The country has started to face fertilizer
deficit
From SHAMIM AHMED
RIZVI
Islamabad
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.
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