ISLAMABAD: Ministry of Industries and Production (MoI&P) is reportedly being accused of misguiding the Economic Coordination Committee (ECC) of the Cabinet on urea stocks to extend "underhand" support to one particular group.
On July 3, 2020, the ECC decided to provide gas at the rate of Rs 756 MMBTU to two RLNG-based fertilizer plants, M/s Agritech and M/s Fatima Fertilizer, for three months (July-September).
The government claims that this subsidy of Rs 959 million provided to LNG fertilizer plants will help ensure availability of sufficient urea in the country.
Ministry of Industries and Production is of the view that if both plants start production, they will be able to contribute about 100,000 to 150,000 MT of urea for buffer stocks and price of urea will remain within the range of Rs 1600-1620 per bag. Both plants are protesting over reduction in their margin.
However, one group which is said to be "affected" with the ECC decision is of the view that there is no urea shortage in the country and the country would have doubled the required safety stocks even if demand rebounds to 5.8 million tons. Local production can match the estimated demand and there is already a starting year inventory of 0.4 million tons
"The government is misleading the public by using average of old oil prices for subsidy calculation. The actual subsidy will be higher as actual crude prices are rising," said the "affected" group. It also claims that the ECC decision will result in Rs 6 billion ($ 36 million) foreign exchange outflow.
The "affected" group has claimed that June inventory of 0.43 million tons is 200% higher compared to the usual level at this time of the year. This group is believed to have substantial stocks and if additional production is not ensured prices in December will increase.
Ministry of Industries and Production submitted two potential options;(i) ECC may allow import of 200,000 MT urea ensuring that the national stocks remain above 200,000 - total subsidy on import by GoP at current C&F has been estimated at Rs 3.440 billion with a forex requirement of $ 47.60 million; or (ii) gas rate of Rs 756/MMBTU (with variable contribution margin @ 11.9 of the revenue) may be offered to both the units for three months effective from July-September. (GoP's share at this gas rate has been estimated by taking RLNG's notified rate for June which would be approximately Rs 0.959 billion; further actual payment by GoP for price differential sum to SNGPL may vary due to difference in monthly rate of RLNG.
The ECC decision will be submitted to the federal cabinet for ratification, after which it will be implemented.
"They are in a difficult situation as they are closed since long. Their production will ensure sufficient availability of urea throughout the year, though chances of shortage are really bleak," said an insider, requesting anonymity.