Urea import to cost government Rs 11 billion

The federal government''s decision to import 0.3 million ton of urea for local consumption will cost Rs 11 billion to national exchequer on account of subsidy as the prices in the world market are higher.
Market sources told Business Recorder on Saturday that the urea import decision at that time, when the domestic stocks/production of urea is sufficient for Kharif season and international prices are on very higher level will cost billions of rupees additional burdens on the national exchequer, which is already facing difficulties owing to shortfall in revenue and rising expenditure.
Assuming some shortage in the local market, the Economic Co-ordination Committee (ECC) of the cabinet has decided to import 0.3 million tons of urea to avoid any expected shortfall during current crop season. Although, the Ministry of Industries proposed for import of 0.6 million tons, the ECC has allowed import of only 0.3 million tons of urea for Kharif season.
Presently, international urea prices have reached peak level due to increasing demand and an international supplier has already failed to supply 50,000 tons of urea to the Trading Corporation of Pakistan (TCP) as it finalised deal at $431.45 per ton and now prices have crossed $550 mark in the international market.
A massive increase of over $170 per ton has registered in the urea prices since January this year. International urea prices have surged to approximately $600 per ton (Cost and Fright) in the second week of April compared to $430 per ton (C&F) in January this year, depicting an increase of 39 per cent in last three months.
Import at this time, when urea prices are at peak level, will resulted massive financial burden on the TCP as well as on the national exchequer in tune of subsidy.
Since March 2010, following the directives of the ECC the state run grain trader has imported some 2 million tons of urea, of which lowest deal was finalised a $254 per ton in June 2010, while most expansive deal was finalised at $545 per ton in June 2011, while all remaining deals were veering between these prices. TCP had finalised last deal at $431.45 per tons as on January 19, 2012.
Import of urea on current prices will be most expansive urea and need to pay billions of rupees subsidy as the government has already decided to supply imported urea at maximum price of Rs 1600 per bag, which is even less than locally produced urea price of Rs 1,795 per bag.
In the current scenario, it has estimated by the industry experts that imported urea will cost about Rs 3,800 per bag including 10 per cent handing/transportation/other charged and 16 per cent General Sales Tax (GST) and as per the government policy the imported urea will be sold out at subsided rate of Rs 1,600 per 50 kg bag, resulted in over 55 per cent subsidy on urea, sources said.
"It has estimated that government has to pay a subsidy of Rs 1,900 per bag on the imported urea and accumulated this will cost over Rs 11 billion to the national exchequer," they added.
The international market is still moving toward upside and it has expected that during this month it will remain on higher side.
The ECC has allowed 0.3 million tons of urea import on Thursday, however, so far TCP has not received formal directives from the federal government for the import of commodity. "If urea will be imported at current higher price, it will cost subsidy about Rs 11.4 billion as against 0.3 million tons of urea," sources said.
They said that the government had already spent over Rs 54 billion on urea subsidy during the last one year aimed at providing cheap urea to the growers. However, the benefits of subsidy were not reaching to growers as the imported urea was also being sold at domestic urea prices, they added.
Stakeholders are still surprised over the ECC''s unexpected decision to import urea for Kharif crop, while estimates are indicating sufficient stock of commodity during the period.
The industry sources believed that enough stocks would be available in the domestic market for Kharif season and for the first time in the history of Pakistan, urea inventory would cross one million mark by the end of April, 2012
Opening inventory as in April, 2012 is stood 0.85 million tons of urea stocks and despite gas curtailment during the Kharif season (April-Sept) a production of some 2.53 million tons has estimated by the industry, as a result during the season some 3.38 million tons of urea will be available for domestic consumption as against demand of 3.1 million tons.
They said that by the end of April - first month of Kharif - a record inventory of over one million ton of urea would be available as against expected sales of 0.3 million tons. Inventory comprises an opening inventory of 0.85 million and domestic production of 0.412 million ton.
It may be mentioned here that following the directives of the federal government, TCP is already engaged to import urea to meet domestic demand during the Rabi season local production of urea was on decline because of gas curtail to the fertiliser sector and so far 1.14 million tons of urea has arrived Pakistan, while some 80,000 tons of commodity is expected to reach end of this month.