ISLAMABAD: The government is considering allowing fertilizer manufacturers to hike urea prices by up to Rs 358 per bag, shifting the entire burden of over Rs 30 billion of imports onto farmers. Under the scheme, producers were given a basket price of imported and locally produced urea to transfer the full burden of Rs 220,000 worth of imported urea to farmers.
Agritech, a leading player in the industry, has proposed an increase in the maximum retail price (MRP) from Rs 3,936 per bag to Rs 4,095 per bag, indicating an increase of Rs 159 per bag. Similarly, Engro and Fauji Fertilizer Company (FFC) have proposed to increase the price per bag to Rs 3,766, from the existing Rs 3,595, reflecting an increase of Rs 171 per bag. Fauji Fertilizer Bin Qasim Limited (FFBL) may see a more significant jump with a proposed price of Rs 4,339 per bag compared to the current Rs 3,981 per bag. This substantial increase of Rs 358 per bag will have far-reaching implications in the agriculture sector.
In addition, Fatima Group has proposed various increases for its products. Fatima (SDO – Single Drum Oven) is set to see an increase from Rs 3,671 per bag to Rs 3,839 per bag, reflecting an increase of Rs 168 per bag. Likewise, Pak Arab and Fatima (SHP – Sulphate of Potash) have proposed to increase their MRP by Rs 159 per bag each.
The Economic Coordinating Committee (ECC) noted in a recent meeting that fertilizer manufacturers would be charging financial costs for the entire production of 6.2 million tonnes of fertilizer, giving them undue benefits and increasing fertilizer prices in the country. The ministry was asked to resolve the issue on its own and in response it was clarified that the financing cost would only be charged for the 220,000 tonnes of imported urea. Regarding gas supply to Fertilizer Manufacturers, ECC was informed that in line with past practice, Petroleum Division will assess the existing gas supply arrangements/RLBG and provide gas to them on best effort basis.
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The ECC noted that the mechanism will be further revised and the approval of the implementation mechanism based on the principle of basket pricing will be submitted to the government. It was agreed that the selling price of imported urea should be determined by National Fertilizer Marketing Limited (NFML). The Finance Division has reiterated its stand that once the proposed basket price mechanism is implemented, no further subsidy will be provided for supply of urea.
In earlier decisions, the ECC allowed the Trading Corporation of Pakistan to import 220,000 MT of urea from SOC 8, Azerbaijan, which was ratified by the Cabinet on 25 November 2023. On 23 October 2023, the ECC decided that the provinces would bear the subsidy on imported urea. Another decision dated November 15, 2023 determined that the cost of imported fertilizer would be covered by the provinces. Since then, the Punjab government has said it will raise imported urea by splitting the subsidy 50:50 between the federal and provincial governments. Government of Sindh has committed to increase its share of supply – 52,800 MT (24% of 220,000 MT) on full cost basis. Responses from Balochistan and Khyber-Pakhtunkhwa were awaited.
In short, the provinces were unable to undertake to bear the full burden of subsidies. The Trading Corporation of Pakistan (TCP) informed that the estimated cost of importing 220,000 urea would be Rs 27.489 billion and the cost of a 50 kg bag of urea was estimated at Rs 6,248/bag. National Fertilizer Marketing Limited (NFML) informed that the cost incurred by it on ancillary activities – transportation charges – warehousing/storage etc. would be around Rs.4,918.45 crore.
The Ministry of Industry and Production further informed that the above situation was discussed in a meeting chaired by the Prime Minister on January 1, 2024. The following decisions were taken: It was decided that locally produced urea and imported urea will be treated as one basket; Based on the previous procedures for local urea and full cost recovery of imported urea, a pricing matrix will be established for local urea producers; A committee composed of the following will engage urea producers and finalize the implementation mechanism: Secretary Petroleum Division; Secretary of the Ministry of Industry and Production; Secretary, Ministry of National Food Security and Research; Secretary and Department of Commerce.
