The government has decided to set up 'prices pool mechanism' for fertilisers through levying cess at the rate of Rs 83 per bag on locally produced urea and extending the amount of subsidy for phosphatic/potash fertilisers, sources in the Planning Commission told Business Recorder.
The logic behind the new mechanism is that being cheaper product there has been excessive use of urea as compared to phosphatic and potash fertilisers, while their balanced use would help in getting better yield.
"The research findings have shown that if balanced application of fertiliser is adopted, even on 50 percent of the cropped area under wheat, rice, maize and sugarcane, it would result in financial gain of Rs 125 billion per annum," observed a committee headed by Planning Commission Deputy Chairman Dr Akram Shaikh. The committee was constituted by the Economic Co-ordination Committee (ECC) of the Cabinet in October last year.
The committee recommended that the estimated annual subsidy of Rs 9 billion should be maintained but be equally distributed on phosphate and potash for balanced use of all fertilisers, which could be instrumental in enhancing the output and creating a win-win situation for all stakeholders, sources added.
They said that the committee was also of the view that a system should be put in place to bring the prices of imported urea down, instead of paying subsidy.
According to the new mechanism, it has been proposed that a levy of Rs 83 per bag should be imposed on domestic urea and then the imported urea be cross-subsidised, bringing the price down to about Rs 583 per bag against the current import price of Rs 1,100 per bag.
By employing subsidy, the price of DAP would decrease by about Rs 275 per bag and the prices of urea and DAP would come down to Rs 583 and Rs 824, respectively, against the Rs 500 and Rs 1,100 per bag.
After threadbare discussion in two meetings, the committee has recommended to the government that the subsidy of Rs 9 billion should be retained, but be capped and given on imported as well as locally produced phosphate and potash fertilisers.
OTHER RECOMMENDATIONS ARE AS FOLLOWS:
1) A cess to be levied on domestic urea in order to balance the price of local and imported urea in two years.
The exact levy to be determined on the basis of tenders.
2) Cess collected from local urea to be an additional subsidy to further subsidise urea import.
3) The second option is that instead of levying cess on urea, the manufacturers may be allowed to import urea, pool the cost with local production and balance the price. The sale price of urea to be monitored by the government.
4) Launch massive educational programme on electronic media through the Extension Departments to promote balanced use of fertilisers.
5) Cess to be collected by Central Board of Revenue (CBR) and put in a special account for subsidy on imported urea.
6) The government should allow only registered parties to import urea through tenders on the basis of demand and with lowest subsidy offer.
7) The government should register phosphate/potash importers through pre-qualification and fix amount of subsidy per ton, or per bag, besides monitoring the prices.
The decisions taken by the committee, sources said, would be implemented by another committee comprising Secretaries of Revenue, Finance, Minfal and Economic Advisor, Finance Ministries.
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