KARACHI, July 3: Urea (fertiliser) manufacturers have increased selling prices by Rs13 per bag, company executive at a leading producer confirmed on Monday. The price increase comes as a means to pass-on impact of the government’s upward revision in gas prices by 9.95 per cent effective July 1, 2006. Already in the knowledge of the proposed hike in gas prices, urea manufacturers had last increased prices per 50 kg bag by Rs10 in April this year. Ex-factory urea prices now have seen cumulative upward revision by Rs23 per bag in thee months -- from Rs495 to Rs518 per bag.

Analyst Sadia Sultan at stock brokerage firm, Noman Abid & Company, observed that fertiliser sector was the 3rd largest consumer of gas. The sector consumption stood at 16.40pc of the total production in the country. Fertiliser industry uses gas for two purposes: (i) As ‘fuel gas’ to run the turbines and in-house power generation (accounting for 3.50pc of total national gas consumption) and (ii) As ‘feedstock gas’, which is the gas used as raw material for manufacturing the fertiliser and accounts for about 12.90pc of the total national gas consumption.

Separate tariffs apply for both those gases. Any tariff change for ‘fuel gas’ is made on a six-monthly basis when the tariffs are revised across the industry. However, for ‘feedstock gas’ prices, the revision is done under a known formula, as per the Fertilizer Policy of 2001.

“The surprising factor of the present notification by Ogra (Oil & Gas Regulatory Authority), is that the actual price increase for ‘feedstock gas’ is lower than the increase that should have taken place under the known policy/formula (9.95pc price hike, against formula-based increase of 15pc)”, the analyst commented, but thought that the partial relief in ‘feedstock gas’ price rise was to enable manufacturers to maintain selling prices at affordable levels.

According to estimates, the cumulative impact of feed and fuel gas price increase would be Rs15-18 per bag. Against this, the major companies have raised prices by Rs23 per bag (Rs10 in April and Rs13 now). That seems to be on the higher side. But market sources say that fertiliser companies’ have generally been able to transfer the escalated cost to end consumers because of their better bargaining position due to shortage of supply and robust demand.

Analyst Humaira Qamar, at Global Securities, recalled that Pakistan’s reliance on agriculture continues as it accounts for 23pc of the GDP, which was expected to grow by 4.5pc during FY07. Furthermore, 45pc of the country’s workforce was dependent on agriculture. Growth in area under cultivation was tapering off. The analyst thought that increased production would therefore have to come through increase in farm inputs such as pesticides, fertilisers and mechanisation.

As the urea demand outstripped supply during calendar year 2005, a total of 599,000 tons had to be imported which was expected to rise to 650,000 tons during calendar year 2006. Urea demand has grown at a 3 year cumulative annual growth rate (CAGR) of 4pc, while supply has grown by 2pc only. The government has announced availability of gas for another urea plant but has not allocated it to any contender, so far.