KARACHI: The federal government will pay approximately Rs 14,500 per ton subsidy on imported urea to match the domestic price, as it has already decided to supply urea at lower price to facilitate farmers. Market sources told Business Recorder on Saturday that although presently urea prices were on lower side in the world market, however, despite that the import of urea would put a huge burden on the national kitty on account of foreign exchange and subsidy.
Anticipating some shortage in the local market, Economic Co-ordination Committee (ECC) of the cabinet has asked Trading Corporation of Pakistan (TCP) to import 130,000 tons of urea from international suppliers to avoid any shortfall during the current crop season. TCP is already engaged to import urea from Saudi Basic Industries Corporation (SABIC) as against $100 million credit facility being provided by Saudi Fund for Development (SFD).
Following the directive of the federal government the state run grain trader floated a urea import tender on March 21 which was opened on April 24, 2013. Some 13 responsive bidders submitted bids. Later on April 25, TCP finalised a urea import deal of 80,000 tons with lowest bidder M/s. Helm Dungemittel, GMBH at a price of $374.73 per metric ton C&F.
"Although the current import deal is at a very reasonable rate, however despite that this is much expansive than locally produced urea and will require to be subsidised when will be supplied to the farmers," sources said. The federal government has already fixed a price of Rs 1,600 per 50-kg bag for imported urea to the farmers to facilitate them. The price of imported urea is even less than locally produced urea, which is being sold at a price of Rs 1,650-1,675 per 50-kg bag by the domestic urea manufacturers in the domestic market.
The industry experts have estimated that import under the current deal, finalised by TCP, will cost about Rs 2,300-2,350 per 50-kg bag including handing/ transportation/other charges and General Sales Tax (GST). While, as per government policy the imported urea will be sold at subsidised rate of Rs 1,600 per 50-kg bag to the dealers. "It has been estimated that federal government may require to pay subsidy of some Rs 700-750 per 50-kg bag on the imported urea, which is likely to arrive Pakistan during next month," they added.
Cumulatively, national exchequer will require some $30 million for opening of Letter of Credits (LCs) for 80,000 tons urea while an amount of over one billion will be spent to subsidies the imported urea. Under the recent deal urea import is likely to cost approximately Rs 46,400- 46,500 per ton (including import price, taxes and other charges) as against government's price of Rs 32,000 per ton, resulting in some Rs 14,400-14,500 per ton subsidy. While, total cost of subsidy on import of 80,000 tons will be around Rs 1.15 billion, they added.
A representative body of fertilizer manufacturers has already warned that if full and uninterrupted gas supply to all domestic Fertilizer Plants; especially the SNGPL-based four plants was not restored, country would have to import around 1.0 million tons of urea in 2013.
According to Fertilizer Manufacturers Pakistan Advisory Council (FMPAC) Pakistan is self-sufficient in urea production and with consistent gas supply to these plants, Government can ensure timely availability of this key farm input to farmers at the cost effective rates and would also help GoP to reduce its fiscal deficits as well as subsidy spend.
It may be mentioned here that government has already spent over Rs 80 billion on urea subsidy during the last three years (2010-2012) aimed at providing cheap urea to the growers, however, market sources said that the benefits of subsidy is not reaching to growers and most of the imported urea is also being sold at domestic urea prices, which is some Rs 100 per bag higher than the imported urea price.