ISLAMABAD, March 22: The Fertilizer Policy 2001 has failed to attract investment forcing the authorities to drastically modify it by extending new incentives in the budget for 2004-05.
Official sources told Dawn here on Monday that a high level meeting held on March 18, reviewed the Fertilizer Policy 2001 and discussed threadbare the problems/issues being faced by the fertilizer industry.
The meeting was chaired by secretary industries & production and attended by the officials of ministries of finance, commerce, industries, Board of Investment (BoI) and the chairman Central Board of Revenue (CBR).
It was a consensus of the meeting that investment in the establishment of fertilizer plants was not feasible as highly attractive incentives were being offered by the Middle Eastern countries.
The meeting, the sources said, was told that a number of Pakistani investors including Engro Chemicals of Pakistan Limited were considering to set up new fertilizer plants in the Middle East where gas was available at cheaper rates and the taxes were much lower.
The ministries concerned, the sources said, had been directed to finalize a set of proposals within next ten days indicating new incentives to be offered to the investors of fertilizer industry.
The government has received various proposals both from the official and unofficial quarters over the issues which included: Priority for gas allocation to fertilizer industry be restored; full year gas supply, without disruption and curtailment be ensured; the composite price of feed and fuel gas for new plants be fixed at par with that of Middle Eastern price, prevailing on the date of gas allocation or $0.77/mmbtu whichever is higher (less 10 per cent discount as per Fertilizer Policy-2001) and remain fixed till expiry of 15 years from the date of commissioning of the plant; the gas price be fixed in rupees instead of $ terms; extension in deadline for signing of GSA for availing the benefits under the fertilizer policy; duty free imports of machinery & equipment for fertilizer industry and free of all federal and provincial levies as per laws be allowed; tax holiday for 10 years be considered for new investment; GST on agricultural inputs to be abolished; import of commercial fertilizers including all products containing zinc, boron, iron, copper and manganese to be allowed free of any taxes if imported by fertilizer manufacturers for agriculture use; and soft-terms loans to be arranged and guaranteed by the government of Pakistan (GOP).
While the Fertilizer Policy 2001 failed to attract investment, it was noted that Fertilizer Policy 1989, which offered certain incentives, was able to attract investment over $1.2 billion and resulted in additional capacity of over 2 million tons of urea and 0.45 million tons of DAP in the country.
The main factors responsible for lack of investment in fertilizer sector were identified as under:
Difference of the fuel gas and feed stock gas prices. The gas price in Middle East was $0.7-0.8 per mbtu while in Pakistan it was $1.3-1.8/mbtu (average of feed and fuel gas prices).
The prices of feed stock gas were frozen for 10 years in case of new plants but only for 5 years in case of expansion/BMR projects. This discourages expansion/BMR projects.
Significantly less return on equity as compared to Middle East (it was claimed that in Middle East the return is 15pc in $ terms; whereas in Pakistan return is less than 5pc).
The tax holiday for new fertilizer plants is available for 10 years in Middle East while it is not available in Pakistan. The customs duty on import of plant and machinery is 10pc whereas, in Middle East there is no duty/tax on the import of plant and machinery and only 3-4pc duty on the machinery imported for BMR.
Fifteen per cent GST on imported DAP is imposed on the basis of the deemed price of Rs9280 per ton. GST on import of raw material for DAP (i.e. phosphoric acid) is charged on the actual price, which has put the local manufacture of DAP at a financial disadvantage.
Under this policy the prices of feed stock gas were to be fixed in $ terms. As a result, the feed gas prices shall vary with changes in rupee/$ parity. This created uncertainty for the prospective investors and, The policy does not provide any protection to new investments against fall in the prices of fertilizer in international market.