 MT of urea and supplied it to National Fertiliser Marketing Limited. It was also decided that subsidy on imported urea would be shared at 50:50 basis, i.e., 50% to be borne by Provinces while other 50% by the Federal Government.

Accordingly, TCP worked out subsidy share of the federal government on account of sold quantity by NFML for import of 200,000 MT to be Rs. 12.547 billion by December 31, 2023. Moreover, the federal government subsidy share for the import of 195,000 MT would be Rs. 14.454 billion by December 31, 2023.

Finance Division agreed to release Rs. 6 billion allocated for subsidy on urea fertiliser in the current FY 2023-24. As regards the recovery from the provinces, Finance Division agreed to extend all support for timely clearance of the dues of TCP and NFML. MoI&P noted that Punjab and KP had agreed to share the subsidy on 50:50 basis; however, no amount has been released so far. Balochistan and Sindh have; however, conveyed their dissent to share the 50 percent subsidy.

Copyright Business Recorder, 2024