The focus of the Competition Commission of Pakistan's (CCP) Policy Note is the discriminatory levy of the Gas Infrastructure Development Cess (GIDC) on fertiliser plants and not gas curtailment. Experts told Business Recorder here on Thursday that the Policy Note issued by CCP on the discriminatory levy of GIDC is not related to the selective fertiliser plants. It is related to the entire fertilizer sector.
Fertilizer policy 2001 gives leverage to all new plants coming in for fertilizer production for new plant fixed whereas, old plant presently paying more against the fertilizer policy 2001. Recently CCP agreed to this stance by issuing a policy note on discrimination between fertilizer feed gas pricing. The commission took notice of concerns raised by fertilizer companies against the discriminatory levy of the GIDC that discriminates against the fertilizer plants installed prior to the Fertilizer Policy 2001 vis-à-vis the plants that were commissioned and became operative after the Fertilizer Policy 2001, by placing the pre-2001 plants at a cost disadvantage, thereby distorting the competition in the urea market.
Farmers Association had reportedly issued statement that with the increase in GIDC inputs like fertilizer may push the cost of production up so far Fertilizer Industry has not increased the price but how long can they resist the increase in prices. Experts said that the focus of CCP's Policy Note is the discriminatory levy of GIDC and not gas curtailment. Post 2001 fertilizer plants are fully covered under their respective gas supply contacts. The CCP had recommended that GIDC is charged equally to all fertilizer plants to create a level -playing field in the urea market. Therefore, it is proposed that the levy of GIDC on feed stock for pre-2001 fertilizer plants be withdrawn and that the Second Schedule of the GIDC Act may be amended to rationalise the GIDC on fuel gas used by fertilizer plants, thereby eliminating the cost disadvantage to pre-2001 fertilizer plants. It is pertinent to mention here paragraph 2.1.5 of the Fertilizer Policy 2001 that states that the "fuel gas prices shall continue to be treated as at par with other industrial consumers." Currently, the price of the fuel gas supplied to fertilizer plants are not treated as at par with other industrial consumers because of the discriminatory cess on fertilizer plants vis-à-vis other industrial consumers. This discrimination may also be rectified. The selective imposition has placed the fertilizer sector in a catch-22 situation. If the post-2001plants sell urea at a price based on their own cost of feed gas, they will certainly sell at a much lower price than that of pre-2001 plants, and therefore will drive the pre-2001 plants out of the market. This will completely be the antithesis of the Fertilizer Policy 2001: the investment will be driven out of the market, and domestic production will be reduced. On the other hand, if the post-2001 plants will sell urea at a price based on the cost of the feed gas to pre-2001 plants, the price will certainly not be the competitive price, and the farmer will end up pay much higher prices. This will again be the antithesis of the Fertilizer Policy 2001: assuring reasonable prices of fertilisers to farmers below the import-price.
It is certain that the framers of the GIDC have not perceived the negative impact of cost increase for selective plants on farmers and end consumers. Agriculture also provides for the generation of economic growth through provision of raw materials for other industries. Therefore, the cost differential among fertilizer producers not only has a direct impact on agriculture, it also has a cascading effect on every connected industry.
Apart from the violation of competition principles, the discrimination goes against the very spirit of the Fertilizer Policy 2001, ie, to "enhance domestic production" and "equal treatment" for all fertiliser producers. It cannot be presumed that the Fertilizer Policy 2001 intended to encourage new investment at the cost of pre-2001 fertilizer plants, the CCP added.
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