• Finance ministry also declines to share cost, citing IMF restrictions
• PM-led meeting decides to merge prices of imported and local urea, bill the extra cost to farmers

ISLAMABAD: With the headline inflation already touching 30 per cent, the country braces for a fertiliser price hike of about 5pc as provinces refuse to share a Rs32 billion burden for imported urea.

The Ministry of Finance also declined to share the subsidy burden, citing restrictions imposed under the IMF’s $3bn standby arrangement.

As a result, caretaker Prime Minister Anwaarul Haq Kakar had to withdraw centre’s decisions after the provincial chief ministers, except Sindh, declined at a recent meeting to finance their share of the subsidy.

Following a series of high-level meetings, including that of the federal cabinet and its relevant sub-committees as well as the all-powerful Special Investment Facilitation Council (SIFC), it was finally decided to bill the extra cost to farmers through about a 4.5pc hike in urea prices by the local urea manufacturers.

This decision will likely cause an increase in food commodity prices as farmers pass on the additional costs to consumers. In reality, urea fertiliser is hardly available to local farmers and is being hoarded for higher rates.

The food and beverages group, which predominantly contains agricultural produce, has about 35-40pc weight in the Consumer Price Index (CPI) basket, which rose 29.7pc year-on-year for December. The food group also holds 25-26pc weight in the Wholesale Price Index (WPI), which jumped 27pc last month.

Official records showed that the ECC had decided on Oct 23 that the provinces would subsidise 220,000 tonnes of imported urea. In another subsequent decision in November, the ECC once again decided that “cost recovery of the imported fertiliser will be made from the provinces”. Both decisions were rejected by the provinces except Sindh.

The Ministry of Industries and Production informed the federal government that provinces failed to shoulder the entire subsidy burden. This led to a landed cost of urea at Rs27.5bn, or Rs6,250 per bag, significantly higher than the local product priced between Rs3,800 and Rs4,140 per bag.

The National Fertiliser Marketing Ltd added another Rs4.92bn to the bill for incidental charges like storage, packing and transportation.

In a Jan 1 meeting chaired by the premier, the Finance Ministry flatly declined to extend any subsidy because of the IMF programme.

Therefore, the PM-led meeting decided that imported and local urea prices should be merged, and the price differential should be passed on to farmers.

A four-member committee comprising acting secretaries of petroleum, industries, food security and commerce was also formed to engage with urea manufacturers to implement the decision.

Under the new arrangement, urea manufacturers will acquire the imported urea, incorporating all related costs into the current prices over 12 months. They agreed to ensure price transparency until the imported stock is fully sold, with the government continuing efforts to provide gas to fertiliser plants and avoid further imports.

Published in Dawn, January 15th, 2024