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New fertilizer policy

The country has started to face fertilizer deficit


Sep 10 - 16, 2001

The Minister of Commerce and Industries, Abdul Razak Dawood, on Thursday announced a 10-year fertilizer policy linking feedstock gas price for new plants to Middle East benchmark as well as phased withdrawal of gas subsidies for the existing ones.

He announced the policy at a press conference which is to be retrospectively implemented since July 1, 2001. It offers new feed gas price to the investors at the rate of 70 cents per mmbtu i.e. 10 per cent less than the Middle East benchmark price.

The withdrawal of prevailing subsidies, though not complete, will take place in phases beginning from July, 2002. In the next year, five per cent subsidy would be taken back and it would go to the extent of 15 per cent in the year 2006.

The minister said that the country has started to face fertilizer deficit and if new plants do not come up the import would jump to 1.75 billion dollars over the next 10 years. However, he expected three new plants might come into operation under the new policy with an investment of about 1.2 billion dollars. Keeping in view the future requirement, we must arrange a minimum of investment of over a billion US dollars and set up new fertilizer plants within the next few years, the Minister added.

Experts in this field however, do not subscribe to the views of the Commerce Minister that the new fertilizer policy will prove helpful attracting fresh investments in this sector. According to them, contrary to the government pledge, the new policy will discourage the local as well foreign investment besides hiking fertilizer prices in the country as it has announced withdrawal of subsidy on gas for the fertilizer industry during next five years. It was the only charm for the investors which would be no more there after next five years.

As per government announcement, there will be 50 per cent raise in gas tariff in next five years. In the first year, gas tariff will be increased by five per cent in second year by 7.5 per cent, third year 10 per cent, fourth year 12.5 per cent and in the fifth year by 15 per cent. It means, there would be 50 per cent increase in gas tariff during next five years which will make the existing industry unviable.

Federal Commerce Minister Abdul Razzak Dawood while announcing the fertilizer policy has said demand for fertilizer is increasing with increase in agriculture production and in the next 10 year, Pakistan will need two million tones more of fertilizer. Present production is 4.2 million tons and consumption is 4.4 million tons which is expected to increase by 6.3 million tonns in next 10 years. Pakistan will have to spend $1.7 billion on the import of fertilizer if it failed to attract more investment in this sector.

The withdrawal of subsidy on gas will be major disadvantage for local as well as foreign investors. It is said that this step was taken under IMF pressure for attaining the required loans. But it is the duty of government to brief the IMF about after-effects of the withdrawal of gas subsidy on agriculture as well as on fertilizer sector.

According to the critics of the new policy, even of prevailing prices, The growers are not in a position apply fertilizer in required quantity and that is major reason behind low per acre yield. Expected increase in fertilizer prices as a result of withdrawal prices as a result of withdrawal of gas subsidy will force the cash hungry growers to further slash fertilizer use which will further reduce per acre yield.

However, viewed objectively in its broader perspective, the new fertilizer policy is quite in conformity with the combination of diverse requirements of its prime objectives under the peculiar circumstances as now obtaining on the economic front. Besides meeting the other criteria of a purposeful and vibrant policy, the outstanding feature of its main thrust is its investment friendly approach which alone can prove instrumental in pulling the fertilizer economy out of the dilemma it is precariously faced with. The shortage of fertilizer, as against its fast increasing demand, can best be addressed from an imaginative thrust on production. This has been attempted by linking the feedstock gas price for new fertilizer plants to the Middle East benchmark, along with phased withdrawal of gas subsidy for the units already in operation. It will be noted that the new policy, made retrospectively effective from July 1 this year, has offered feed gas price to the new investors at the rate of 70 cents per mmbtu, that is, 10 per cent lower than the Middle East benchmark price. Although the fertilizer industry has its own challenges and problems, it also has its own attractions of profitability for the resourceful and daring entrepreneurs.

The use of fertilizer has come to stay as an unavoidable farm unput for ensuring a reasonable production level of the wide range of crops comprising the country's agricultural economy that has yet to be developed to its full potential. It may, however, be noted that in the absence of a scientific system of farming, the application of fertilizer as an unfailing means of increasing crop output has continued pushing its demand to incredibly high levels over the past 30 years or so. Moreover, quite a large part of the country's fertilizer demand has to be met from imports, despite increase in its domestic production, thanks to the abundance of natural gas that serves both as feedstock and as fuel for the capital intensive fertilizer industry.

One sure way of helping boost agricultural production while ensuring availability of fertilizer to the farmers at economical prices. This will call for increasing domestic output of comparatively low priced fertilizer, which would also help to cut down on the cost of imports that the country can ill afford paying for indefinitely from its depleting foreign exchange resources. However, development of the fertilizer industry is no bed of roses either, all the more so in the prevailing situation of grave uncertainties hampering industrial investment in Pakistan. All this put together, will be seen to have left the government with no other option except going for a bold bid for increasing domestic production of fertilizer.