Imported urea to cost kitty Rs four billion on account of subsidy

The federal government”s decision to import urea for domestic consumption will cost over Rs 4 billions on account of subsidy to national exchequer, as costly procured commodity will be sold at lower price to facilitate farmers. 

Market sources told Business Recorder on Tuesday that although the government was importing urea at the time when international prices were on lower side, it would cost the national exchequer billions of rupee additional burdens as the domestic urea prices are lower than the imported urea. 

The federal government is already facing financial difficulties owing to shortfall in revenue and rising expenditures. Ahead of the expected shortage in the local market, Economic Co-ordination Committee (ECC) of the cabinet has decided to import urea from Saudi Basic Industries Corporation (SABIC) against $100 million credit facility being provided by Saudi Fund for Development (SFD) aimed at avoiding any shortfall during current crop season. 

Presently, international urea prices are on lower side due to slow demand and last week Arabian Gulf urea price was $420-425 (Free on Boat). However, market sources said that despite lower prices import would cause billions of rupees financial burden on the national exchequer in the head of billions of rupee subsidy. 

They said that price of imported urea from SABIC was based on a specific formula, already decided between ministry of finance and SABIC. Usually, the price calculated at the time of delivery and cost of every shipment may be different. The SABIC urea import price was based on weekly average price of Fertiliser Market Bulletin and freight charge, they informed. 

The first urea consignment of some 27,500 tons, imported by state-run grain trader from SABIC under the credit facility, has arrived at Gwadar Port last week. According to market sources and importers, the urea price of the first consignment from SABIC would be approximately $430-435 per ton as presently average urea price stood at $435-440 per tons (Cost and Freight) in the world market. 

Import of urea on current price will not be much expansive as compared to imports in 2012, but will need billions of rupees subsidy as the government has already decided to supply imported urea at maximum price of Rs 1,600 per bag, which is even less than locally produced urea price of Rs 1,650 per bag. 

In the current scenario, it has been estimated by the industry experts that imported urea will cost about Rs 2,500-2,600 per 50-kg bag including handing/transportation/other charges and General Sales Tax (GST). While as per government policy the imported urea would be sold at subsidised rate of Rs 1,600 per 50-kg bag to the dealers, sources said. 

It has been estimated that government will have to pay a subsidy of some Rs 950-1,000 per 50-kg bag on the first consignment of imported urea, which expected to cost about Rs 51,000-51,500 per ton (including import price, sales tax, with holding tax and other charges) as against government”s announced price of Rs 32,000 per ton, some Rs 19,500 per ton subsidy. 

“The international market is still fluctuating between $435-440 per tons (CSF) and expected to remain at this level in near future. As per current price calculation, accumulated urea import will cost over Rs 4.2 billion to the national exchequer on account of total subsidy on import of some 0.22 million tons of urea from SABIC against $100 million SFD credit facility, if the price will remaining in the range of current level, while in case of some decline in the prices, the subsidy will reduce accordingly,” they added. 

They said that government had already spent over Rs 55 billion on urea subsidy during the last year aimed at providing cheap urea to the growers, however, market sources said that the benefits of subsidy did not reach to growers and most of imported urea was also being sold at domestic urea prices, which is some Rs 100 per bag higher than the imported urea. 

It may be mentioned here that following the directives of federal government, TCP is engaged in import of urea to meet domestic demand, as during the upcoming season local urea production is on decline due curtailment of gas to fertiliser sector. 

Copyright Business Recorder, 2013

Muhammad Ramzan Rafique
Muhammad Ramzan Rafique

I am from a small town Chichawatni, Sahiwal, Punjab , Pakistan, studied from University of Agriculture Faisalabad, on my mission to explore world I am in Denmark these days..

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