Pakistani urea producers have started price adjustments in selling prices of urea fertilizer bags due to a spike in gas rates by the federal government of Pakistan. The first in the race was Fauji Fertilizer Bin Qasim Limited, which increased by PKR 1350/bag ($4.84). For the second in a row, Engro Fertilizers has also adjusted urea prices by PKR 785 per bag, including Federal excise duty (FED). Compared to a 175% increase in gas prices for the fertilizer sector on Sui Northern Gas Pipelines Ltd (SNGPL) and Sui Southern Gas. Company Limited (SSGC) networks, Engro has only increased 23% the price of its urea bag.
However, gas tariffs for fertilizer companies on the MARI network remain subsidised, which has created price distortion with multiple urea prices and allowed the middlemen to earn excessive PKR 80 – 100 billion profits. However, it is important to note that Engro Fertilizers has not increased the selling price of imported urea to facilitate the Government in providing support to farmers.
The decision to increase urea prices by FFBL and Engro Fertilizers comes after the government significantly increased gas input costs for fertilizer manufacturers on the SNGPL and SSGC networks. Feedstock gas prices for these fertilizer manufacturers, which produce 60% of the total capacity, have increased from PKR 580/mmbtu ($2.08)to PKR 1,597/mmbtu ($5.72). On the other hand, the remaining fertilizer manufacturers on the Mari network, which produce 40% of total capacity, are still on the subsidized price of PKR 580/mmbtu.
As a result of this price discrimination for the same homogenous product (gas), price distortion has been created with multiple urea rates in the market. Market reports show that urea prices of FFBL, Engro Fertilizers and Fauji Fertilizer Company Ltd now stand at Rs 5489/bag ($19.67), Rs 4647/bag ($16.65) and Rs 3,767/bag, ($13.50) respectively.
An industry analyst explained that the government should “equalize gas rates for the whole industry; otherwise, it will create distortion and go against the IMF’s suggestion of eliminating subsidies.”