The government is considering to abolish cross subsidy on supply of feed gas to fertilizer manufacturers and to devise a mechanism of direct subsidy on urea to the farmers, Business Recorder has learnt. The Economic Co-ordination Committee (ECC) of the Cabinet in its meeting on Tuesday approved the recommendations of the ECC subcommittee to review the cross subsidy on feed gas for fertilizer plants under Fertilizer Policy 2001.
"A proposal to give direct subsidy on urea to farmers is being considered," sources said. The government may switch to direct subsidy on urea to farmers due to reported misuse of cross subsidy on feed gas by fertilizer manufacturers. The current cross subsidy on feed gas is aimed at ensuring supply of fertilizer to farmers at economical rates but the price of fertilisers escalate during the peak season, which is beyond the reach of farmers.
Sources said that under Fertiliser Policy 2001, the government was providing cross subsidy up to Rs 276 per MMBTU on feed gas for fertiliser plants. The burden of subsidy is being borne by other consumers such as power, captive power plants and general industry including textile.
"The government wants to rationalise the cross subsidy mechanism since the general industry, particularly export-oriented, has been requesting it," sources said, adding that the enhanced cost of production due to additional burden of cross subsidy had made it difficult for them to compete in the international market.
Sources said that general industry had also suggested direct subsidy to fertiliser consumers. At the time of promulgation of Fertiliser Policy 2001, there was abundance of gas in the country, "but now there is a widening gap between demand and supply and therefore, Fertiliser Policy 2001 needs to be reviewed," sources added.
The ECC discussed post-''Balancing, Modernisation and Replacement'' (BMR) concession for feed gas for Pak-American Fertiliser Limited and allocation of 16 mmcfd gas from SNGPL system for expansion in fertiliser production by Pak Arab Fertilisers Limited. The ECC approved recommendations of its subcommittee regarding deadline for signing Gas Sales Agreement (GSA) as given in Fertiliser Policy 2001, under clause 2.1.4 to be extended to June 30, 2012.
The Ministry of Food and Agriculture said that urea shortage had been projected till 2012 onward and the country required to have new fertiliser plants and BMR concession on feed gas for existing plants to expand operations. The Ministry of Industry recommended to allocate gas for fertiliser sector on priority basis as urea shortage will continue till 2012 onwards.