It has been mentioned endlessly by the government that agriculture is the backbone of the country’s economy. But despite this claim, the people associated with this field complain about sheer government apathy towards this sector. They criticise the government for withdrawing subsidies, increasing interest rates of agricultural credit, increasing electricity tariff, its inability to overcome power shortages and failing to bring down the input costs the farmers have to incur.
No doubt the quality and price of seed, fertilizers and pesticides are the major concerns of every farmer. If they cannot afford these input costs they go for low-quality products or use them in less than required quantity, which ultimately affects the crop.
Of late, the shortage of fertilizer and its spiraling costs have given nightmares to farmers. The fertilizer industry, which faces long natural gas suspensions, could not produce enough stocks and the reliance on important fertilizer increased. The imported fertilizer is far costlier than the local and the government has to spend precious foreign exchange to import it and then bear the additional cost.
Fertilizer industry suffers badly due to gas suspension as it is used both as raw material as well as fuel. While other industries can switch to alternative fuels to keep the wheel running, this industry needs natural gas at all costs. The natural gas supplied to a fertilizer unit as raw material is called feedstock gas whereas that meant for burning is called fuel gas.
As the suspension of gas was not enough, there have been few developments which many fertilizer companies claim have increased their problems. These companies have been divided into two groups -- the old companies and the new companies Engro Fertilizer and Fatima Fertilizer. The old companies are getting feedstock gas at the rate of 3.34 cents per MMBTU whereas the new ones get it for 0.7 cents per MMBTU, under a 10-year contract signed at the time of their installation.
A representative of an old unit tells TNS that they do not have problem with this pricing policy as this rate was offered to the new units as an incentive to set up their plants and set off the huge costs incurred at that time. Many of the old companies have availed this facility for similar period after their installation. However, they fear that a company has both its new and old units in the same premises and may get supply of cheap gas for both of them.
However, he says, the real issue is that the government has imposed a Gas Infrastructure Development Cess (GIDC) on old plants which has made them totally non-viable. It is unfortunate that the difference of cost between urea bags produced by old and new plants has risen to Rs 410 per bag. The same bag is costing Rs 410 more to an old plant as compared to what it costs to a new plant due to the preferential treatment it gets, he claims.
The representative says that Section 29 of The Competition Act, 2010, mandates Competition Commission of Pakistan (CCP) to ensure a level playing field for all business undertakings. The same section authorises the CCP to advise the government to withdraw policies which it thinks are discriminatory, he adds. He says the old plants are not in a position to perform well in this situation and this may lead to shortage of fertilizer in the country.
He says the total installed capacity of fertilizer units in the country is 6.9 million tones whereas the annual demand is 6.5 million tones. This means if there is level playing field and regular gas supply to units there is no need to import fertilizers.
Dr Tariq Bucha, President of Farmers Associates Pakistan (FAP), confirms that fertilizer plants are facing problems due to certain decisions taken by the government. But, he believes, they are fighting their war of profitability and are not much concerned about the benefit of the poor farmers. Has anyone asked the fertilizer units whether they are willing to give any benefit to farmers who have to often buy fertilizer from the black market? he questions.
He says the fertilizer companies, which are complaining about a hike in gas feed prices and preferential treatment to new plants, have enjoyed lower rates for long. They also got feed gas at reduced rates for the duration of their contracts but never passed on any benefit to farmers.
Bucha insists the fertilizer companies should reconsider their prices and give relief to farmers. Farmers, he says, do not get any subsidies from the government and face tough competition from those in India who get fertilizer bag at almost one-third of the cost that exists in Pakistan.
The representative of an old plant contests this claim of Bucha and states they have recently reduced their prices on request by the government. This, they say, was done in the better interest of farmers despite the fact that there was an alarming increase in input costs. "What we want to clarify is that the old plants do not have the cushion like news plants to further bring down the prices. The difference of Rs 410 per bag is too big an input cost to cover."
The old plants claim that the gas price differential between the old plants and new plants, as allowed by the 2001 fertilizer policy, is meant to recompense against the financing cost of the new plants which worked out around Rs45/MMBTU in late 2010. There was no other consideration involved in setting two different rates since it is the spirit of the 2001 fertilizer policy to give both the old plants and new plants an equal and non-discriminatory treatment.
They challenge imposition of GIDC on the ground that the same fertilizer policy mentions that: "All the fertilizer producers, domestic and foreign, public and private will be treated equally in commercial, fiscal, corporate and contractual matters."
Shahab Khawaja, Executive Director Fertilizer Manufacturers of Pakistan Advisory Council (FMPAC), tells TNS that the gas supply position is improving for the fertilizer sector. He says Engro, Pak Arab Fertilizer, Dawood Hercules and Agri Tech are the main units which get supply from Sui Northern Gas Pipeline Limited (SNGPL) and face major shortages. This year, he says, the government has taken major steps to ensure gas supply to these units.
He says they have made their calculations and expect that the shortfall in fertilizer production for Kahrif season would be around 1.25 lakh tonnes. The figure has been shared with the government so that it can book import orders in time.
The spokesman for an old plant agrees there are incentives for new investments and they have no problem with them. The real issue is the GIDC which is imposed at a time when no infrastructural development is taking place, he concludes.