Engro Fertilizers urges govt to remove all subsidies from fertilizer sector

February 20, 2024 (MLN): Engro Fertilizers Limited (PSX: EFERT) has urged the government to completely remove all subsidies from the fertilizer sector to fix the problem at the source and break away from the vicious cycle of debt, said a press release issued on Tuesday.

Pakistan’s current financial position is distressed, it is in a debt crisis, with the debt-to-GDP ratio already above 70% and more than $27 billion of foreign debt to be repaid by November 2024.

The country cannot afford further fiscal pressures or half measures that do not go all the way in solving Pakistan’s problems, it said.

"The dependence on government subsidies must end, for Pakistan to really move forward and break away from the vicious cycle of debt," it added.

Engro has supported the federal government’s decision to remove the subsidy for fertilizer manufacturers that get their gas from the Sui Northern Gas Pipelines Limited (SNGPL) network, which represents 60% of all fertilizer manufacturing capacity.

The company has called it “a step in the right direction”.

The government has done that by increasing the feed stock prices from Rs580/mmbtu to Rs1,597/mmbtu, almost a 4x increase in the cost of producing fertilizer.

While this is a step in the right direction, the battle is half won, as the remaining 40% of fertilizer manufacturing capacity that is on the Mari network, is still on the subsidized price of Rs580/mmbtu, it said.

Only with the complete removal can the government free the nation from this debt and truly benefit the people of Pakistan, the company said.

With this complete removal, the government is expected to collect Rs150bn, which can then be used for targeted agricultural projects and initiatives that generate economic activity and growth in the country.

“This is a fantastic opportunity for all fertilizer manufacturers to demonstrate that even without subsidized gas they are globally competitive,” it said.

In fact, when everyone has the same gas price, it will encourage the manufacturers to become more efficient, lean and encourage capital investment in the fertilizer industry.

In addition, the fertilizer industry will emerge as a role model that can operate efficiently without any subsidies, thereby encouraging the government to potentially look at removing subsidies from other sectors of the economy as well.

The fertilizer company expressed that it fully supports the government in taking this first step to partially remove the existing subsidy given to fertilizer manufacturers.

“We encourage the government to continue with this bold strategy and completely remove all subsidies so that it can reduce its debt burden, promote efficiency, attract new investments, and help build a stronger future for Pakistan,” it noted.

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