The domestic urea manufacturing plants have provided a benefit of Rs 365 billion to the farmers over the last five years, said the Fertilizer Manufacturers Pakistan Advisory Council (FMPAC) Wednesday.
The benefit, the council said, was in the face of keeping the local urea prices significantly below international levels. “That is a huge benefit to the agriculture industry and the economy,” said a FMPAC spokesman in a statement issued here.
The spokesman said all the four SNGPL based fertilizer plants had incurred significant losses in the last 2 years due to non-supply of gas and further benefit to the agri-economy was being eroded.
He added that there was a misconception that fertilizer manufacturers were enjoying raw material subsidy from the government in the form of reduced feed gas prices.
This subsidy was not for the manufacturers, but was in fact passed on to the farmers via reduced prices and this government policy had 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 fertilizer 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% has resulted from imposition of GST on urea and CESS on gas, and general inflation while balance 20% 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 honor its gas supply contracts with the fertilizer 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 2 years. Urea is the most expensive form of energy that is imported costing around $23/MMBTU, whereas RFO and LNG would be 30-50% on average less expensive than urea on a MMBTU basis.
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.
He said that there are a host of other reasons including food autarky and food self-sufficiency which warrants sustained and regular production of domestically produced urea. He said that the entire crisis has primarily been due to non-adherence of the Government approved priority for gas supply to the fertilizer industry who had sovereign contracts in place to receive gas unlike other sectors.
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.
