The government is working on a new proposal aimed at bringing gas prices for fertilizer industry at par with international gas prices and paying subsidy directly to farmers, sources close to the Prime Minister Advisor on Commerce, Industries and Production and Investment, told Business Recorder.
This proposal purportedly tailored by Minister for Planning, Development and Special Initiatives, Asad Umar, who worked as CEO Engro Corporation before joining active politics, has been shared with domestic fertilizer industry for their feedback prior to finalizing the proposal.
Citing public perception, Ministry of Industries and Production has accused local fertilizer industry of making windfall gains, asking them to bring down prices on their own. However, such accusations have been refuted by the Fauji Fertilizer Company (FFC).
The Competition Commission of Pakistan (CCP) which had imposed a fine on two fertilizer plants in the past, has started internal work on cost audit of fertilizer industry, meant to force the industry to reduce prices of urea or at least to not ask for further increase under the garb of increase in natural gas prices starting from January 1, 2020.
"Bring domestic fertilizer prices to urea import parity. Additional revenue generated can be used to provide direct subsidy to farmers to keep prices for farmers at current levels which will remove any efficiency in subsidy transfer from manufacturers to farmers," the sources quoted the concept paper of Planning Minister, Asad Umar.
Though the concept paper is yet to be analysed, the proposal put forward by Asad Umer will lead to difference between the price of old and new plants to the tune of Rs 1,200 per bag as of now, said an insider on condition of anonymity.
The new proposal, according to him, denied a level playing field to the entire industry and a windfall is foreseen in case of at least two groups who will earn over Rs 260 billion in case the proposed policy is implemented, because the plants of these groups are operating on the 2001 policy which would enable them to make Rs 1,200-1,400 per bag profit.
"This will cause serious market distortion, with so much less leverage for new plants and will provide undue benefit to the old plants and at the cost of loss to the exchequer," he added.
Analysts argue that the proposal is a knee jerk one and a highly discriminatory solution, which will lead to hefty subsidy by the government to that fertilizer industrial units operating under gas price protection of fertilizer policy 2001.
"This will amount to huge gap between cost of production of old and new plants to the tune of over Rs 1,000 per bag. Such a wide difference may lead to serious market distortions and shutting down of plants set up before 2001," analysts added.
There is also a perception that the proposal to directly transfer subsidy to farmers, may not reach the poor ones at the time of purchase of urea, in view of the fact that the database of farmers is based on land ownership, and does not include the Muzaras or lease farmers.
The realization of Punjab government's subsidy is just 15-20 percent so far in spite of the simple token system.
"If at all the government has to switch over to the direct and targeted subsidy as a political tool then the GIDC must be done away or settled out of court," said one of fertilizer industry stakeholder, adding that Supreme Court may give a chance to the government to consider application of recent GIDC Amendment Ordinance 2019, which was retracted by it.
"Gradual increase in gas price combined with proportionate subsidy tokens may be more workable to take away the onus of passing subsidy indirectly through industry to direct benefit scheme," he added.
Copyright Business Recorder, 2019