The Fertilizer industry has urged the federal government to revisit its decision of withdrawing the GIDC related ordinance and claimed that Fertilizer sector would end up bearing a huge loss of Rs 4 billion, as the impact of gas price increase has not been passed on since July 2019 in anticipation of a GIDC settlement.
Industry circles claimed that they are now left with no other option but to adjust the prices of urea to pass on the impact of increase in gas prices on cost of production. Even with this adjustment, the industry would continue to deliver on its commitment to support the farmers by providing locally produced urea at a substantial discount of 30 percent, amounting to Rs 800 per bag, against the imported urea.
"The industry is also engaged with the Advisor Industries to firm up a mechanism to recoup the heavy loss incurred during this interim period as it would benefit both farmers and the industry," claimed Fertilizer Manufacturers of Pakistan Advisory Council (FMPAC).
FMPAC alleged that recently promulgated GIDC Ordinance 2019 is unnecessarily being criticized rather both the Government as well as industry are being criticized.
The Fertilizer industry being a strategic sector plays an irreplaceable role in ensuring national food security and agriculture development. Pakistan is self sufficient in Urea as the fertilizer industry has collectively made multi-billion dollar investments, which garner a mere 10 percent return on assets; far lower than other capital intensive sectors in the country.
However, at a national level, we save over $2 billion per year on foreign exchange by import avoidance and urea has delivered to farmers at around Rs 1800/bag vs. international prices of around Rs 2800/bag.
Over the past 9 years the fertilizer industry has received Rs 132 B in gas subsidy but it has delivered four times the benefit i.e. Rs 527B in direct benefit to our farmers by selling urea, on average 20-25 percent lower than international market prices. At the same time the fertilizer industry uniquely delivers an amount almost equal to their entire profit to national exchequer in the form of taxes and levies while generating tens of thousands of jobs.
On 01 Jan 2012 PPP Government, imposed GIDC through GIDC Act 2011 and subsequent Acts/Ordinances jacked up the cost of production considerably, as fertilizer sector was levied GIDC at much higher rates (Rs 300 per MMBTU), triple that of power sector (Rs 100 per MMBTU) and double the rest of industrial sector (Rs 150 per MMBTU). In spite of clear discrimination, fertilizer was probably the only sector that paid a significant amount of Rs 129 billion as GIDC to the exchequer. The GIDC legislations were challenged in different courts of law on various occasions and grounds, especially for being unconstitutional, unreasonable and discriminatory. The payment against GIDC is not being made as cases are still pending with valid stay orders.
Taking a lead from the settlement of GIDC for CNG Sector, PML (N) Government entered into negotiations with fertilizer industry as well to settle the issue on the similar lines. However, the matter could not be finalized as the tenure of the Government was coming to close. Thereafter, PTI government finance team, also expressed the desire to settle the issues so that Government starts receiving GIDC to bridge the widening fiscal deficit of the Country. Thus in January 2019, it was decided that GIDC chargeable to the industry to be broadly reduced to half, retrospectively as well as prospectively.
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