Gas loadshedding, rising urea prices

Post Source: Dawn Economics and Business Review

By Ahmad Fraz Khan


THE urea crisis, which has gripped the country since November, is fast assuming a disastrous proportion, mainly due to the federal government’s quiet reversal of the national policy for allocation of gas.

By dropping the fertiliser sector below national priority list for gas allocation, it is risking taking the farming sector down along with the national economy.

One wonders, if the government has pondered how it would impact urea price, which has already gone beyond farmers’ financial reach. How it would affect the national production and how much it would end up importing, and at what cost?

The last nine months have seen urea prices spiraling from Rs850 per bag to almost Rs1,600 per bag – an increase of almost 100 per cent – as gas loadshedding started taking its toll on the fertiliser industry. The increase was twofold; the industry blaming loadshedding and the resultant increase in its cost of production, and dealers making money at the cost of hapless farmers.

The industry claimed it was facing gas shortages that kept its plants off line, and added to the cost of production to the tune of 50 to 60 per cent. The rest 40 to 50 per cent increase came from elaborate but unbridled, paraphernalia of dealers and sub-dealers who made hay while the sun shined.

So far, the government was only indirectly, and partly, blamed for failing to control dealers’ mafia. However, by officially diverting gas from one sector to others, it has also invited the blame. It would be held responsible for two reasons: quietly rigging national gas distribution policy and opening fertiliser prices to speculative pressure.

In addition to loadshedding of around 100 million cubic feet per day (mmcfd), the federal government, as a matter of policy, has taken gas away (another 40mmcfd) from the fertiliser sector and given it to another sector of the economy.

The decision is wrong as it directly flies in the face of 2005 gas policy, which puts the fertiliser sector second only to domestic in the national schemes of distribution.

The industry has calculated cost of this gas diversion at around Rs400 per bag, which would effectively take the price beyond Rs2,000 per bag – around 145 per cent increase within one year. On production side, the scale of disaster is even horrifying.
As a result of gas loadshedding and diversion, the fertiliser planners say production would drop by 400,000 to 500,000 tons during the remaining Kharif and the next Rabi.

The gap has to be met by imports. The cost of import, in its current international settings, is simply un-affordable for the country and farmers. The last order that Pakistan placed for import was at $555 per ton. At that rate, which still prevails in international market, the country needs around $2.2 to $2.77 billion for importing urea to meet the domestic gap. One bag, as proven by the last import, which is now being docked at the Karachi port, would cost around Rs3,000 per bag against current domestic price of Rs1,600 per bag.

The biggest question dogging the government is case of import would be at what price to sell the commodity in the domestic market. If it sells at the current domestic price, it would end up paying almost $1 billion subsidy bill. Can the government afford that kind of money? If it sells at the international prices, it would only be risking social chaos in rural areas.

On the second plank, it also recently leaked to the media its intentions of 100 per cent increase in price of feed gas to urea manufacturers. Once the official intentions became public, the stockists, as expected, swung into action. They knew they would make windfall by hoarding fertiliser now and release it few weeks down the line.

Since fertiliser’s use is directly linked to agriculture production, the total cost of official leak would be much greater than the hoarders’ profit. Who prematurely leaked this information to the media and sent fertiliser market, already teetering on the edge, in tail’s spin needs to identified and taken to task.

These decisions only prove the nature of official decision making pattern, which increasingly seem become individualistic rather than institutional. Had some institutional input involved in these decisions, many pitfalls had been pointed out before hand and risks avoided. But it does not seem to be the case.

As things stand today, powerful lobbies in power corridors seem to have hijacked decision-making at the highest level, and unfortunately for farmers, they are least represented at that level despite voting majority of legislators into power.


Leave a Reply

Fill in your details below or click an icon to log in: Logo

You are commenting using your account. Log Out /  Change )

Google+ photo

You are commenting using your Google+ account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )


Connecting to %s

%d bloggers like this: