Tenders for importing urea have been floated, where TCP has received bids ranging from $280 to $290/ton for 600,000 tons of urea imports allowed by ECC for the remaining part of year. On the face of it, this seems like a routine business and may well be that - but the process appears to have groundlessness, which leaves one wondering about the wisdom of the decision.
Bear in mind that initially private importers were allowed by the ECC to import 400,000 tons of urea for the season at a subsidy of Rs 750/bag. But later the decision was reversed allowing only TCP to import 600,000 tons of urea and market it through NFML.When the government gave away urea import contract to TCP instead of private importers, it argued that since this is the last season when Pakistan will be required to import urea, it would be unfeasible to involve private importers as they would find it tough to market the product in the peak demand season.
That remark surprised many, as anybody following the urea industry knows that private importers have been importing and marketing urea with quite an ease up till now. Nonetheless, the logic (or the lack of it) behind raising import quantity by 200,000 tons to 600,000 tons was never explained.
Wheat, which is a high urea consumption crop, is sown in November-December. This increases urea off-take to its maximum in the last quarter of any given year. Now, even if one assumes a high rate of urea off-take, say 20 percent as against the historical average of 10-12 percent, a shortfall as high as 0.6 million tons is not possible. Pakistan was already sitting high on urea inventory, as of August. This, coupled with 1.8 million tons of production in remaining four months would leave the country with a sizeable urea surplus, when 0.6 million tons of urea imports materialise.
Then there is another anomaly in the timing of these imports as urea prices all over the world are on a rapid decline and are likely to remain depressed as major plants commence operations in the near future. But what leads the list of inept decisions is the amount of subsidy announced on imported urea. The essence of urea subsidy is plausible - which is to protect the local farmer against comparatively higher urea prices in the international market. But there seems to be no apparent reason for the huge Rs 9 billion subsidy on urea imports.
Imported price of urea will be around Rs 1200/bag, whereas the market price is hovering around Rs 780/bag - implying that a subsidy of around Rs 410/bag would have been enough to supply urea at market rates. So, where will this hefty sum of Rs 4 billion go. TCP? Very unlikely. Not at least under the watchful eye of Auditor General of Pakistan who just recently questioned the irregularities to the tune of Rs 5.8 billion in the states trading arm.
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ECC approved What should
UREA IMPORT PLAN scenario have been done
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Opening inventory-Sep (tons) 143,229 143,229
Expected production-by Dec (tons) 1,810,724 1,810,724
Imports by private sector (tons) 100,000 100,000
ECC imports (tons) A 600,000 260,847
Total supply (tons) B 2,653,953 2,314,800
Total demand (tons) * C 2,314,800 2,314,800
Surplus/(deficit) (B-C) 339,153 0
Import price/bag (Rs) 1,191 1,191
Subsidy per bag (Rs) D 750 411
ECC imports-number of bags E 12,000,000 5,220,000
Subsidy value (Rs) (D x E) 9,000,000,000 2,145,681,000
Market price (Rs) F 780 780
TCP cost/bag (Rs) G 441 780
TCP benefit (Rs) (F-G) x E 4,067,400,000 0
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Source: NFDC & BR Research * Assumed on the basis of 20% growth
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