Economic Co-ordination Committee of the Cabinet, which is scheduled to meet on Tuesday (today) with Finance Minister Dr Abdul Hafeez Shaikh in the chair, will consider import of 0.6 million tons of urea for Kharif and Rabi 2012. According to official documents, reduction in price of imported urea to Rs 1450 from Rs 1600 per 50 kg bag is a part of the proposal submitted by the Ministry of Industries aimed at supplying urea to growers at affordable rates. Insiders claim that as the government increased urea price from Rs 1300 to Rs 1600 per kg in March this year, urea off-take declined substantially which implies that growers were not in a position to purchase expensive urea. The sources said efforts are also afoot to allow Trading Corporation of Pakistan to do price matching with the lowest bidder in “national interest”.
The documents further disclose that Ministry of Industries convened a meeting of all stakeholders on June 21, 2012; two days after this meeting Secretary Ministry of Petroleum revealed that five out of ten urea plants had shut down and there was no hope of gas restoration in the near future. Therefore, consequent urea shortage is to be met through imports. The MoI has sought attention of the federal government to the following facts in the context of urea demand and supply underscored by provisional agriculture departments and stakeholders:
(i) to meet the food needs of growing population it should be ensured that agriculture inputs are available at affordable rates to growers; and (ii) due to unprecedented gas crunch, supply to five SNGPL and SSGCL based urea plants has been suspended. As such in spite of having enough installed capacity to meet local urea needs, the government has no choice but to resort to expensive imports. Five urea plants on SNGPL are shut from June 19, 2012 – of these five, four urea plants, at 100 per cent gas supply, produce 0.207 million tons. In case of four months closure 0,814 million tons in loss in production will take place.
The remaining urea plant on SSGPL at 100 per cent produces 38,000 tons of urea in 30 days. In four months its total production is estimated at 0.152 million tons. This implies that total loss in four months from disclosure of five plants is 0.966 million tons. As per production data by the Planning Commission at the end of October 2012, 0523 million tons will be left. Taking into account SNGPL plants if total closure continues at the current level urea output will decline to 0.523-0.966 million tons which implies 0.443 million tons of domestic urea supply less than requirement in November 2012.
Therefore, prudence demands that 0.6 million tons be imported to maintain strategic reserves of around 0.5 million tons thereby immediately discouraging speculators, hoarding and black marketing of urea. According to sources, the spirit of subsidy on imported urea is to bring it within reach of small farmers ensuring its affordability. Subsidy on imported urea is not having the desired effect as price of imported urea remains beyond the reach of small farmers as seen from 20 per cent less urea being consumed in May 2012 compared to May 2011. The MoI argues that in case imported urea price is kept at par with domestic urea price then there is no need for the government to spend scarce foreign exchange. Market forces may meet the urea demand supply gap by increasing rates.
Copyright Business Recorder, 2012
