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SC Media Centre -
Fertilizer Manufacturers of Pakistan advisory
Tapal Safari Shair e
Sheikhupura Dangal sparks off on 27th March
Fertilizer Sector Maintaining Urea Prices at June 2016 levels Letter to the Editor: August 6, 2018
There is a misrepresentation of the facts related to urea pricing being circulated in various daily newspapers. A fallacy that suggests that urea prices are being raised arbitrarily. It must be understood that price adjustment was bound to occur due to the end of inconsistent policies of the previous government. In spite of dragging of subsidy payments issue, the fertilizer industry has performed responsibly and has vertually maintained prices at June 2016 levels, compared to international prices which have risen to almost 50 percent. It may be noted that the dealers transfer price was at Rs. 1,790, including Rs. 256 as GST in June 2016, when subsidy scheme was announced. The net revenue for manufacturers was Rs. 1,534. The present dealer transfer price is Rs. 1,565 with a GST of Rs. 32 and net revenue remaining at Rs. 1,533, in spite of inflation and dollar price hike. Hence, the facts speak for themselves and it is mere propaganda to compare prices with Rs 1400 per bag during the subsidy scheme in place. Furthermore the fertilizer sector has been absorbing Rs. 106 per bag in support of scheme while bearing the burden of GIDC without being able to pass it on due to capping of prices.
The retail price is printed on the bags and provincial governments are continuously monitoring the situation. Any over charging by dealers must be brought in the notice of concerned officials instead of blaming the fertilizer industry.
Fertilizer - one of the key agricultural inputs promises to optimize crop-yields, generating big foreign-exchange revenues and ensuring food-security for the fast-growing population. However, over the decades, the fertilizer-manufacturing industry in Pakistan has been over-burdened with various challenges like; heavy taxation, gas curtailment, high cost of production and several other hurdles that restrain its growth.
The fertilizer manufacturing industry is among the biggest tax-payers in Pakistan, contributing billions of Dollars to the national exchequer. Moreover, these robust enterprises are also spending a good sum to encourage progressive farming and research, while offering valuable advisory, healthcare, education and flood-relief services to the farmer community.
Surge in Urea Prices Letter to the Editor: July 17, 2018
This letter is in response to the news being circulated in Media regarding misrepresentation of the facts related to surge in urea prices. I would like to begin with the fallacy that urea prices are being raised arbitrarily. This price adjustment was bound to occur due to the short term policies of the PML-N government coming to an end on the 30th of June 2018.
The structure or breakdown of the price adjustment was based on the following facts: The government in Finance Bill 26-17 reduced the price of Urea from Rs 1790 and capped the price at Rs. 1,400 per bag vide notification of 23 August 2016 under the subsidy scheme as follows: a voluntary reduction of Rs. 50 by the manufactures and Rs 184 as the impact of GST reduction from 17% to 5% and a subsidy of Rs. 156 per bag, offering a total relief of Rs. 390 per bag. Subsequently, the government revised the subsidy scheme through the Finance Bill 2017-18 and reduced the subsidy to Rs. 100 per bag, while keeping the price at Rs. 1,400, thereby implying that the manufacturers bear a further burden of Rs 56 per bag with total contribution of Rs. 106 per bag and Rs 13 Billion. In the recent past, the reduction of GST on urea from 5% to 2% in the Finance Bill 2018-19 and a withdrawal of the subsidy led to the price increase by Rs. 52 per bag from July 1st 2018. Upon termination of the subsidy on July 1st, the manufacturers were supposed to recover Rs. 106 plus pass on the impact of withdrawal of subsidy and GST adjustment (Rs.52). Therefore, the minimum price increase was to be effected by Rs. 158 per bag. Keeping in mind the impact of inflation and the Dollar Rupee parity among other costs, the prices were bound to rise higher than the present adjustment of Rs 130 or so per bag. In the light of these calculations, it is clear that the news of price increase are exaggerated and mischievous. It may also be noted that international prices of Urea are hovering around Rs 2300 per bag.
Fertilizer manufacturing is strategically one of the most important industries for an agrarian economy like Pakistan. If the government shows indecisiveness towards creating consistent policies or and keeps ignoring the advice of the farmer's community, fertilizer experts and learned associations, this essential sector will continue to suffer. Presently three fertilizer plants are non operative due to non availability of sustainable supply of gas at affordable rates. This is reflecting the unconcerned and compartmental policies for this strategic sector.
Alarming Depletion of Gas reservoirs- Dependent Industries in Crisis Story: July 4, 2018
In Pakistan, in addition to water crisis, a severe gas crisis is also on the horizon. While the former is attributed to policy of inaction under political compulsions, the latter is attributed to poor vision of Mushararf Government which decided to promote CNG stations for short term gains and the unfortunate geopolitical environments in the region that have restrained implementation of TAPI and Iran Pakistan Pipeline. The policy of burning gas as cheap fuel has led to a situation, where the sectors adding value to the natural gas with no substitute raw material will suffer and the have ultimate negative impact on economy and food security. The demand and supply situation of gas has been changed from affluence to deficiency and after 2006 the country has entered into the deficiency phase. The natural gas proven reserves of Pakistan at the end of 2012 were 22.7 trillion cubic feet (0.6 trillion cubic meters) with reserve to production ratio is 15.511 (R/P ratio). This ratio shows that the reserve would last for approximately 16 years more, if they are used at current rate of production. Pakistan's domestic natural gas reserves are declining. If current gas scenario prevails, Pakistan would bear gas shortfall of 8 Bcfd by the year 2025-26.
