Government’s approval of gas price hike to create uniformity in Urea prices

February 11, 2020 (MLN): The government is expected to approve the proposed increase in gas prices of Natural Gas in its Economic Coordination Committee (ECC)’s meeting scheduled today, to be chaired by Adviser to Prime Minister on Finance Dr Abdul Hafeez Shaikh.

Besides this, the ECC meeting of today may consider recommendations of a committee on gas price increase that pondered over a scenario which would generate around Rs 34 billion in additional revenues for gas companies, but without jacking up fertiliser prices, revealed a report by AL Habib Capital Markets Limited.

Earlier, the ECC lowered Gas Infrastructure Development Cess (GIDC) on fertilizer sector by almost 99% i.e. from PKR405/bag to PKR5/bag with a view to providing relief to farmers reeling under spiking input costs and expected all manufacturers to uniformly revise their prices down by PKR400/bag after the GIDC cut.

Contrary to the government’s expectations, Fauji Fertilizer Company (FFC) refused to decrease Urea prices as they were expecting a rise of Rs100 in fuel gas price per bag by the government for Fertilizer sector would create an extra burden.

On the other hand, Engro Fertilizer (EFERT), just after the decision came reduced price of urea (DTP) to PKR1,844/bag and Urea (MRP) at PKR1,880/bag.

The report further underscored that if the proposed hike in gas prices approves while insulating the fertilizer sector, it will have impacts on two market players in the fertilizer industry namely; Fauji Fertilizer Company (FFC) and Engro Fertilizer (EFERT) in a way that it would bring clarity on Fertilizer prices which are already low, this may increase the demand for application of fertilizers.

“Since Pakistan is currently in the midst of the Rabi Season (Oct to March), the increased applicability of fertilizer would positively affect Rabbi season crops (Wheat, Barley, Maize etc) thus, positively impacting farm economics”, the report highlighted.

Secondly, the expected rise in demand for fertilizers would lead to competition. As a result, it would be difficult for the fertilizer manufacturers to sell Urea at two different prices, as EFERT is currently selling Urea at Rs 1840 per bag and FFC is selling a bag of Urea for Rs 1,740.

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