Fertiliser makers seek direct-to-farmers subsidy

LAHORE: Fertiliser makers prefer direct-to-farmers subsidy program over the retail price concession as the government wants to safeguard growers from cost-push inflationary pressure, well-placed sources said on Friday.

The sources said fertiliser industry advised the government to follow the past single superphosphate (SSP) model applied in the Punjab to disburse subsidy on urea fertiliser to avoid any mistrust and controversy between the industry and government.

The government increased gas sale price for feedstock (old consumers) by 50 percent to Rs185 from Rs123/unit and that for fuel stock by 40 percent to Rs780 from Rs600. It also decided to resume gas supply to three closed plants and bear 50 percent of their tariffs.

Sources in the ministry of industries said Fertilizer Manufacturers of Pakistan Advisory Council (FMPAC), a representative body of the industry, proposed three different options to the government to protect farmers from price hike.

The FMPAC said the government could disburse subsidy to the framers on the pattern of SSP model adopted by the Punjab government in the past. It was a direct disbursement method of subsidy on urea fertiliser under which coupon was put in the fertiliser bag and farmers could redeem them.

The SSP model ensured that the subsidy was reached to the farmers instead of producers, middlemen, stockiest or investors. As a second option, the Fertilizer Manufacturers of Pakistan Advisory Council suggested direct disbursement of subsidy to gas companies in lieu of tariff differential.

This will confine gas tariff increase to only old plants, as new ones with fixed gas price are not affected. The government has already fixed gas price for the new plants of Engro Fertilizer and Fatima Fertilizer at 70 cents/unit and there was no impact on these plants of increase of Rs129 in gas price.

The plants are already selling fertilisers on the same price that fertiliser plants like Fauji Fertilizer and others have. Thirdly, the industry proposed reversal of feedstock prices. This step will have limited financial impact.

The sources said the industry does not support any option regarding subsidy disbursement to manufacturers, as the trust deficit of the past years is an impediment. Moreover, it will have an unnecessary financial burden on the government. Stuck refunds in the past caused liquidity crunch for the fertiliser makers.

The country is self-sufficient in fertiliser production with an annual capacity of six million tons little over the local demand. Yet, the government subsidises prices of fertiliser to help farmers sustain the impact of production cost.

Unsettled subsidy claims of yesteryears dissuaded fertiliser makers from participating in the subsidy scheme and thereby reducing prices. Government officials said Sui Northern Gas Pipelines Limited demanded around three billion rupees as subsidy in advance to provide 70.5 million metric cubic feet/day gas to two fertiliser plants, including Fatima Fertilizers and Agritech for producing 158,000 tons of urea to prevent its shortage for the ongoing winter season that has sowing season of the key wheat crop.