ISLAMABAD: The government has reportedly decided to reduce Variable Contribution Margin (VCM) on urea by 20 per cent to Rs 234 per bag from Rs 294 per bag (Rs 60 per bag), well-informed sources told Business Recorder. The decision was taken by an inter-ministerial committee headed by Ministry of Industries and Production, constituted by the Economic Coordination Committee (ECC) of the Cabinet.
Sharing the details, sources said that as per the latest data furnished by National Fertilizer Development Centre (NFDC) it has been projected that national inventory for urea fertilizer would be below buffer stock level of 200,000 MT in December 2020. This projection is based on M/s Engro Fertilizer (old plant) getting additional 25 MMCFD gas and that plant would be operating at full capacity producing 970,000 MT of urea per annum.
Ministry of Industries had taken up the proposal of allocation of additional 25 MMCFD gas to M/s Engro on long-term basis with Petroleum Division, which stated that gas to M/s Engro (old plant) would be available till September. If the additional production by Engro is subtracted from October onward, then the national stocks for urea fertilizer would be below buffer stock level of 200,000 MT in December, 2020 after meeting the peak demand during the Kharif season 2020.
Both Agritech and Fatimafert (now Fatima fertilizer Sheikhupura plant) were operationalized under ECC decisions from September 2018 till November 2019. For this purpose the GoP made an expenditure of Rs 15.926 billion out of which Rs 15.186 billion has been paid leaving a balance of Rs 739.662 million which will be cleared through the budgetary allocation in FY 2020-21.
The sources said Ministry of Industries and Production circulated a draft summary on May 2018, 2020 to Finance, National Food Security and Research and Petroleum Division with the options to import urea or operate local capacity at SNGPL network for view/comments. National Food Security supported the proposal of operating the plants at SNGPL network whereas Finance Division while preferring the option of domestic production over import of urea stated that the clarification regarding rationale of offering "variable contribution margin" at 15 per cent of the value of revenue needs to be furnished by the M/oI&P.
Previously, both the plants were operated on cost sharing basis with the variable contribution margin being determined by the committee constituted on December 4, 2018. On the basis of the report by the committee, Variable Contribution Margin (VCM) of Rs 294/ bag was approved.
In the light of the comments received from Finance Division, it was proposed that a committee may be formulated under the chairmanship of Finance Division with representatives from National Food Security and Research, Petroleum and Industries and Production Division respectively to review and recommend the appropriate VCM.
However, when the proposal came under discussion, the ECC approved the proposal of a committee to review VCM but to be headed by the Ministry of Industries and Production with representatives from Ministry of Finance, Petroleum and National Food and Research.
The inter-ministerial committee which met early this week, decided to slash VCM by Rs 60 per bag which is 20 per cent.
The Ministry of Industries and Production, however, is still indecisive about operationalization of closed fertilizer plants (Fatimafert and Agritech) to meet future demand of urea in the country.
Both plants had brought into the notice of Secretary Industries and Production that OGRA has notified the RLNG price for June at $ 5.528 per MMBTU from earlier price of $ 6.7650 per MMBTU. At this price, monthly LNG subsidy required would be Rs 337 million to operate both Fatima and Agritech which is 72 per cent lower than equivalent quantity of urea imports. Both plants have accepted increase of RLNG price to Rs 724 mmbtu as compared to Rs 685/mmbtu earlier required to further reduce the subsidy costs.