"In 2015, as result of negotiations, the fertilizer sector paid over Rs 100 billion to the national exchequer. It is worth mentioning that the bulk of the fertilizer industry is maintaining its own dedicated pipelines and spending billions of rupees on installation of compression stations because of the falling gas pressures due to diversion of gas to power sector from dedicated gas fields," fertilizer industry sources expressed on Monday.
The gas infrastructure development cess (GIDC) was imposed by the government in 2010 through an ordinance which was struck down by the Peshawar High Court and the decision was upheld by the Supreme Court of Pakistan. The Act was passed in 2015 by the Parliament and remains sub-juiced for being unreasonable and against the government policies. Notwithstanding the legal position, the GIDC act is highly discriminatory as well, stakeholders of the fertilizer industry claimed.
The federal government had subjected the fertilizer industry to the highest rate of 'gas infrastructure development cess' (GIDC) as compared to other industries. The GIDC has been imposed at the rate of Rs 300 per mmbtu on feed gas (used as raw-material for urea manufacturing) while a GIDC rate of Rs 150 per mmbtu is being charged on fuel gas used by all other industries.
Moreover, the fertilizer industry is charged higher rate for fuel gas beside this discrimination within the industrial sector. The GIDC inclusive average gas prices (Rs 488 per mmbtu) are more than double the international prices (1.5 to 2 dollars per mmbtu) for gas provided to fertilizer sector.
Therefore, high cost of production should in principle lead to higher rates of Urea; however, it is not the case. When GIDC was imposed, the urea was selling above Rs 2,000 per bag and should have risen to Rs 373 per bag. However, because of government intervention the prices have been brought down to Rs 1400 per bag with a subsidy of Rs 100 and GST reduction of Rs 184 per bag.
Resultantly, the fertilizer industry suffered a loss of Rs 106 per bag in support of subsidy scheme. Therefore, the fertilizer sector is being burdened with high cost of production that the industry is unable to pass on, the stakeholders claimed.
The fertilizer manufacturers are the biggest consumers of natural gas because they are using gas as a basic raw-material to produce urea. They do not burn gas solely as a fuel to operate their factories, hence making optimal use of our precious gas reserves through value addition. The government must consider that this industry has invested billions of dollars to play an essential role in agricultural productivity which is the backbone of the economy. Putting more tax-burden on this industry will also have a negative impact on domestic and international food-security because Pakistan is a sizeable exporter of agricultural food-crops.
The GIDC Act 2015 passed by the National Assembly states that the revenues generated through the 'Cess' shall be utilized by the government for the development of gas-infrastructure which includes major trans-national projects and LNG imports, etc. However, there is nothing in sight in this regard and fertilizer manufacturers are not going to benefit from the new infrastructure.