ISLAMABAD: The fertiliser sector has asked the government to reconsider proposed increase in gas prices, maintaining that it would raise urea rates and negatively impact food security of the country.

In a letter to the Ministry of Industries, the fertiliser manufacturers said the latest gas price determination by the Oil and Gas Regulatory Authority (Ogra) on Dec 10 suggested an increase in fertiliser feedstock price by more than 236 per cent, raising it from Rs300 per mmBtu to over Rs706 per mmBtu.

While fuel price increase has also been suggested, however the price impact on urea would be around Rs600 per bag of 50 kg. This means that the new price would be Rs2,600 per bag.

Such a decision would be harmful to the agriculture sector which in turn could harm the overall economy of the country, the letter said.

The fertiliser manufacturers said the government has raised the raw material cost as gas component of urea produced has gone up historically high from roughly 30pc to 55pc.

The letter noted that the gas price hike — if materialised — would further escalate to 85pc of the total urea bag price.

The proposed increase will push up the fertiliser price to Rs2,600 per 50kg bag

The impact of fertiliser use on the yield of major crops such as wheat and rice in country has been up to 250pc and 160pc respectively in the last fifty years.

As per the system, Ogra carries out natural gas price determination for the two gas utility companies including the Sui Southern Gas Company Ltd (SSGCL) and Sui Northern Gas Pipelines Ltd (SNGPL).

However, the government can advise Ogra of any concessions or special price regimes to specific sectors.

Suggesting a way out of the situation, fertiliser companies said limited price may be increased for gas utilised as fuel by the fertiliser plants and no increase may be made in the feedstock prices.

It added that such a move would result in minimal increase in fertiliser prices and promote healthy competition among the manufacturers since it would not give windfall profits to new fertiliser plants that enjoy a fixed dollarised feed price for 10 years.

The fertiliser companies have also asked the ministry to take up the matter related to Gas Infrastructure Develo­pment Cess (GIDC), claiming that fertiliser sector has been subjected to the highest rate of Rs300 per mmBtu GIDC on the feedstock and Rs150 mmBtu for fuel gas.

“To improve farm economics, the government should implement the already agreed formula of reduction in feedstock and fuel GIDC to 50pc. This too would be a win-win solution for all the stakeholders,” the letter added.

The letter refers to fertiliser plants based on Mari Petroleum Company Limited (MPCL) that have spent billions of rupees on developing their gas infrastructure just to sustain the current production levels whereas the gas utility companies should have borne the bill for such infrastructure development.

Published in Dawn, December 24th, 2019