Fertiliser sector demands abolition of GIDC

LAHORE: Fertiliser sector on Thursday said abolition of gas infrastructure development cess (GIDC) on feedstock would make soil enriching chemicals affordable for farmers without any cash subsidy, easing the burden on national exchequer.

“The GIDC has incurred additional financial burden on the manufacturers, as its financial impact could not be passed on due to price intervention by the government,” Fertiliser Manufacturers of Pakistan Advisory Council (FMPAC) said in its budget proposals for fiscal year 2018-19.

“Production of urea through RLNG (regasified liquefied natural gas) does not make much economic sense, as no additional support is available to the manufacturers for compensation of extra cost of RLNG based fertilisers; therefore, plants based on SNGPL (Sui Northern Gas Pipelines Ltd) [gas] remained nonoperational for most of the year.”

The FMPAC said the budget proposals have been formulated to ensure minimal impact on the revenue collection, while allowing availability and affordability of fertilisers to the farmers.

“The industry also looks forward the continued support by the government to help this sector sustain its vital role in the national economy and food security,” the council said.

The industry also urged the authorities for the availability of gas at applicable, affordable rates to the entire fertiliser industry to operationalise the available production capacity that allowed exports of surplus volumes.

Pakistan has one of the highest gas tariffs in the world for fertiliser production, which is uncharacteristic of an agriculture driven economy with a gas cost of $4.65/mmbtu (including GIDC) for the plants.

The sector has also demanded immediate release of all pending subsidy payments and rationalisation of input and output general sales tax (GST) rates to avoid aggravating refund situation.

“Since the introduction of subsidy scheme in 2016-17 budget the industry has been financially overburdened. Later the government granted a subsidy of Rs156/bag, while manufacturers reduced their margins by Rs50/bag, incurring a burden of Rs6 billion and capping of urea price at Rs1400/bag,” the industry said.

It added that within the same allocation, a subsidy of Rs88/bad was provided on calcium ammonium nitrate (CAN), also leading to market distortions.

In fiscal year 2017-18, the fertiliser sector said, the subsidy was reduced to Rs100/bag of urea and government asked the industry to maintain the price at Rs1400/bag, which meant absorption of additional Rs56/bag, thus leading to a burden of Rs6.7 billion.

The FMPAC stated the processing of subsidy claims of the manufacturing companies has experienced considerable delays due to the involvement of Federal Board of Revenue (FBR) and provincial governments in verification of sales.

“This is resulting in serious cash flow constraints besides opportunity costs for the manufacturers. Thus subsidy scheme needs to be reviewed and replaced with tax/cost reduction measures. Direct disbursement of subsidy to the farmers may be considered instead of involving the industry.”

The FMPAC believed that the reduction of tax burden through minor adjustments would enable industry to ensure sustainability and affordability of fertilisers.

Furthermore, urging the restoration of deregulated status of fertiliser sector in line with Fertiliser Policy 2001, the sector also demanded compensation of expenses made by fertiliser industry on gas compression infrastructure.

“Moreover, diammonium phosphate (DAP), sulphate of potash (SOP), and Muriate of Potash (MOP) prices are linked to international market and capping of prices will lead to difficulties for importers and domestic producers of DAP. Thus the market forces may be allowed to ensure affordability of prices as in the past,” the industry said in the proposals.