ISLAMABAD, March 16: The government is expected to defer a 15 per cent increase in gas prices for the fertiliser sector for a year as part of a deal to reduce fertiliser prices by Rs20 per bag.

An understanding to this effect was reached last week between manufacturers of fertiliser and a ministerial committee comprising ministers for industries, agriculture, finance, labour and privatisation. The committee has, however, no representation from the petroleum ministry.

A cabinet member told Dawn the government of Mir Zafarullah Khan Jamali has already decided to freeze gas prices at the current level for domestic and general consumers for a year to provide relief to the general public.

The manufacturers had proposed a set of recommendations to reduce fertiliser prices as demanded by the prime minister to provide relief to farmers. The suggestions that were finalised by the committee had now been submitted to the federal cabinet for approval, the minister said.

The summary to the cabinet suggested that the reduction in fertiliser price should be borne both by the industry and the government. It asked to defer the proposed increase in fertiliser feed stock for a year, allow withholding tax on fertiliser, offset on imported products as per fertiliser policy and imports are allowed at reduced rate of GST from 18 per cent to 15 per cent.

The fertiliser industry agreed to match reduction and reduce price by Rs10 per bag. In this way, there would a total reduction of Rs20 per bag on urea price.

The implementation of the understanding would take effect from the date of issue of the statutory regulatory order (SRO) following approval of the federal cabinet.

When contacted, an official of the petroleum ministry said that it was requirement of the IMF to increase fertiliser feed stock by 7.5 per cent in July and 7.5 per cent in December but the petroleum ministry would have to implement if the government decided otherwise.

He said that committee was represented by the finance ministry and they (finance) would know how to deal with the IMF and they might have some understanding with the IMF.

The government had earlier planned to increase fertiliser feed stock by 7.5 per cent with effect from July 1, 2003, followed by an equivalent increase by end of December 2003 as part of its agreement with the IMF.

Under the agreement with the IMF, the military government had put in place a six-monthly gas price review mechanism to remove cross subsidies and bring the low priced gas production from Sui field on a par with other fields in a phased manner that was to result in up to 130 per cent increase in four years.

After a 15 per cent increase in March last year, the military government deferred the second quarterly review in September last. The Jamali government has now held in abeyance the quarterly price review for another year.