Fertilizer industry

Traditionally, Pakistan's fertilizer production capacity is over 6 million tons per year, little over the national demand. Over the past years, this sector has been facing several challenges due to insufficient gas supplies, high gas tariffs and heavy taxation.
As the present government started to focus on strengthening the agricultural and fertilizer sectors - a special "Kissan Package" was announced to benefit farmers and support the agricultural sector by providing subsidies on fertilizers, along with soft loans to small farmers. The FBR has also announced a big reduction in sales tax on fertilizers, bringing it down from 17% to only 5%. Moreover, the government is also working towards ensuring gas availability and large-scale LNG imports whereby all urea manufacturers are able to optimize their productivity to meet the local demand.
Reciprocating to the government's support and incentives, the fertilizer sector in Pakistan has already paid over Rs 109 billion as Gas Infrastructure Development Cess (GIDC), till October, 2016. It has emerged as the highest contributor to GIDC, among all industrial sectors across the country. The industry experts are also expecting that improved farm-economics will lead to a substantial rise in domestic urea sales - driven by lower prices, gas-subsidy and tax-reduction in the local market. The industry faces cash flow problem due to unnecessary delay in payment of subsidy besides incurring financial cost.
The government must encourage this robust sector to capitalize on these opportunities and avoid knee-jerk decisions. Like withdrawal and restoration only recently. The fertilizer market usually also gets distorted due to delays in government's decisions on prices or other critical aspects. The unexpected changes in prices make it extremely difficult for farmers to make decisions and optimize their harvest. Important decisions must be followed by concerned authorities and implemented in a timely and equitable manner. If the government continues its support to fertilizer sector, an opportunity will emerge through which Pakistan will once again become the exporter of locally produced urea to earn substantial amounts of foreign exchange for the country. A recent BMA research shows an increase of 17% month-on-month in international urea prices, due to higher coal prices; however, the high cost of production in Pakistan does not make it an economical of proposition for export. The government will have to offer incentives to allow export of piled up urea inventory, which stood at 900,000 at the close of 2016.
The government must appreciate that the fertilizer industry has always looked beyond profitability, while serving, educating and empowering the farming community, through valuable developmental initiatives, besides passing on the benefits of tax incentives and gas subsidy, to farmers. These enterprises pursue an elaborate philosophy to share their success with the community around them, by fulfilling their Corporate Social Responsibility (CSR) and contributing towards the prosperous growth of the nation.
The key players in Pakistan's fertilizer industry spend generously on improving the healthcare and educational facilities in many deprived regions. They install renewable power projects to reduce the energy crisis and provide relief during major calamities or disasters in the country. They have always followed traditions of good-governance and transparency, while paying all their taxes prudently as they absorb the substantial part of taxes or GIDC levied on the industry, Thus helping to revive the poor farming community. They have played a key role in reducing imports to save precious foreign exchange and improving food security in the country.
So the government is expected to work with this essential industry by forming a joint committee and chalking out both short-term and long-term plans to gain maximum output, improve food security and farmers' wellbeing that promises higher agricultural productivity and growth for an agrarian economy like Pakistan. The governmental support in shape of more incentives will strengthen the valuable developmental initiatives that the fertilizer industry has already launched.
(The writer is a fertilizer distributor. The views expressed in this article are not necessarily those of the newspaper)