05 August 2004	Thursday	18 Jamadi-us-Saani 1425

ISLAMABAD, Aug 4: A high-level meeting on Wednesday proposed to the Economic Coordination Committee (ECC) of the cabinet to allow gradual import of fertilizer and approve an agreement reached between the industries ministry and fertilizer industry last week to reduce urea prices by about Rs18 per bag, Dawn has learnt.

The meeting presided over by Finance Minister Shaukat Aziz also agreed to ensure maximum gas supplies to the sector to enhance production to overcome shortage and to put in place a long-term policy for addition of new fertilizer plants in the country.

Informed sources told Dawn that a meeting of the ECC had been convened on Friday (August 6) to approve short-term measures like reduction in fertilizer price, a schedule for its import to meet about 100,000 tons and supply of increased natural gas to this sector for maximum capacity utilization.

On the question of a long-term policy, the industry has been asked to come up with suggestions as to what they expected from the government to make fresh investments for capacity expansion so that a major crisis situation is not witnessed after two-three years, the sources said.

One of the major demands of the industry is to provide gas to the plants for fuel consumption on a par with fertilizer feedstock which is about 10-times cheaper. The industries ministry and the manufacturers had agreed last week to reduce fertilizer prices by Rs18-20 per bag immediately and consider subsidized import of the product to meet domestic demand and contain rising prices.

The impact of reduction will be borne equally by the government and the industry at the rate of Rs9-10 per bag each. The agreement has already put a break to the rising trend in prices.

This was agreed to in principle by the meeting presided over by the finance minister on Wednesday. The meeting was attended by ministers and secretaries of the ministries of commerce, industries, petroleum and food and agriculture, besides industry representatives.

In the recent days, fertilizer prices have increased in the market by about Rs40 per bag due to an impact of general sales tax and gas price increase in the aftermath of budget 2004- 05. This resulted in short supplies and black-marketing.

The secretary petroleum was directed to review the gas supply situation to the fertilizer sector on a weekly basis and immediately take steps to meet their short-term gas demand so that capacity could be utilized to the full immediately.

The industry representatives had indicated that they were running at low capacity at present and if gas supplies were improved, production would increase by 50,000 tons by December 2004 and further to 175,000 tons by March 2005 due to further investment and expansion in the industry.

The ministry of food, agriculture and livestock informed the meeting that a total of 100,000 tons of fertilizer shortage was expected by December 2004. This meant that if the local production increased by 50,000 tons by December in view of uninterrupted gas supply during winter, the country would still need to import about 50,000 tons of fertilizer, for which the government would have to provide some subsidy.

In the medium-term, the government has planned to provide the cheapest gas to the two expanding fertilizer plants from dedicated gas fields, sources close to the finance minister said.

Two new nitrogenous and phosphatic fertilizer plants were coming up and the government will provide them fertilizer feedstock from gas fields of Mari Gas Company Limited (MGCL).

The sources said the government had reports that the country would be facing a urea shortage during the upcoming season because of its higher exports to Afghanistan and even to some central Asian states.

One of the new plants reaching completion stage is from the private sector and the other is Fauji-Jordan Fertilizer plant. There is going to be a win-win situation for both Fauji and MGCL because both are owned by the same group.

The government is encouraging both the plants to start production through dedicated gas supplies. If gas supplies come from the main transmission system, its tariff is quite high and the profit margin drops.

Gas prices of Mari field are more than 10-times lower than normal gas prices and the indirect subsidy goes to the fertilizer industry. The farmers community as well as the World Bank have been saying that over Rs7 billion subsidy provided to the fertilizer industry never reached farmers and is consumed by the fertilizer industry.