Domestic urea plants provide Rs365bn benefit to farmers in five years

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LAHORE: The Fertilizer Manufacturers Pakistan Advisory Council (FMPAC) has said that domestic urea manufacturing plants have provided Rs365 billion benefit to farmers over the last five years by keeping local urea prices below international levels, which provided huge benefits to the agriculture sector and the economy. This was stated by a spokesman of FMPAC on Wednesday.

He said that the four SNGPL-based fertiliser plants have incurred significant losses in the last two years due to no 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 form of reduced feed gas prices. This subsidy is not for manufacturers but is in fact passed on to the farmer via reduced prices. 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 of urea works out to be Rs228 per bag. If government subsidy on gas prices is taken away, urea prices would increase by Rs228 per bag only. On the other hand, the difference between domestic and international urea prices in 2012 has been more than Rs1,000 per bag. Therefore, he said, the fertiliser industry is not only passing on feed gas subsidy to farmers, 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 of the total urea price increase since 2010, about 80 percent has resulted from imposition of general sales tax (GST) on urea, cess on gas and inflation, while the balance 20 percent is due to factors such as a significant decline in production due to gas curtailment and other costs that remain constant irrespective of less production, etc.

The government did not honor its gas supply contracts with fertiliser manufacturers despite the fact that the industry has recently invested $2.3 billion in the country considering that the government-approved policy was designed to encourage investment in the sector.

Domestic urea plants have been faced with a production loss of over 2.8 million tons in 2012 as they could produce 4.1 million tons of urea only against the total production capacity of over 6.9 million tons per annum, which has increased foreign outflows in terms of increased import of urea instead of spending within the country.

The government has incurred significant losses by importing urea worth $1 billion and providing subsidy of over Rs50 billion on imported urea in the last two years. Urea is the most expensive form of energy, which is imported costing around $23/mmbtu, whereas other forms of energy such as RFO and LNG would be on average 30-50 percent less expensive than urea on a mmbtu basis.

Courtesy: The News

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