New formula set to cut urea price by Rs150 per bag

MUSHTAQ GHUMMAN

ISLAMABAD: The Ministry of Industries and the fertilizer industry have jointly tailored a new urea price formula, which recommends slashing of Rs68 per MMTBU in Gas Development Surcharge (GDS), 4.7 per cent reduction in GST and provision of 200 MMCFD uninterrupted gas supply to urea plants, which will reduce the price of urea by Rs150 per bag, officials told Business Recorder.

“The Ministry of Industries has also recommended to the ECC that availability of urea in accordance with the demand can be ensured through combination of provision of gas to the local fertilizer industry and import of 200,000 tons in time for Rabi 2012-13. Printing of prices on urea bags will also be made mandatory,” the sources added

On October 3 this year,the ECC of the Cabinet had constituted a sub-committee, comprising Deputy Prime Minister/ Senior Minister for Industries (convener), Adviser to Prime Minister on Petroleum and Natural Resources, Deputy Chairman of the Planning Commission and the Secretary Industries, besides allowing import of 200,000 tons fertilizer under SABIC facility. The committee recommended: (i) a mechanism for provision of subsidy so that it actually reaches the farmers; (ii) ways and means for bringing down the prices of domestic fertilizer; and (iii) a mechanism for provision of gas to fertilizer factories.

The meeting of the sub-committee was held under chairmanship of Deputy Prime Minister on October 25 this year. After a thorough analysis of the price situation, availability of gas and the estimated requirements for the Rabi season 2013, the sub-committee decided to make the following recommendations to the ECC: (i) the best mechanism for provision of subsidy to farmers is to ensure ample availability of urea to counter hoarding and artificial price hike. Urea prices must be printed on the bags to avoid customer exploitation; (ii) Availability of urea in accordance with the demand can be ensured through a combination of provision of gas to the local fertilizer industry and import of 0.2 million tons of urea in time for Rabi season 2012-13; (iii) reduction in price of urea can be achieved either through continuous and assured supply of gas to the fertilizer plants with immediate effect or through provision of subsidy by the government; (iv) one possible avenue of subsidy is reduction of Rs68 per MMBTU in Gas Development Surcharge (GDS) plus reduction of Rs75 per bag in GST i.e. reduction of GST from existing rate of Rs16 to 11.3 per cent. With this subsidy, current urea prices of Rs1,659 per bag can be brought down to Rs1,500 per bag; and (v) Ministry of Petroleum and Natural Resources will provide 100 mmcfd gas daily to produce 100,000 tons of urea.

The fertilizer industry further informed the committee that if 200 mmcfd gas per day was provided to the fertilizer plants, they will reduce the price of urea by Rs150 per bag.

According to sources, urea off-take during Rabi 2010-11 was 3,160,466 tons whereas prices fluctuated between Rs830 to Rs1,155 per bag and urea off-take for Rabi 2011-12 was 2,710,845 tons with price oscillating between Rs1580 to Rs1,795. Urea off take decreased in Rabi 2011-12 by 14.2 per cent which is negatively affecting wheat productivity.

A regression of monthly off take with monthly prices for the period January 2010-September 2012 indicates that at the subsidized price of Rs1,500, the off take is likely to be 2.77 million tons as against previous Rabi off take of 2.71 million tons. With October 2012 sales of urea being close to Rs250,000 tons, the total subsidy amount for the remaining season will be approximately Rs7.5 billion, the sources concluded.