The GoP has constituted a 12-member committee to
submit a plan for attracting fresh investment and suggest the remedies
to resolve the problems facing fertilizer sector. Formation of the
committee was one of the decisions taken at a high level meeting by the
senior officials of various ministries and government institutions to
consider the factors impairing the performance of the sector. The
formation of this committee can be termed a futile effort because the
GoP knows well that Fertilizer Policy has failed to attract investment
for grass root plants and further deliberation cannot yield any result.
The fresh investment in fertilizer sector is directly linked with the
cost of gas (feedstock) and the GoP does not seem to be ready to
guarantee the price for next ten years, as demanded by the sector.
According to a sector analysts, the failure of
Fertilizer Policy is the result of lack of guarantees regarding supply
of feedstock for new grass root plants. While the industry has been
demanding fixing of price at Middle East parity, policy planners were
not willing to commit. However, it must also be kept in mind that when
the Policy was announced, international urea prices were almost half of
the current prices. Therefore, the industry did not consider making
fresh investment in fertilizer manufacturing a viable economic proposal.
However, if one looks at current international prices of urea, investing
in fertilizer plants may look attractive
According to another analysts, had the industry
started working on achieving financial close for grass root plants in
2001, plant and machinery should have been on its way to Pakistan by
this time. Even if they start working now the country will have to face
shortfall and import urea at 40% above the price of locally produced
commodity. While some of the analysts are not able to comprehend the
sudden and sharp rise in international prices of urea, they also say
that by the time Pakistan is able to even add one grass root plant, the
price may revert back to around US$ 100/per tonne.
According to a fertilizer sector expert, additional
one-tenth of existing capacity is expected to commence commercial
production within next 12-18 months. Therefore, local investors must act
very prudently. However, the overwhelming perception is that Pakistani
urea manufacturers have virtually lost the opportunity. According to
him, "The timeframe for setting up of grass root plants was known
to government as well as local manufacturers. However, either the local
manufacturers failed in putting up a convincing argument or the policy
planners were bent upon not changing the policy till the crisis starts
The constitution of Committee raises the suspicion
that the policy planners wanted the existing manufacturers to decide not
to invest in fertilizer plants and at the same time preparing some other
group (not belonging to fertilizer sector) to complete its home work.
They wanted to wait till the crisis starts appearing. Once crisis starts
appearing than the entry of this group be termed remarkable achievement.
It is also believed that this group would be given far more incentives
than those being demanded by the existing players.
If such a situation emerges it would raise questions
regarding the much talked about transparency of policies being followed
by the existing economic managers. The Policy announced in 2001 must
have been changed by this time. However, it is never too late to mend.
The GoP must come up with a clear cut and transparent policy
It is not the question of profitability of urea
manufacturers but self-sufficiency of food and accelerating the GDP
growth rate for poverty reduction. Pakistan's economy and GDP growth is
heavily dependent on a vibrant agriculture sector. The country must not
only continue to produce at least 2% surplus annually but must also
produce substantial surplus quantity of urea for export to finance the
import bill of DAP and other types of fertilizers. Don't waste time in
reinventing the wheel. Only guarantees about feedstock price can ensure
fresh investment in the sector.
The Committee is headed by Secretary Ministry of
Production & Industries and other members include Secretary Ministry
of Food & Agriculture; Secretary, Ministry of Petroleum &
Natural Resources; Chairman, Central Board of Revenue; representatives
of the Finance Division and Board of Investment; Chief, National
Fertilizer Development Centre, Planning & Development Divisions;
Chairman, National Fertilizer Corporation; General Manager Marketing,
Fauji Fertilizer Company; Managing Director Fauji Fertilizer Bin Qasim;
CEO of Engro Chemical Pakistan and a Director of Dawood Hercules.