The World Bank has demanded that the government should put an end to its policy of heavily subsidising the fertiliser industry for gas, saying that it was the basic reason of distortion in the pricing mechanism and was hurting other categories' interests.
Sources said the World Bank conveyed its concern on the issue when its power sector mission held a meeting with the officials of Petroleum Ministry some time back.
The bank said that fertiliser industry was enjoying subsidy in gas rates at the cost of other consumers, and continuation of the mechanism would keep on putting the other categories at disadvantage.
The bank is against cross-subsidy mechanism-based gas pricing mechanism and wants that Islamabad should charge all categories at actual rates to remove distortion in the system.
The World Bank's missions and Islamabad office have been raising the issue regularly with the officials during meetings and want early end to it.
It also expressed serious concern over subsidising general consumers at the cost of other categories.
The bank said it understands that a number of new fertiliser plants were being set up with gas supplied for use as feedstock at heavily subsidised prices. There are many other sectors which may have higher utility for use of gas (such as power sector, or even residential consumers if they are charged appropriately in relation to competing fuels). It proposed that the government should review the fundamental issue of administrative allocation of gas to different consumer categories, ascertain the relative utility of gas use in different end-uses, and establish the principle of charging tariffs which cover full cost of supply.
The government is subsidising gas to fertiliser industry to promote investment in this sector and help it produce more fertilisers to meet agriculture sector's demand. Despite these incentives, local fertiliser production is short of demand.
Pakistan is facing huge gap in fertilisers' demand and supply and relies heavily on imports to meet the demand of the farmers for all seasons.