- Addressing gas price discrimination in fertilizer sector could have yielded billions in revenue
In the backdrop of the recent price increase by Fauji Fertilizer (FFC) some industry sources have claimed that there was no justification for this increase, and instead the government could have raised additional revenue had it addressed the discrimination in gas pricing.
It is important to note that FFC increased the price of its urea by 17%, or Rs633 per bag, to Rs4,400 on April 4, 2024, despite no change in their gas input costs. FFC still benefits from a subsidized Mari network gas rate of PKR 580/mmbtu, whereas other manufacturers on the SSGC and SNGPL networks have experienced an increase to PKR 1,597/mmbtu as of February 2024. The government has taken notice of FFC’s abrupt price adjustment, given the stable input costs, and could implement measures under Section 5 of the Price Control and Prevention of Profiteering and Hoarding Order, 2021, if FFC fails to provide a satisfactory explanation, a source claimed.
The foregone billions in potential revenue are increasingly indefensible, especially amid the current economic crunch and discussions of IMF loans. This missed revenue could have been invested in the agricultural sector to stimulate economic growth.
Industry sources note that had the government addressed the pricing disparity among fertilizer manufacturers earlier this year, it could have collected an additional PKR 80 – 100 billion. This oversight detracts from the government’s objectives of reducing national debt and stabilizing urea prices for farmers.
Experts are advocating for the immediate equalization of gas prices across fertilizer manufacturers. Standardizing rates for the 40% of the capacity on the Mari network to match the 60% on the SSGC and SNGPL networks could stabilize urea market prices.
Government insiders reveal that the IMF has urged the cessation of all fertilizer subsidies and the development of a direct subsidy mechanism for farmers. Further reforms are necessary to decrease the government’s debt, increase efficiency, and attract investments in the fertilizer sector.
At the 2024 Spring Meetings, the IMF emphasized the urgency of accelerating these reforms to maximize Pakistan’s growth potential. Prime Minister Shehbaz Sharif has announced the formation of a committee to oversee the implementation of the Weighted Average Cost of Gas (WACOG). This committee will assess its impact on various sectors, including fertilizer, and propose a secure, technology-based method for disbursing direct subsidies to farmers by the provinces after eliminating manufacturer subsidies.
