ISLAMABAD: Engro Fertilizers on Friday reduced per bag urea pries by Rs160, while sources said that Fauji Fertilizer is also expected to cut prices by Rs300 as well.

The announcement came after the Economic Coordination Committee (ECC) of the Cabinet on Jan 28 cut Government Infrast­ructure Development Cess (GIDC) on manufacturers from Rs450 to Rs50 per mmBtu applicable on natural gas supplied to the sector.

Engro Fertilizer decided to pass on the benefit of GIDC reduction by announcing a cut in prices of 50kg bags by Rs160, effective from Feb 1.

Meanwhile, Fauji Fertilizer said the urea prices would likely by reduced by around Rs300 per bag but the company would make final decision in this regard after the feedstock and fuel gas prices for fertiliser industry were notified.

The fertiliser sector is dominated by three major players with Fauji Fertilizer Company (FFC) being the largest one with annual production capacity of 2.45 million tonnes, Engro Fertilizer with 1.95m tonnes per annum followed by Fatima Fertilizer operating two plants – Sadiqabad and Pak-Arab Fertilizer with total production capacity of 1m tonnes per annum.

Another manufacturer likely to reduce rates by Rs300

The impact of GIDC reduction varies for different manufacturers across the country, based on their incorporation date as those units established prior to the announcement of Fertilizer Policy, 2001 have to pay Rs300 per mmBtu as feedstock. Whereas, those units established post-2001 policy were offered gas feedstock rates at $0.70 per mmBtu.

“The policy was formulated to attract investments as Saudi Arabia was offering the rate of $0.70 per mmBtu and the government decided to match the incentives,” said a senior Engro Fertilizer official while adding that the move resulted in investment of more than $1bn by the company in shape of a new plant.

The official added that Engro receives gas under fixed-price contracts and the GIDC was not applicable on them.

Engro has three plants in Daharki, Sindh, two of those with a production capacity of 1.3m tonnes per annum were established after the 2001 Policy and the company claims that GIDC was only applicable at its older plant of 0.65m tonnes per annum capacity.

Both Engro Fertilizer and Fatima Fertilizer approached the court against government decision to impose Rs300 per mmBtu at feedstock therefore; Engro Fertilizer said that the impact of GIDC was only applicable on its old plant of 0.65m tonnes.

Natural gas is used for two purposes in fertiliser plants: feedstock gas is used to produce urea after mixing it with air at a particular pressure, while the other requirement was as fuel where gas is used for heating the plant.

On the other hand, the fuel stock rates were equal at Rs1,021 per mmBtu for all the fertiliser plants, and the government imposed Rs150 per mmbtu GIDC on all units in 2015.

Currently, fertiliser manufacturers are divided over the subject and the ECC had to defer the summary regarding increase in gas price for feedstock or as the fuel requirement.

While, the Fauji Fertilizer has demanded the government to increase fuel stock price as it will bring higher earnings to gas companies as well as the government, but both Engro and Fatima Fertilizer have suggested the government to increase feedstock rates.

“Around 80pc of gas consumed by fertiliser plants was as feedstock whereas 20pc was required as fuel stock,” said a Fauji Fertilzer official while adding that the “government will not get anything by increasing rates of feedstock as the new managements of plants will approach the court against it because they were guaranteed $0.70 per mmBtu on feedstock under 2001 policy.”

However, reduction in GIDC will eventually benefit farmers as it has already triggered price war among the three fertiliser giants.

Published in Dawn, February 1st, 2020