Urea decision means exporting subsidised gas, importing LNG

The government has reportedly allowed export of 0.3 million tons of heavily subsidised urea under pressure from fertilizer companies which have yet to produce a surplus after consuming natural gas with a subsidy of Rs 570 per bag, well informed sources told Business Recorder. Ministry of Commerce had approached the Ministry of Industries and Production (MoI&P) and noted the likely upward pressure of urea export on domestic prices of urea and the advisability of generating a future surplus by utilising subsidised gas while the export-oriented industries are facing gas shortages and running on expensive fuel till June 30, 2017.
Insiders claim that the decision to export subsidised urea was taken at a meeting between one of the top economic decision makers of the government and head of a fertilizer company a couple of months ago. "As more than 70 per cent of cost of urea is gas, it is like importing expensive LNG and exporting our own gas with subsidy," said an official in Ministry of National Food Security and Research.
According to official documents, Ministry of Commerce revealed in the ECC on January 23, 2017 that a meeting of the inter-ministerial Fertilizer Review Committee (FRC) was held on October 19, 2016 to review the fertilizer demand and supply situation for Rabi Season 2016-2017 (October 2016 to March 2017). According to FRC, there were 1.739 million tons (MMT) stocks of urea available with the fertilizer companies including 0.273 MMT of imported urea available with National Fertilizer Marketing Limited (NFML), and the estimated production up to March 2017 would be around 2.585 MMT, which makes the total availability of urea around 4.324 MMT (1.739 MMT stocks + 2.85 MMT production).
The expected off-take for the Rabi season, after factoring in 11% excess demand owing to a reduction in urea prices, would be around 3.3 MMT. The total surplus Urea fertilizer would be around 1.0 MMT (4.324 MMT available - 3.3 MMT off take); after maintaining a strategic reserve of 0.2 MMT, around 0.8 MMT surplus would be available for export up to June 30, 2017. For the period beyond Rabi (ie April-June 2017), the production of urea would be around 1.5 million tons whereas the off-take, on the basis of last three years'' consumption pattern, would be around 1.1 MMT.
Keeping in view, the inventory, expected production, future off-take and strategic reserves in the country, the FRC unanimously concluded that in ongoing Rabi season [2016-17] availability of urea will be comfortable, and recommended to export the expected surplus Urea fertilizer ie 0.8 million tons up to June 30, 2017.
Ministry of Commerce asked MoI&P to consider the upward pressure of urea exports on domestic prices of urea and the advisability of generating a future surplus by utilising subsidised gas while the export-oriented industries are facing gas shortages and running on the expensive LNG. MoI&P had reiterated that 0.8 MMT urea was likely to be surplus till June 30. 2017. However, the urea fertilizer manufacturers unanimously stated that they would be relieved of the glut situation even if the permission was granted to export of 0.5 MMT of urea. Interesting, the fertilizer companies have no surplus presently and have yet to produce surplus.
On the matter of upward pressure on prices, MoIP had stated that it was not the domain of the Ministry of Industries and Production. Ministry of Commerce stated that according to item - 13 of the Schedule - I of Export Policy Order, 2016, the export of the urea was not allowed. However, it may be exported subject to the approval of the ECC of the Cabinet on a case-to-case basis. Ministry of Commerce requested the ECC of the Cabinet to allow export of urea fertilizer up to 0.3 million tons, as recommended by the FRC, after considering the likely impact on domestic prices and the gas supply situation, subject to some conditions: (i) the contract for export of urea would be registered with Trade Development Authority of Pakistan (TDAP) on first come first serve basis; and (ii) export would be effected within 45 days of registration of contract but no later than April 30, 2017; and (iii) Fertilizer Review Committee would meet immediately after April 30, 2017 to review exported quantities, and if the originally estimated surplus materialises, the Committee may recommend additional quantities for export. FRC would monitor domestic prices of urea on monthly basis and in case of abnormal increase in retail price as per weekly sensitive price index, the FRC will recommend to ECC discontinuation of further exports.
During the ECC meeting, Secretary, Industries and Production Division, Khizer Hayat Gondal proposed that urea in quantity of 0.5 MMT should be exported and the export should be allowed till June 30, 2017. The Ministry of Commerce was of the view that since urea was being exported for the first time, therefore, in order to evaluate response of the market, initially, the export quantity should be capped at 0.3 MMT and then, if required, a fresh request for export would be submitted to the ECC of the Cabinet.
Minister for Petroleum and Natural Resources proposed that priority should be given to those manufacturing units that are being operated on RLNG. ECC of the Cabinet observed that the facility of export should be extended to all the manufacturers of urea instead of restricting the facility to RLNG-based urea manufacturers.
During the discussion, a concern was expressed about the increase of urea prices in the domestic market. The ECC of the Cabinet directed the Ministry of National Food Security and Research to ensure that the retail price of urea in the domestic market does not increase. The ECC further directed that the subsidy available on the domestic sale of urea shall not be available for export of urea. Arrangements and modalities for export of commodity, including the role of Trade Development Authority of Pakistan, were also discussed in detail. It was unanimously agreed that the modalities practised for export of sugar should be adopted for export of urea as well. The ECC was also of the view that no subsidy would be allowed on export of urea.
After detailed discussion the FRC was directed to monitor domestic prices of urea on a monthly basis to ensure that there is no increase in retail price [as per weekly sensitive price index]. FRC will recommend to ECC for discontinuation of further exports if there is an increase in retail price. The ECC further decided that subsidy available on the domestic sales of urea will not be available for export of urea.