ISLAMABAD : Urea prices have been increased by two manufacturers despite no corresponding increase in gas prices, highlighting a missed opportunity for the government to gain significant revenue of up to Rs 100 billion.
Fatima Fertilizers has increased the price of its brand Sarsabz urea by Rs 551/bag, and its Maximum Retail Price (MRP) is now Rs 4400/bag, with effect from April 23, 2024.
On April 9, Fauji Fertilizer (FFC) had increased its urea prices by Rs633/bag to Rs4,400/bag. This unjustified price increase of around 17 percent was made even though there has been no change in its gas input cost.
FFC and Fatima are still receiving Mari network gas on the subsidized price of PKR 580/mmbtu compared to other manufacturers on SSGC and SNGPL network that receive gas at PKR 1,597/mmbtu. This shows that fertilizer reforms have been initiated only partially and price discrimination for the same homogenous product (gas) has been created in the fertilizer industry.
This is a missed opportunity for the government and will lead to revenue loss of up to Rs 100 billion due to delayed gas reforms that would have standardized gas pricing for all fertilizer manufacturers. With the country negotiating another IMF program, this missed opportunity is difficult to justify.
These additional revenues can be utilized to support economic growth, invest in the agricultural sector and provide farmers targeted subsidies.
Immediate action to eliminate price discrimination among fertilizer manufacturers is crucial for long-term stability in urea prices. 40% of fertilizer manufacturing capacity on the Mari network should be charged the same rate as the existing 60% on SSGC and SNGPL.
Equalizing gas prices for all manufacturers will contribute to stable fertilizer costs by mitigating excessive profits in the informal sector and deterring illicit market activities such as hoarding and smuggling of urea.
Standardizing gas pricing will create a level playing field by ensuring uniform input costs for all participants, encouraging fair competition, and stimulating new investments in production capacities and operational efficiencies within the fertilizer industry.
The sources said, the government must persist in its strategy of carrying out complete fertilizer reforms by eliminating subsidies and eradicating price discrimination amongst various manufacturers. This proactive approach will help alleviate the national debt burden, promote operational efficiency, and attract fresh investments crucial for the sector’s growth. Ends
