Govt mulling imposing cess on fertilizer companies

ISLAMABAD: The government is reportedly considering imposition of cess on fertilizer companies to recoup windfall profits, which will be ring-fenced for the benefit of farmers, well-informed sources told Business Recorder.

A committee comprising Minister for Petroleum and Natural Resources Ali Pervaiz Malik, Minister for Climate Change Dr Musadik Masood Malik, Secretary Finance, Chairman Federal Board of Revenue (FBR), and the National Coordinator of the Petroleum Sector Task Force has been constituted to discuss and consider different options for the imposition of a cess on the fertilizer sector.

The idea of imposing cess was floated by FBR Chairman Rashid Mehmood Langrial before a committee headed by Deputy Prime Minister/Foreign Minister Ishaq Dar, which has been tasked with overseeing gas prices and fertilizer gas allocations.

READ MORE: Govt approves fresh Mari gas allocation for key fertiliser plants

During the committee’s proceedings, the climate minister stated that gas allocation to fertilizer plants should be evaluated in light of the depletion of gas in the Sui network, adding that the Weighted Average Cost of Gas (WACOG) is the only long-term solution to existing challenges.

He further suggested that all industries grappling with high gas prices should be given similar treatment. He proposed that gas allocation be treated as a case of import substitution and that the government make investments through the Public Sector Development Programme (PSDP) for processing low-BTU/non-pipeline quality gas to achieve price equalization through WACOG.

The Minister for Petroleum highlighted that the proposed gas allocations would materialize after two years and that the gas availability issues of three fertilizer plants connected to the network would be resolved.

He emphasized that the sanctity of contracts must be ensured and informed the committee that the Petroleum Division had already sent a reference to the Law Division seeking an opinion on the reopening of bilateral/trilateral contracts and pricing arrangements. He suggested that the issue of windfall profits should be separated from the matter of gas allocation.

The FBR chairman outlined several options for recouping windfall profits. One option is the imposition of a windfall tax on income; however, this would leave only a 43 percent share with the federal government.

Alternatively, the Independent Power Producer (IPP) model could be adopted, whereby Return on Equity (RoE) and Internal Rate of Return (IRR) are determined and maintained while ensuring uniform prices for consumers.

He also suggested the establishment of an escrow account, under which the fertilizer industry would internally account for windfall profits with the accumulated amount subsequently used to transfer benefits to farmers.

Responding to the proposals, the Deputy Prime Minister noted that low-BTU/off-spec gas cannot be injected into the network without substantial investment, which cannot be financed through the PSDP.

He added that depletion of natural gas is a natural phenomenon and can only be replaced or replenished through future discoveries by facilitating public and private sector investment in exploration activities.

Tariq Bajwa, Special Assistant to the Prime Minister (SAPM), suggested that windfall profits could be recouped through the imposition of a legally backed cess, to be named the “Agriculture Development Cess,” with collections ring-fenced for farmers’ benefit.

On the recommendations of the committee and the Economic Coordination Committee (ECC), the federal cabinet approved gas allocation for fertilizer plants in December 2025, transitioning fertilizer production to a Mari-based standalone gas supply system.

The decision aims to ensure the long-term sustainability of domestic fertilizer production, safeguard national food security, protect farmers from price volatility, and strengthen overall economic stability.

Under the approved plan, gas from new Ghazij/Shawal off-spec/raw gas discoveries has been allocated as follows: Fauji Fertiliser Company (Port Qasim) will receive 104 mmcfd of raw gas, translating into 80 mmcfd of processed gas; Fatima Fertiliser (Sheikhupura) will receive 68 mmcfd of raw gas and 52 mmcfd of processed gas; and Agritech (Daudkhel) will be allocated 50 mmcfd of raw gas and 38 mmcfd of processed gas.

Additionally, up to 110 mmcfd of gas earlier allocated from HRL to GENCO-II will be de-allocated, while up to 105 mmcfd will be allocated to Engro Fertiliser’s base plant at Mari. Raw gas from Ghazij/Shawal will be delivered at the Mari gas field.

The respective fertilizer companies will install gas processing and compression facilities to enable the injection and transportation of processed gas through the Sui companies’ networks to their plants.

The required investment for processing low-BTU gas with high CO2 content is estimated at over $200 million and will be borne entirely by the fertilizer industry.

Bilateral Gas Sale and Purchase Agreements (GSAs) will be executed with Mari Energies, along with third-party access arrangements with SNGPL and SSGC under the TPA Rules 2018 and the Pakistan Gas Network Code. For supply to FFC (Port Qasim), gas swap arrangements will be undertaken, as the SSGC network does not extend to the Mari field.

Copyright Business Recorder, 2026