Revised gas price proposal to hit fertilizer industry

ISLAMABAD: In response to the recommendation by OGRA dated December 11, 2019 the Ministry of Petroleum has worked out certain revisions in the sector wise gas prices where it has recommended to increase fertilizers feed gas price by 5 percent while fuel gas price to be linked with RLNG prices currently at Rs1,672/MMBTU.

It must be noted that the previously, fuel gas prices for the fertilizer sector were in line with prices of other captive power gas at Rs1,021/MMBTU.

This parity was also substantiated by the OGRA recommendation where it had proposed fuel gas prices for fertilizer industry to increase by 32 percent consistent with increase for general industry and captive power gas consumers.

However, with the recent proposal of the Ministry of Petroleum, the fuel gas prices for the fertilizer industry have increased by a massive 64 percent whereas for other captive power gas consumers, this increase is only 15 percent, industry sources said.

Keeping in view, that the fertilizer industry utilizes fuel gas for its captive power requirements, this disparity in price increase, not only reflects upon irrational decision making but also goes against the fundamental objective of the current Government to curb inflationary pressures on food commodities by reducing agri input costs, they said.

This disparity among the prices of sectors may also warrant legal action by the adversely impacted sectors.

The government should learn from previous experience as in the case with GIDC that any taxes that are not applied uniformly or are seen as discriminatory towards an industry will be challenged in court and affected companies are likely to withhold payment which in turn will hamper the inflows for the government.

The proposal of the Ministry of Petroleum subjects the fertilizer sector with the highest increase in fuel cost amongst all other sectors.

The stark contradiction is baffling as on one hand, the Economic Coordination Committee (ECC) has last week approved reduction in GIDC from Rs405/bag to Rs5/bag with the populist narrative of reducing urea selling prices and on the other hand the Ministry of Petroleum is introducing discriminatory pricing which will needlessly intensify the overall burden on the farming community of Pakistan.

If the intent of the government is to resolve the GDS imbalance it should aim to implement a basket gas pricing mechanism whereby, all gas consumers will be charged a uniform price of gas, the sources said.

Such a mechanism will provide significant relief to the providers of gas who have significant outstanding receivables from the government avoiding a circular debt like crisis of the power sector as well as ensure parity across different sectors and gas consumers, they added.

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