Rumours of increasing gas tariff for the fertilizer sector may hamper the government efforts to pass on a decrease of Rs400 per bag of urea to the farming community after curtailing Gas Infrastructure Development Cess (GIDC).
"The uncertainty may disrupt the availability of fertilizers and lead to another crisis of like wheat," said sources in the fertilizer industry here on Thursday and added that the decision of increasing gas prices has received mix reactions from the manufacturers.
The industry has divergent views on the issue as new plants are exempted as per their legal stance in the court cases. However, industry is unanimous on its inability to pass through the impact of GIDC, and industry is constrained to pass on the impact of gas increase, to the consumers, if it follows. While Fauji with old plants has welcomed the decision, as it would reduce their cost of production substantially, Engro is not happy as GIDC is illegal to their understanding and will affect their bottom line. There are strong rumours that summary on the gas price revision will be considered in the upcoming ECC meeting.
The proposal by Ministry of Petroleum recommended providing gas under fuel head at the price of LNG (Rs1,672 per MMBTU in December). This is driven by the urge of Gas Companies for higher revenue generation and providing level playing field to all players, while reducing burden on farmers. This becomes a hanging sword in the form of price increase Rs200 per bag. Such a move immediately after reduction of Rs400 per bag through GIDC revision is politically incorrect.
It is feared that this indecisive position of the Government and market uncertainty may lead to disruption of supply chain. The farmer is waiting for reduction of price by Rs400 per bag, while dealers holding inventory procured at Rs1,980 desired to liquidate their inventory before new price come into effect. The manufacturers would like to sell what they manufacture before new prices are applied, however, dealers are found reluctant to book at the present prices to avoid losses in the short term. The reluctance of farmer may lead to delayed application of Urea and damaging the wheat crop.
If the Government further withholds the decision on gas prices, there is likelihood of severe shortage in the market in spite of adequate domestic production. As price adjustment is effected post GIDC reduction, the farmers would go for panic buying in view of fear of price increase due to gas prices, while dealer would be reluctant to sell for the same reason to mitigate their losses.
Manufacturers will also be in fix due to mixed market sentiments. Therefore, the government, instead of point scoring through GIDC reduction and later shifting the blame on manufacturers, should act prudently and combine both factors, thus offering a reasonable package to the farmers. This will ensure least disruption of supply chain and avoid a crisis that seems to be in the offing, the sources suggested.
The Fertilizer Manufacturers of Pakistan's Advisory Council (FMPAC) commenting on this situation said delay in decision making is highly disturbing for the industry manufacturing at present very high cost of production, while substantial price reduction is in the offing.
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