Although Pakistan has been blessed with natural gas reserves, "Sui Gas", the largest natural gas field located at Sui, Balochistan but years of mismanagement, lack of strategic vision, limited investments in energy sector and inadequate exploration of these gas reserves have led to shortage of natural gas in Pakistan. This prime energy source is to be distributed among five critical sectors i.e. households, commercial, industry, power, transport. While all others burn this precious commodity, the fertilizer manufacturing is based on processing the natural gas into Ammonia and then Urea, thereby adding value to it. Therefore, fertilizer sector was on top priority in national gas allocation and management policy. Unfortunately, the policy has been manipulated in the recent past thereby lowering the fertilizer to third priority. Moreover, the gas dedicated to fertilizer manufacturing has been diverted to other sectors thus causing early depletion to the gas reserves. The fertilizer companies have spent over Rs 20 Billions on installation of compression stations to ensure the right pressures.
In the recent past the LNG marketing has influence the minds of policy makers to the worst. Instead of working on adding natural gas, they have opted to lethargic option of imported LNG as an alternative to natural gas. Many analysts are not able to perceive the gravity of this situation, as they are projecting that LNG is bringing a positive change in Pakistan's energy-equation. The reality is that; although the high-priced imported LNG might be fulfilling the national demand for gas, but unfortunately, it is not promising any long-term benefits due to its high prices for the industrial sector on the whole and fertilizer sector in particular.
It is important to clarify this misperception at the earliest, so that the experts can begin searching for a more sustainable solution to the gas supply challenge faced by the urea-producers. Domestic fertilizer manufacturers are playing an important role in ensuring food security, while also saving precious foreign exchange. This large-scale has invested heavily to fully meet the national demand for fertilizers. Moreover, it is one of the biggest contributors of tax-revenues to the national exchequer and also provides employment opportunities to Pakistan's work-force.
Supply of imported LNG at high prices and the insufficient distribution of local gas, is already hurting this important industry, whereby the smaller producers are already on the verge of collapse. Some factories have been totally deprived of the indigenous gas supply. So, they are being forced to operate on expensive RLNG, to avert degradation of plant and machinery, due to idleness and somehow retain their highly skilled workforce. The price mechanism for fertilizer sector as per Fertilizer Policy envisages availability of natural gas as feedstock at the rates prevalent in Middle East to ensure availability of fertilizer at prices lower than international market. However imposition of GIDC has led to an average price of 4.88 USD per MMBTU against the international average of 2-3 Dollars. Such high cost of production will ultimately hamper the use of costly fertilizers and lower growth. The RLNG with exorbitant prices does not make any economic sense for fertilizer production.
Fertilizer companies are not only producing an essential agricultural input like fertilizers domestically, to significantly reduce imports and save precious foreign exchange for the country. It is also creating robust revenue streams for the government of Pakistan, by contributing billions of rupees every year. When it comes to paying all the due taxes on time, fertilizer companies are raising the standards for corporate and financial performance, for other progressive organizations in Pakistan to follow.
Fertilizers are strategically one of the most important industries for an agrarian economy like Pakistan. If the government shows indecisiveness towards creating consistent subsidy policy or a favorable regulatory environment for the agriculture sector and keeps ignoring the advice of the farmer's community, fertilizer experts and learned associations are of the opinion that this essential sector will continue to suffer.
Fertilizer plants such as PFL, FF, and Agritech who are working with SNGPL, have experienced frequent shutdowns on account of availability or affordability of gas. These plants have not operated at all during 2018 and also remained out of operation for almost eight months during 2017, thus negatively impacting the nation's revenue and production which has resulted in huge financial losses to these companies. The higher price of RLNG offered instead of natural gas is not financially viable option for production of urea in particular under the prevailing price mechanism. The minimum essential affordability level should enable the above mentioned companies to keep the capital intensive plants in operation, retain skilled manpower and maintain their presence in the market, if the gas is provided in a sustained manner.
A special tariff for Feedstock gas can also be developed for plants operating on RLNG. The government can implement a formula for mixed-billing, based on domestic gas price and RLNG rate, Thus, reducing the burden of gas cost on the fertilizer industry, by following the same method as applied to the power sector in Pakistan. This is a practical, long-term solution to resolve the energy crisis in the fertilizer industry. The restoration of priority of gas allocation to fertilizer sector and provision of sustained gas supply as per Fertilizer Policy 2001 is essential to ensure optimum utilization of national capacity, thus avoiding expensive imports and huge subsidies to sell the imported commodity.