Govt to pay an extra Rs5.5bn on urea subsidy

RIZWAN BHATTI

KARACHI: The federal government will have to spend Rs5.5 billion extra on account of providing subsidy to farmers on imported urea.

The government recently decided to import 300,000 tons of urea for Rabi season.

Sources questioned the justification for the federal government’s decision to import urea in such large quantities and said that prices in the world market were higher than locally produced urea.

Expecting to encounter some shortage during upcoming Rabi season, the Economic Coordination Committee (ECC) of the cabinet decided to import 300,000 tons urea to meet domestic demand. TCP was given the task to import urea and the corporation had already finalised contracts for urea import.

Urea prices in the world market are declining and TCP has successfully made arrangements for importing the commodity at a price of $399.38 per ton, lower by comparison with previous contracts, but even now, imported urea will be costlier than the locally produced variety.

A few months ago, international urea prices were at a peak level, surging by as much as $600 per ton (cost and fright) because of rising demand.

The government, sources said, decided to supply imported urea at a price not exceeding Rs1,600, adding that this was even lower than the price for locally-produced urea (Rs1,795 per bag),” they maintained.

Industry experts estimated that the import of urea at $399.38 per ton will cost about Rs50,000 per tons or Rs2,500 per 50-kg bag, including 10 percent handing/ transportation/other charges and 16 percent General Sales Tax (GST).

As per government policy, the imported urea will be sold at a subsidised rate of Rs1,600 per 50 kg bag, sources said.

“It has estimated that government has to pay a subsidy of approximately Rs900 per bag. Cumulatively, this will cost about Rs5.5 billion to the national exchequer on the import of 300,000 tons of urea for the Rabi season,” they added.

The TCP’s move to import urea at a lower price also reduced the subsidy on imported urea: previously Rs10 billion subsidy was estimated on 300,000 tons imported for Kharif season.

They said that the government had already spent over Rs60 billion on urea subsidy during the last one-and-a-half-year on the import of 1.5 million tons of urea import.

Despite government efforts, the benefits of subsidy are not reaching growers: the imported urea is being sold at domestic urea prices.