Finance Minister, Senator Ishaq Dar has ordered an inquiry against those who imported urea in huge quantities creating a glut of this commodity across the country soon after its import, sources close to Secretary Industries told Business Recorder. The decision was taken at a recent meeting of Economic Co-ordination Committee (ECC) presided over by the Finance Minister. Given the background, the sources said, the ECC on January 16, 2014 decided to equate the price of imported urea fertiliser with the price of domestically purchased urea, ie, Rs 1,786 per 50 kg bag.
Accordingly, the decision was implemented through National Fertilizer Marketing Limited (NFML). During the Rabi Season 2015-16, the sale of urea fertiliser decreased drastically due to a decline in commodity prices globally that had an adverse impact on domestic prices of wheat, rice and sugarcane. The off-take of urea fertiliser had thus remained depressed. Presently, NFML was carrying stock of 276,000MT of imported urea in its godowns across the country. A total of 344000MT urea was imported during Kharif 2015 (April - Sept, 2015); out of which a quantity 67,900 MT was sold until July 31, 2016, leaving an unsold balance of 276,000 MT.
Ministry of Industries and Production further revealed that during budget speech, Federal Minister for Finance, Revenue, Economic Affairs, Statistics and Privatization announced the sale price of urea of Rs 1,400 per 50 Kg bag for end user. FML has, however, requested for a reduction in the price of imported urea fertiliser from existing Rs 1,786 to Rs 1,260 per bag on following basis: (i) private producers supply/delivery of urea at dealer's sale point while NFML's dealers lift stock from NFML godowns and pay up to Rs 50 per bag as freight charges. Further, there also exists a significant difference in market price of branded (local product) and imported Urea as farmers prefer branded product; (ii) NFML receives urea from Trading Corporation of Pakistan (TCP) at port and transports stock to its godowns for its further sale to dealers. The NFML pay back to TCP the amount after sale of urea by deducting Rs 21per bag as service charges. Now, stock is lying in godowns, therefore, no payment is being made to TCP; (iii) carrying cost of urea stock is approximately Rs 3.5 million per month which is additional burden on NFML and it is difficult to cover these charges against meager income of Rs 21per bag deducted as service charges; and (iv) the decision to reduce the imported urea price will help promote sale enabling NFML to make payment to TCP, curtail further the accumulating bank interest and reduce NFML carrying cost being incurred against urea stock.
Ministry of Industries and Production apprised that the Finance Division that price of imported urea should not be reduced below Rs 1,310 per 50kg bag. Ministry of Commerce stated that at current selling price, ie, Rs 1786 per 50kg bag, financial implication is of Rs 2.129 billion for current stock up to June 2016. A further reduction from Rs 1,786 to Rs 1,260 would have an additional financial implication of Rs 2.904 billion. Thus the total financial implication would be Rs 5.033 billion. Ministry of National Food Security & Research supported the price reduction up to the level of Rs 1,400 per 50kg bag.
Ministry of Industries proposed that the price of imported urea fertiliser lying with NFML, ie, 276,000MT may be reduced from Rs 1,786 to Rs 1,310 per 50 kg bag, as long as subsidised price was fixed by GoP @ Rs 1,400 per bag remains in force. The total financial impact of subsidy @ Rs 476 per 50 kg bag on balance 276,000MT would be Rs 2.630 billion.
According to sources, ECC expressed its concern over the availability of huge stock of 276,000 MT of imported urea with NFML, which could not be disposed of despite a lapse of one year. This stock was causing a substantial financial burden of Rs 3.5 million per month on NFML as carrying cost. It was revealed that the domestic production of urea has been increased due to the availability of gas. Farmers preferred local urea over imported urea because of its good quality and low price, which was the main reason for the declining sale of imported urea. The Chairman ECC stated that the Ministry of Industries and Production should have timely informed the ECC of the Cabinet about the stock position of the imported urea before the Government's announcement regarding a reduction in urea prices in the Budget 2016-17. Now, the demand for an additional subsidy of Rs 476 per 50 kg bag would add a substantial financial burden on the government exchequer. A detailed inquiry was required to be carried out to find the facts and reasons for importing urea in a huge quantity, which became surplus immediately after its import and fix the responsibility on those who are involved in importing surplus urea at the cost of the exchequer.
Secretary, Economic Affairs Division suggested that disposal of the imported urea stock available with the NFML is necessary to avoid further burden of carrying cost. He suggested that instead of fixing the sale price of imported urea @ Rs 1310 per 50 kg bag, a committee may be constituted to review on a weekly basis the sale price of imported urea keeping in view the international price trends of urea and dispose of the imported urea stock through the price band method, so that minimum loss could be incurred on the exchequer.
After a detailed discussion, the ECC constituted a committee headed by Secretary, Industries & Production and comprising representatives of National Food Security & Research and Finance Divisions (not below the rank of BS-20). The committee would try to push the sale of stock of imported urea available with the NFML at Rs 1,310 per 50 kg bag and propose steps to the ECC for enhancement of its sale.
The ECC further directed the Ministry of Industries and Production to conduct a detailed inquiry in order to find out the reasons for importing urea in huge quantity, which became immediately surplus after its import, fix the responsibility on those who are involved in importing surplus urea at the cost of exchequer. A detailed report on this account may be submitted to the ECC of the Cabinet in its next meeting for consideration.
"The report should also cover reasons for not timely bringing the issue into the notice of the ECC before the Government's announcement regarding reduction in urea prices in the budget 2016-17," the sources continued.
A number of former officials of NFML are facing NAB inquiries for inflicting massive financial losses on the national exchequer. NFML, sources said, has also confirmed a number of employees without taking the Ministry into confidence and the Ministry has sought a report on this issue from NFML management but they have not responded so far.