ISLAMABAD: The government is requiring the fertilizer industry to pay Gas Infrastructure Development Cess (GIDC) within 24 months while industry experts believe that the decision will badly affect the farmers as urea prices may increase significantly.
Talking to a select group of media persons here on Wednesday, Brig Sher Shah Malik (retd), Executive Director Fertilizer Manufacturers of Pakistan Advisory Council (FMPAC) said the fertilizer industry was making efforts to get to a workable solution but the government was refuting any proposal put forward by the industry.
Recently, after threadbare deliberations the government endorsed the industry’s point of view on the GIDC and thereafter issued the “GIDC Ordinance 2019”. Now, the court decision also binds the government to recover Rs 295 billion and make considerable progress on gas infrastructure projects in next six months.
Industry has requested the government to first utilise already collected GIDC of more than Rs 295 billion for the proposed development of gas infrastructure but apparently, the funds collected by the previous governments in this head were utilized elsewhere and are no longer available.
The government has accused industry of having high profitability margins however FMPAC Executive director Brig Sher Shah (retired) termed it as an incorrect statement. The actual profitability margins of the industry may be verified from the websites of fertilizer manufacturing companies, which are not as high as being accused by the government, he added.
The industry is also being unjustly accused of having a higher Return of Equity (ROE).
The ROE is based on historical equity, which if had been invested in financial instruments would have been worth many times more and would have resulted in a much lower ROE.
FMPAC also refuted the government claims that the industry has collected over billions of rupees from customer and that the same is reflected in their financial statements saying the fact of the matter is that the financial statements only reflect the amounts accrued as payable, and do not state that these amounts have been collected from the customers. Since payment of GIDC by the industry was stayed by the courts of law, the industry was legally bound not to pay the GIDC. However, the amounts were accrued as payable under the prudence principle of International Financial Reporting Standards by certain companies.
The fertilizer industry has contributed a significant portion of around 43% of total collection of Rs 295 billion by the government up to the period when further payment was stayed by the courts of law. Fertilizer industry was also the only industry, which publicly defended the government’s initiative for the promulgation of GIDC Ordinance 2019. With a population growth rate of two percent (double of India and Bangladesh), we are going to have 50% additional population to feed by 2040. Pakistani farmers will need additional fertilizer at affordable prices to meet this challenge. Continuation of local fertilizer production and substantial increase in capacity is inevitable to ensure national food security as Pakistan has already tested and abandoned the idea of Public Sector fertilizer plants. Industry experts hoped that the government realizes the strategic importance of this sector and deals with it accordingly.
Copyright Business Recorder, 2020
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