The ECC, in its meeting had raised gas price fuel stock by 30 percent to Rs 780 per MMBTU and of feed stock by 50 percent to 185 per MMBTU. The impact per bag came to Rs 128 which as directed by the ECC should have not been passed on to the farmers.
In the FRC meeting held on October 5, 2018 the industry unanimously stated that it would not be possible to share the cost of subsidizing the farmer. The total subsidy required to offset the impact of gas price revision from October, 2018 to March, 2019 comes to Rs 7.5 billion.
According to sources, the ECC, in its recent meeting resolved to reverse last urea price increase of Rs 128 per bag in October.
Prime Minister Advisor on Commerce, Textile, Industries and Production and Investment, Razzak Dawood has been asked to coordinate with urea manufacturers to reverse price increased recently.
"We are not ready to sell urea at subsidized rates as the industry''''s previous claims of Rs 20 billion are yet to be cleared," said one of the stakeholders.
The sources said, domestic fertilizer industry has submitted the following options to the Ministry of National Food Security and Research: (i) direct disbursement to gas companies in lieu of price differential. This will restrict payment for gas increase to only old plants, as new ones with fixed gas price are not affected;(ii) direct disbursement to farmers through the method of Punjab, ie, SSP model or token system and ;(iii) reversal of feedstock prices, which will also have limited financial impact on the Government, since the increase in gas prices in October only impacted FFC and FFBL. Fatimafert and Fatima continue to operate on old subsidized gas rates of $ 0.7 per MMBTU. This option seems to be the most viable option which can be implemented quickly.
The industry does not support the first option regarding disbursement to the manufacturer, as the trust deficit of the past years experience, will be an impediment to implementation. Moreover, it will have unnecessary financial burden on govt.
Keeping in view the position, the Ministry of Industries and Production had prepared a proposal which states that ratio of gas blend be changed from 62 percent system gas and 38 percent RLNG to 75 percent system gas and 25 percent RLNG for October and November 2018 with retrospective effect, from the date of restoration of gas supply to Fatimafert Limited and Agritech Limited, as this would require no subsidy.
The MoI&P also suggested that RLNG price for fertilizer industry be capped at Rs 729 per MMBTU and the remainder be subsidized by the government. Total impact of subsidy to run two plants, Agritech and Fatimafert, from 3rd week of November, 2018 to end March, 2019 comes to Rs 7.30 billion to produce 300,000 tons urea. It further suggested that Pakarab Fertilizers Limited be made operational immediately for 60 days and subsidy amount of Rs 7.5 billion be allocated to avoid passing on impact of gas price increase to farmers for Rabi season (October, 2018 to March, 2019) for total domestic urea offtake of 2,935,000 tons. It is unclear if the proposal of capping RLNG prices will be considered by the ECC or not.
Pakarab produces only 10,000 tons per month hence restart of Pakarab will not add much to the urea production.