Another 'match' is expected between Prime Minister's Adviser on Commerce, Industries and Production and Investment Abdul Razak Dawood and the powerful domestic fertilizer industry on "higher" urea prices at a meeting of Fertilizer Review Committee (FRC) on Tuesday (tomorrow).
The prime minister and his cabinet members are deeply concerned about the prevalent urea price in the country but Ministry of Industries and Production, which has big say in price fixation, reportedly bowed down before fertilizer sector.
Recently, farmers of Punjab held a protest demonstration in Lahore, severely criticising the government for not extending any relief to them as prices of inputs have soared.
September 18, 2019, fertilizer industry out rightly refused to withdraw increase in urea price by over Rs 200 per bag, citing scrapping of GIDC Ordinance 2019 due to pressure from different stakeholders.
The local fertilizer industry has increased urea price by Rs 200 per bag taking the price to Rs 2040 per bag, after the U-turn on GIDC Ordinance by the government.
The Supreme Court is conducting hearing on the GIDC case. This issue was taken up at the cabinet level where Abdul Razak Dawood was directed to hold a meeting with the fertilizer industry and bring the price of urea to Rs 1810 per bag.
Urea prices during January 2019 were reported at Rs 1800 per 50-kg bag and an increasing trend was observed throughout the year. In July 2019, the price of urea was reported at Rs 1916 per bag and continued increasing up to Rs 2040 during October, 2019. This implied urea price rose by Rs 230 per bag during the last nine months apparently in connivance with the government's stakeholders at federal and provincial level.
According to the government calculations, the cost of producing urea per bag has been calculated at Rs 1496 including impact of GIDC of Rs 405 and if the amount of GIDC is excluded, the cost of urea is Rs 1091 per bag. However, the cost of FFC is Rs 31 per bag higher than other manufacturers.
The sources said, fertilizer industry was not paying the GIDC collection to the government due to litigation but collecting from farmers.
This issue of increase in urea prices has also been raised in the federal cabinet in recent meetings.
The reasons behind the increase were cited as increase in gas prices, inflation and withdrawal of GIDC Ordinance.
Gas forms the basic raw material for fertilizer manufacturing process and is consumed as fuel (20 percent) and feedstock (80 percent). The recent price revision (twice) led to higher cost of production, ultimately impacting on the end user (the farmers).
Fertilizer industry maintains that the price revision was driven by the quest for higher revenue targets without much deliberation in relation to its impact on end users (the farm community). The fertilizer industry believes that the impact on farmers can be minimized through reduction of gas price for fertilizer industry in the following manner: (i) the gas price increase should be minimal for feedstock, as its impact is four times more on the farmers and is further aggravated due to multifold financial load on old plants, since new plants are operating at a fixed price; and (ii) gas price slab ( fuel) for fertilizer industry may be specified separately from other industrial sectors.
The sources said, Ministry of Industries and Production would endeavour today to convince the fertilizer sector to slash urea price at least by Rs 100 per bag and bring it to Rs 1940 per bag as the government is under immense pressure from farmers to reduce their input costs.
Copyright Business Recorder, 2019