The federal government has reportedly backed out from its demand slashing variable contribution margin on urea from Rs 200 to 150 per bag, after the industry''s resistance at all levels, well informed sources told Business Recorder.
The government gave a go-ahead for import of 150,000 tons of urea fertilizer to address its shortage in the country. Of the approved quantity 50,000 tons arrived on December 2, 2018 and another 50,000 tons is expected to arrive on December 18.
The sources said 50,000 tons which has already arrived has been shifted to the National Fertilizer Marketing Limited (NFML) warehouses and is not being shipped to the farmers. The main reason for this is the lack of issuance of the price for the commodity by the government. This inaction on the part of the Government is amplifying the already existing shortage of urea in the country.
December and January are the main season months for the application of urea by farmers on the wheat crop. The price of urea today in the Punjab market is Rs. 1780 per bag of 50 kg, versus company to dealer selling price of Rs. 1712 per bag which implies urea is being sold at around Rs. 55 per bag over the company recommended price to the farmers.
On December 4, 2018, Ministry of Industries and Production Division stated that to ensure smooth supply of urea fertilizer, the ECC of the cabinet, in its meeting held on November 2018, approved the proposal that the two plants on SNGPL system (Fatimafert & Agritech) may continue their operation for further two months viz December, 2018 and January, 2019. However to resolve the pricing issues, the ECC assigned the task to Adviser to the Prime Minister on Commerce, Industries & Production, Textile Industry and Investment to formulate and recommend necessary modalities.
In pursuance of the ECC directive, consultative sessions were held by the Adviser on November 19, and November 30, 2018 wherein, besides the industry, representatives of MNFS&R, Finance Division and Energy Division participated. Consensus finally emerged that (a) keeping these plants operational is the best available option, (b) feasible gas price to remain within current dealer transfer price ceiling (Rs.1712 /bag) is Rs 782/MMBTU and that since gas price is charged in advance by SNGPL, (c) the subsidy to SNGPL needs also to be paid in advance; the cumulative amount comes to Rs.4.70 billion.
Industries & Production Division proposed that the SNGPL may be given subsidy of ( i) Rs.167/MMBTU (weighted average) for supply of gas to Fatimafert and Agritech for the gas consumed at 62:38 blend till December 7 2018; (ii) Rs.869 /MMBTU on supply of 100% RLNG to these plants from December 7, 2018 to January 7, 2019; and (iii) the amount of Rs.0.79 billion may be paid forthwith on actual basis and Rs.3.91 billion (approx.) may be paid in two monthly tranches on December 7, 2018 and January 7, 2019, subject to final reconciliation. Industries & Production Division will initiate the proposal, for supplementary grant to cover the subsidy amount, for approval of the Cabinet.
Representative of Finance Division did not agree to the proposed mechanism of subsidy and insisted that it should be ex-post facto and on actual basis. However, in view of the huge impact on liquidity of plants Mol&P remained firm on the proposal. The plants should be facilitated to keep functioning and since the subsidy would be credited to SNGPL, it can always be reconciled. The other option is to fill the supply gap of around 316,000 MT (in case these plants are shut down) by imports. In that case besides FE expenditure of $ 109.3 million, the government will have to pay around Rs. 8.40 billion as subsidy (CFR $ 346 MT + 25% incidentals translates into DTP of Rs. 3034/bag i.e. some Rs. 1322 above DTP, Rs.l712/bag of local urea).
After detailed discussion, the ECC allowed Fatimafert and Agritech to continue their operation on 100 % RING from December 8, 2018 to January 31, 2019 and constituted a committee under the chairmanship of Secretary, Industries & Production Division comprising representatives from Petroleum Division, Law Division, Finance Division and FBR to discuss: (i) legal implication of adjustment of GIDC against subsidy, (ii) viability of Rs 150/- per bag of urea as variable contribution margin and (iii) mechanism for payment of subsidy to gas companies/SNGPL.