ISLAMABAD: The fertilizer sector has passed on a benefit of Rs 600 billion over the last decade to the farmer community in the form of reduced urea rates compared to international prices. Between 2010-19, local urea prices have remained considerably lower than global markets. During this period, the fertilizer industry received Rs 180 billion in subsidy on lower feed gas price, which enabled it to pass on a three-fold benefit to the farmers by selling urea at decreased rates. Currently, urea prices in Pakistan are approximately Rs 1,200/bag lower than international level suggesting a significant discount of around 43% from international prices. Latest urea tender in India have indicated CFR prices around $ 280-290 per ton, which are much higher than their previous levels of $ 260 per ton. Since January this year, the fertilizer industry in Pakistan has fully passed on the benefit of GIDC reduction to the farmers by cutting down the urea prices by Rs 400 per bag. Despite its contribution to the national economy, some recent media reports have suggested that untargeted subsidies worth Rs 148 billion are being obtained by the fertilizer industry and these should be reviewed by the government. Under pressure to achieve budgetary targets aligned with the IMF program, a subsidies cell under the supervision of Dr Waqar Masood has been constituted to review untargeted subsidies in various sectors of the economy. The reports have highlighted provision of Rs 6 billion subsidy to two plants in the current fiscal year. Contrary to the claims, this subsidy is based on concessionary gas under the Fertilizer Policy 2001 that envisaged providing regionally competitive and fixed gas prices. Based on this Policy, the local fertilizer players invested around PKR 162 billion in state-of-the-art production facilities, which led to an increase of around 1.9 metric tons per annum of urea production capacity. As a result, Pakistan has been able to save over Rs 570 billion through import substitution and generate additional revenues for the government, while ensuring food security for the population. Further, the fertilizer industry does not benefit from the reduced GST rate of 2 percent as the sales tax is collected upfront and recorded as output tax for the government. In fact, the industry reduced urea prices from 2016 levels by around Rs 230 per bag in lieu of reduced GST. On the other hand, a significant amount of sales tax refunds of the fertilizer industry has accumulated with the government, which has adversely impacted the manufacturers in terms of earnings and cashflow. In addition to IT, the fertilizer industry continues to face challenges in recovery of prior subsidy amounting to RS 20 billion from the government, even though the subsidy was timely passed on to farmers. Due to the ongoing challenges in recovery of previous subsidy amounts, the fertilizer industry recently turned down the broad level subsidy package announced by the government on fertilizers. Instead, the industry supported the government in offering direct and targeted subsidy to the farmers rather than through the fertilizer manufacturers.
