June 06, 2014 -BR Report
The increase in Gas Infrastructure Development Cess (GIDC) for fuel stock component of fertiliser sector would have a price impact of around Rs 60-70 per 50-kg urea bag. In order to enhance revenue collection, under the budgetary measurers, the federal government, revising the previous rates, has set a maximum cap of Rs 300/mmbtu GIDC for fuel stock supply.
According to Budget 2014-15, the government has also added a provision in the GIDC rules stating that it may levy any rate of GIDC on any category of gas consumers subject to maximum rate of Rs 300/mmbtu. Industry sources said the government move may result in an additional levy of Rs 200 GIDC on fertiliser fuel stock supplies. New GIDC rate is expected to be Rs 300/mmbtu on fuel stock gas supply for the fertiliser industry. Previously they were paying Rs 100/mmbtu.
As per industry estimates every Rs 100/mmbtu change in GIDC on fuel stock would have an impact of Rs 35 per 50-kg bag. While, in case of Rs 200/mmbtu raise in GIDC, overall urea price will surge by some Rs 60-70 per 50-kg bag in the domestic market. Presently, ex-factory urea price stood at Rs 1,786 per 50-kg bag and domestically produced urea would reach some Rs 1,845-1,855 per 50-kg bag, if new GIDC prices on fuel gas supply are implemented from July 1, 2014. The government has set a tax collection target of Rs 145 billion through GIDC for FY15 compared to Rs 88 billion in FY14, they added.
Industry sources said any increase in urea prices will directly hit the growth of agricultural sector, which presented a dismal performance during the last fiscal year. The agriculture sector grew at the rate of 2.1 percent against 2.9 percent last year.
In addition, due to dull performance, its share in GDP has reduced considerably. During last 8 years the sectoral share of the agriculture sector in the GDP declined from 23.0 percent to 21.0 percent.
Analysts said the government is determined to achieve the required agricultural production targets through collective actions by focusing on improving agricultural planning and policies, scaling up investment. However, some budgetary measurers such as higher GIDC rate will hurt the government efforts to get a better agricultural growth. They said budget FY15 proved to be negative for the fertiliser sector where the government has again set aside a huge subsidy of Rs 25 billion for urea import. Although, the subsidy is some Rs 5 billion lower than previous year, however the allocation is also an indication for the domestic industry that government has planned to import more urea for domestic consumption.
“The allocation for subsidy shows the government stance on gas supply to fertiliser sector, which is unlikely to get a higher supply during the short term,” they added. They urged the government to ensure availability of agricultural inputs such as seed and urea at cheaper rates to facilitate farmers and achieve a better agricultural output that will ultimately contribute to the national economy.