KARACHI: Significant gas price hike by the federal government has forced the manufacturers to adjustment in urea rates and Engro Fertilizers has also decided to increase the urea price by Rs 785 per bag (including FED), with effect from March 1, 2024.
Earlier, Fauji Fertilizer Bin Qasim Limited (FFBL) had raised the urea price by Rs 1,350 per bag and now following the FFBL, the Engro fertilizer has increased the urea prices to adjust the gas price hike.
However, Engro Fertilizers has decided not to increase the selling price of imported urea to facilitate the farmers. The urea was imported by govt and handed over to urea producers to sell it to farmers.
The decision to increase urea prices by FFBL and Engro Fertilizers comes after the government significantly increased gas input costs for fertilizer manufacturers on the SNGPL and SSGC network.
Feed stock gas prices for these fertilizer manufacturers, which produce 60 percent of the total capacity, have increased from Rs 580/mmbtu to Rs 1,597/mmbtu. On the other hand, the remaining fertilizer manufacturers on the Mari network, that produce 40 percent of total capacity, are still on the subsidized price of Rs 580/mmbtu.
As a result of this price discrimination for the same homogenous product (gas), price distortion has been created with multiple urea rates in the market. Market reports show that urea prices of FFBL, Engro Fertilizers and Fauji Fertilizer Company Ltd now stand at Rs 5,489 per bag, Rs 4,647 per bag and Rs 3,767 per bag, respectively.
According to experts, by not having the same gas price for all fertilizer manufacturers, the government may miss out on its fiscal objectives and there will be instability in urea prices for the farmers. Due to this price instability, an opportunity has been created for the middlemen to earn excessive profits of Rs 80-100 billion and farmer will be compelled to buy expansive urea.
Industry experts said that by increasing Mari network prices, the government can benefit from this additional revenue to invest in the agricultural sector through targeted projects that generate economic activity.
An industry analyst explained that the government should “equalize gas rates for the whole industry; otherwise, it will create distortion and go against the IMF’s suggestion of elimination of subsides.”
The bold strategy to reform the fertilizer sector by eliminating current gas price discrimination among the fertilizer players is expected to stabilize the urea market for benefit of the farmers, support the government’s economic agenda, and attract new investments in the fertilizer industry.
Copyright Business Recorder, 2024