December 27, 2012
Fertiliser Manufacturers Pakistan Advisory Council (FMPAC) has said that domestic urea manufacturing plants have provided Rs 365 billion benefit to the farmers over the last 5 years, by keeping local urea prices significantly below international levels and that this a huge benefit to the agriculture industry and the economy.
A spokesman from FMPAC stated all the four SNGPL based fertiliser plants have incurred significant losses in the last 2 years due to non-supply of gas and further benefit to the agri-economy is being eroded. He added that there is a misconception that fertiliser manufacturers enjoy raw material subsidy from the government in the form of reduced feed gas prices. This subsidy is not for the manufacturers, but is in fact passed on to the farmer via reduced prices and this government policy has historically protected farmers and the agriculture economy from price fluctuations of international urea market, rupee depreciation and foreign exchange requirements.
Based on current feed and fuel gas prices, gas subsidy per bag of urea works out to be Rs 228 per bag. In essence if Government subsidy on gas price was taken away, urea prices would only increase by Rs 228 per bag. On the other hand difference between price of domestic and international urea throughout 2012 has been more than Rs 1,000 per bag.
Therefore, he said, that not only is the fertiliser industry passing on feed gas subsidy to the farmer, it is also passing on a much larger benefit of local urea production in addition to paying taxes to government.
The official further added that out of the total urea price increase since 2010, about 80 percent has resulted from imposition of GST on urea and CESS on gas, and general inflation while balance 20 percent is due to factors such as significant less production due to gas curtailment and other costs which remain constant irrespective of less production etc. Government did not honour its gas supply contracts with the fertiliser manufacturers despite the fact that industry has recently invested $2.3 billion in the country based on the government approved policy designed to encourage investment in the sector.
Domestic urea plants in the country are now faced with a production loss of over 2.8 million tons in 2012 as they could only produce 4.1 million tons of urea against a total production capacity of over 6.9 million tons per annum which has increased foreign outflow instead of spending within the country.
The government has also incurred significant losses by importing urea worth over $1 billion and providing subsidy of over Rs 50 billion on imported urea in the last two years. The FMPAC official further clarified that domestically produced urea is always available around the length and breadth of Pakistan eliminating pocket shortages.
Whereas imported urea is generally not available at the right time needed for sowing of crops due to unavoidable delays in imports. The continued non supply of gas to the SNGPL plants is already creating financial turmoil for these manufacturers, as well as severely denting the agriculture economy.