GIDC fiasco sows frustration in farms

September 15, 2019

LAHORE: The messed-up deal over charging of Gas Infrastructure Development Cess on fertliser has deprived farmers of relatively cheap urea and may lead to its reduced application, which means lower...

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LAHORE: The messed-up deal over charging of Gas Infrastructure Development Cess (GIDC) on fertliser has deprived farmers of relatively cheap urea and may lead to its reduced application, which means lower output of various agriculture produces, stakeholders warned on Saturday.

Despite several efforts made by successive governments, it is regrettable that urea prices are not under control in the last nearly a couple of years. Since incumbent government assumed office in August 2018, ministry of finance and ministry of Industries have come up with several plans to arrest rising price of fertiliser. A similar proposal was shared with the fertiliser industry in January 2019 to reduce prices of urea bag by Rs200 in exchange with the partial adjustment of GIDC.

However, the plan ended up in maintaining prices of urea at around Rs1,800/bag, which otherwise would have to be jacked up due to upward revision in gas tariff. Things however, eventually took a turn for the worst for the farmers as they were lately slapped with a net increase of Rs200/bag on the back of a failed GIDC deal.

Every year, around 100 million bags of urea are applied on various crops in the country. Latest urea price jump of Rs200/bag means a lot, which translated into a burden of Rs23 billion for the agriculture sector in the form of higher input costs on growers in a year.

Since Wednesday last, farmers have been deprived of approximately Rs252 million on account of increasing maximum retail price (MRP) to Rs2,040 per 50kg bag from Rs1,840.

Although previous government of PML-N did succeed in reducing price of urea bag to Rs1,400 from around Rs1,800, rate of urea did show relatively growing trend in the later part of their tenure and since then.

The escalating urea price is a bad omen for the farmers. The equation is simple as far as agriculture output is concerned: The higher the prices of urea, the lower the use of this highly important input for increasing per acre yield. “It is a simple case of affordability for growers and lack of price incentive will lead to less urea application, which may dent productivity by as high as 25 to 30 percent,” said Ibrahim Mughal, Chairman Agri-Forum Pakistan.

The use of urea is immensely important for vegetative growth of various crops including wheat, sugarcane, maize, rice, potato and cotton. Serious efforts are needed to curb price of fertiliser in the country. “If government and industry are not able to bring prices of urea down, its trade should be deregulated with a view to control prices,” Mughal said.

Talking about government’s intention to give relief to farmers on fertiliser cost, a senior official of a Punjab-based urea manufacturing plant said gas price increase from July 1, 2019 was agreed to be absorbed by the industry through GIDC reduction. For this purpose, need of an ordinance was to avoid lengthy process of approvals to keep urea prices unchanged in the season. “The fertiliser industry hopes that GIDC issue is resolved anytime soon through litigation and ultimately price of urea would be reversed to previous level of around Rs1,840/bag,” Mughal maintained.

Another senior official of a Sindh-based fertiliser plant observed that withdrawal of the GIDC amendment ordinance means continuation of years-long legal battle, “where government may eventually lose as they have in the past lost at high court level”.

As a September 4 statement from the Prime Minister’s office rightly states that the Supreme Court decision could go either way and the government could be saddled with the burden of paying Rs295 billion and forgoing potential future revenue.

The failed GIDC settlement was nonetheless an excellent effort on the part of the government to manage the urea price increase of Rs210/bag through GIDC settlement of an equivalent amount.

“It had the right intent that got lost in poor execution,” the official said and adding, in the same spirit, the industry had agreed to forego their legal right to contest in court, “despite of a strong case in their favor”.

This was mainly due to the fact that they themselves wanted not to increase the input costs of the valued farmers who are already burdened with a lot of cost increases from multiple other factors.

The official said the basis on which GIDC was taken back had been transparency and good governance and that objective may still be met by ensuring that the matter of settlement of past GIDC is decided by courts.

Spokesperson of Fertiliser Manufacturers of Pakistan advisory Council (FMPAC) said the recent price increase is effected under financial pressure by the companies, “as they are not able to absorb the cost of production increased by gas tariff revision”.

“They have already faced financial losses of Rs4 billion due to delay in upward revision of gas rates. The fertiliser manufacturers are equally worried about reduction in sales. “

The spokesman regretted that government has buckled down under pressure by few who didn't understand the issue.

The fertiliser companies are also at loss due to the rise in transportation costs due to axle load implementation, additional financial cost due to long awaited subsidy and refund coupled with inflationary burden.

As GIDC settlement is delayed further, he stressed, gas tariff should be brought back of previous levels in order to ensure level playing field for the industry.

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