ISLAMABAD, April 25: The World Bank has asked the government to make budgetary allocation to provide subsidy to the fertilizer sector from July 1, 2003 instead of creating an imbalance in the natural gas tariff.

This is one of the few issues, officials told Dawn, would come under discussion when a petroleum sector mission of the World Bank visits Pakistan from May 5-9, 2003 to review oil and gas restructuring and deregulation programme under the civil government.

Official sources told Dawn that Petroleum Sector Review (PSR) mission would hold talks with secretaries of petroleum, economic affairs, finance, privatization and the cabinet division besides heads of Oil and Gas Regulatory Authority (OGRA), public sector gas companies and the private sector petroleum companies.

The mission led by Marc l. Heitner, Rashid Aziz and Waqar Haider will submit a aide memoir to the federal government in consultation with local heads of the World Bank and the Asian Development Bank (ADB).

The mission would do a follow up on the structural adjustment credit (SAC) particularly the introduction of transparent pricing frameworks for natural gas and petroleum products.

The World Bank has been insisting on transparent pricing of oil and gas since long with no progress on ground with the result that oil prices have no check at all and gas prices remain capped unannounced.

The bank’s main worry is about government’s indecision to rebalance the gas tariffs and would ask the government to come out with a clear cut policy whether or not it was committed to the covenant of SAC which required biannual gas price review.

It has also asked the government to make the subsidy mechanism of the fertilizer sector transparent through an allocation in the budget instead of creating an imbalance in the gas tariff.

The mission would also assess the impact of the World Bank’s grants to benefit petroleum ministry and OGRA but resulted in failure to meet required targets. The mission would also have preliminary discussions on a new grant to support the proposed policy wing of the ministry of petroleum and director generals of oil and gas.

The mission would also review progress in the implementation of two separate grants, one on gas pricing and the second on private sector participation in priority gas storage and pipeline projects.

The government is currently providing around Rs11 billion to the fertilizer industry. This subsidy was to be removed last year but the government secured one year extension which expires now.

On the other hand, the fertilizer industry has linked the reduction in fertilizer prices proposed by the prime minister to postponement of 15 per cent two-phased gas price increase for a year. The proposal is pending with the prime minister for over two weeks for a final decision.

The World Bank has been very critical of the subsidy which it alleged was being misused by the fertilizer industry and was not being passed on to the farmers.

The bank’s analysis suggested that the price at which gas supplied as feed stock to the fertilizer sector is maintained by the government at a level which is well below the value of natural gas to the economy.

The comparison of the last 10 years (1991-2001) revealed that for about half of the years, the domestic retail price was higher than the cost of imported fertilizer and this high cost was being borne by the farmers.

Under the World Bank covenants, the government is required to increase the rate of return and revalue the assets of two gas utilities — SNGPL and SSGCL — to maximize their privatization proceeds and increased investment.

The federal government has agreed to unbundle the two gas utilities — Sui Northern Gas Pipelines Limited and Sui Northern Gas Company — into marketing and transmission companies for their ultimate privatization.