Rs 2.5 billion subsidy to be given on urea import

August 21, 2013



The federal government will pay approximately Rs 2.5 billion subsidy on the import of 0.3 million tons of urea to facilitate farmers. Sources told us on Tuesday that despite a massive decline in urea prices in the world market, the government would need to spend a huge subsidy on imported urea to rationalise its prices with local market. Recently, Pakistan has finalised three deals for the import of 0.3 million tons of urea as the domestic market is facing some shortage due to gas curtailment to local producers.

“Anticipating some shortage in the local market, the Economic Co-ordination Committee (ECC) of the Cabinet asked the TCP to import 300,000 tons of urea from international market to avoid any shortfall during upcoming crop season. Following the directive of the federal government, the TCP floated three international tenders in July this year for the import of urea. Later, TCP finalised first deal on July 22 at $317 per ton with M/s Swiss Singapore for import of 75,000 tons, second deal was matured on July 30th at $309.9 with M/s Blue Deebage for same quantity and third urea import contract was awarded to M/s Trammo International at $311.71 per ton as on August 6, 2013 for the import of 150,000 tons of urea.

Market sources said despite the fact that current deals are on very reasonable rates, the government will be required to subsidise the imported commodity as it will remain costlier than locally produced urea. The government has already fixed a price of Rs 1,600 per 50-kg bag for imported urea to facilitate farmers. The price of imported urea is even less than locally produced urea, which is being sold at Rs 1,650-1,675 per 50-kg bag by the domestic urea manufacturers in the domestic market.

According to market experts” estimates, average price of these three deals has been calculated at some $313 per ton, while other expenses on the import of urea have been estimated at 25 percent of the imported cost. The overall cost of the imported urea under the recent agreement has been estimated approximately at Rs 40,200- 40,300 per ton (including import price, taxes, TCP”s commission and other expenses) against government”s price of Rs 32,000 per ton, resulting in some Rs 8,200-8,300 per ton subsidy. Similarly, cumulative subsidy on import of 300,000 tons of urea will be around Rs 2.5 billion.

In terms of bag, the commodity will cost Rs 2,000-2,010 per 50-kg bag including handling/transportation/other charges and GST. As per government policy the imported urea will be sold at subsidised rate of Rs 1,600 per 50-kg bag to dealers, meaning some Rs 400-412 per 50-kg bag.

Sources said the TCP is responsible for the import of the commodity, while its handling and transportation will be done by National Fertiliser Marketing Limited (NFML). NMFAL, after deducting the transportation chares will pay sales amount to the TCP and TCP will claim its subsidy from the ministry of finance.

They said the TCP is importing urea for last few years and billions of rupees subsidy amount is still pending with federal government, which is also facing some financial trouble due to rising expenditures and shortfall in revenue. Sources said the government has already spent over Rs 80 billion on urea subsidy during last three years (2010-12) aimed at providing cheap urea to growers, however, the benefit of subsidy is not reaching to growers and the imported urea is selling at Rs 1,700 per 50-kg bag, some Rs 100 per bag higher than fixed price of imported urea. Courtesy Business Recorder
Urea import, Urea

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