Fertilizer sector: ECC directs ministry to design holistic policy

ISLAMABAD: The Economic Coordination Committee (ECC) of the Cabinet has directed the Ministry of Industries and Production (MoI&P) to formulate a holistic policy for the fertilizer sector covering aspects such as production of fertilizer, provision of gas to fertilizer industry, elements triggering/necessitating imports, fertilizer pricing, and intensive/over fertilization of urea, etc.

These directions were issued during the previous meeting of the ECC during discussion on a proposal on import of urea as there are fears that prices of urea will increase next month, making the urea procurement difficult. Industries and Production Division briefed the forum that the ECC in its decision of May 7, 2024 had allowed Trading Corporation of Pakistan to import 200,000 MT urea on open tender and G2G basis.

The decision was ratified by the Cabinet. Accordingly, TCP issued tender of 150,000 MT which was opened on July 9, 2024. The TCP informed that six bids were received within the stipulated time with the lowest bidder being M/s West Trade International FZE, UAE, with offered rate $ 358.99/MT.

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TCP also made G2G negotiations with Malaysia and Azerbaijan, but the offered rate from them is higher than the tender rate. It was also informed that the negotiations with Turkmenistan to procure urea on G2G basis and efforts regarding getting approval from NDRC, China are still under process.

TCP further informed that cost estimates for import of urea for the quantity 157,500 are Rs 18,372,662,565 (Rs 18.489 billion). Landed price of 50 kg bag of urea has been estimated at Rs 5,832.59/bag. After adding incidentals of NFML @Rs. 1500 per bag, the cost would be Rs. 7,332.59/bag.

The forum was apprised that the lowest prevailing urea fertilizer price in the market is Rs.4400/bag. Hence, the subsidy requirement would be around Rs.5.865 billion. The first ship is expected to reach Karachi port on August 16, 2024. Total dollar requirement for 157,500 MT would be $ 56.540 million (while for 100,000 MT it would be $ 35.899 million). It was apprised that the bid expiry date was August 3, 2024.

The Ministry of Industries and Production further briefed the ECC that a meeting of Fertilizer Review Committee (FRC) was convened on August 01, 2024 in which data for Kharif 2024 and Rabi 2024-25 was presented by National Fertilizer Development Centre (NFDC) under Ministry of National Food Security and Research.

The data showed no shortage during Kharif and Rabi season provided RLNG based plants remain operational during upcoming Rabi season. If the supply of gas to RLNG based plants is suspended during Rabi season 2024-25, there would be a shortage of 351,000 MT of urea.

Hence, it was decided that in view of the absence of decision for provision of gas to RLNG based plants during Rabi 2024-25, it is imperative to import 100,000 MTs of urea for market/price stabilization.

Ministry Industries and Production submitted following proposals for consideration and approval of the ECC: (i) 100,000 MTs of urea may be procured on open tender for market/price stabilization purpose from lowest bidder, ie, M/s West Trade International FZE. UAE @ $358.99/MT;(ii) TCP may be allowed to continue G2G negotiations to find other cheaper options for import of urea; and (iii) subsidy requirement of around Rs.5.865 billion on import of 100,000 MTs of urea to be borne either by Federal Government or Provincial Government.

During the ensuing discussion, the matter was discussed at length. Ministry of Industries and Production informed the forum that urea fertilizer should be imported due to expected shortfall in the Rabi season as a buffer stock.

The forum was further apprised that the rates received on G2G basis were higher than the rates offered through tender. Ministry of Industries & Production also mentioned that talks are under way with Government of Turkmenistan and it is expected that it would offer better price of fertilizer in the region. It was further informed that gas pricing mechanism for fertilizer sector has not yet been finalized, whereupon the forum directed to do it by consulting all relevant stakeholders as already directed.

It was discussed as to how import of urea is justified in the light of information provided by Ministry of Industries and Production, according to which if there is no issue of gas supply to fertilizer plants, there will be no shortage of urea given the availability of enough fertilizer stocks.

Ministry of Industries and Production explained that the import has been proposed as a buffer quantity and to stabilize prices through signaling. It was also discussed that the issue of price of gas, to be supplied to fertilizer plants, will be decided in a separate meeting of stakeholders. Due to non-provision of subsidy in budget in this regard, financial constraints being faced by the government and the IMF conditions, Finance Division showed its inability to provide subsidy for import of urea.

It was agreed that the mechanism for determining the price of urea by mixing the imported with local and calculating the average price, as already adopted by the Ministry of Industries and Production, may be continued.

The forum was apprised that given the reasonable prices, it is the opportune time to import urea before the arrival of Rabi sowing season and the prices of urea is expected to rise before the month of September, which would make procurement difficult.

The forum also directed Ministry of Industries and Production to formulate a holistic policy for fertilizer sector covering aspects such as production of fertilizer, provision of gas to fertilizer industry, elements triggering/necessitating imports, fertilizer pricing, and intensive/over fertilization of urea, etc.

The matter of cash limit was also discussed and it was explained that the Finance Division would have to allow cash limit for TCP which would be paid in due course as the fertilizer off take is complete.

Copyright Business Recorder, 2024