PM Shehbaz Sharif forms committee to tackle fertilizer price discrimination with WACOG

April 21, 2024 (MLN): Given the urgent need to address price discrimination in the fertilizer sector, Prime Minister Shehbaz Sharif has announced the formation of a committee tasked with implementing the Weighted Average Cost of Gas (WACOG) and has charged it with presenting recommendations next week.

The significant price discrimination among fertilizer manufacturers earlier this year has led to a loss of approximately Rs80 to 100 billion in revenues, failing to achieve the goal of reducing the national debt and ensuring long-term urea price stability for farmers.

The missed opportunity to earn billions in revenue becomes difficult to justify, especially in view of the ongoing economic crisis and International Monetary Fund (IMF) loan discussions.

This revenue could be used for investment in the agricultural sector through targeted projects and initiatives that generate economic activity and growth in the country. 

It has been suggested that the only way to bring stability to the urea market is to immediately remove the current price discrimination among fertilizer manufacturers for the same homogenous product (gas).

Through uniform gas pricing, 40% of the fertilizer manufacturing capacity on the Mari network should be charged the same rate as the existing 60% on the SSGC and SNGPL network. 

Government sources reveal that the IMF has already asked the authorities to end subsidies for all fertilizer manufacturers and develop a direct subsidy mechanism for the farmers.

By continuing with the much-needed fertilizer reforms to completely remove all subsidies and any price discrimination, the government will be able to reduce its debt burden, promote efficiency and attract new investments in the fertilizer sector.

Meanwhile, at the Spring Meetings 2024, the IMF has once again stressed the need to “accelerate the reforms, double down on the structure of reforms to provide Pakistan with its full potential of growth.”

As WACOG impacts several industries, the committee will be assessing the impact of system-wide WACOG on domestic power, industrial (including fertilizers), commercial, and captive power sectors.

It will also propose a technology-based foolproof and efficient system for the disbursement of direct subsidies to farmers by provinces once the subsidies for fertilizer manufacturers are completely removed.

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