ISLAMABAD: Engro Fertilizers has decided to fully pass on the benefit of the change in GIDC [Gas Infrastructure Development Cess] rates to consumers by reducing the price of each bag of 50kg by Rs160 with effect from February 1.
Similarly, the Fauji Fertilizer Company (FFC) will reportedly reduce the rates by Rs300/bag.
The impact of the reduction in GIDC varies for different fertilizer manufacturers, Engro and Fatima Fertilizer claim that the cess does not apply to their plants established under the 2001 policy.
“Due to incentive of around $0.70 per mmbtu on feedstock gas, Engro made a massive investment of over $1billion by setting up of a state-of-the-art new fertilizer plant with a capacity of 1.3million tonne,” said an official of the company.
Engro maintains that GIDC was applicable at its 0.63million tonne plant and price reduction will be implemented during the ongoing Rabbi season.
There are three main players in the fertilizer sector: Fauji Fertilizer Company (FFC) is the largest one with a production capacity of 2.45m tonnes per annum, followed by Engro Fertilizer with a capacity of 1.95m tonnes per annum, and Fatima Fertilizer with a capacity of 1m tonnes per year.
Meanwhile, the impact of the reduction in GIDC varies for different fertilizer manufacturers, based on their incorporation date, as those units established prior to the 2001 fertilizer policy have to pay Rs300 MMBTU as feedstock. Whereas units established under 2001 fertilizer policy were offered gas feedstock rates at $0.70 per mmbtu.
Meanwhile, the fertilizer companies have said that farm economies have improved over the past years.
In 2019, the farm economics have significantly improved as output prices have increased and that is reflected by the fact that the industry made record sales of urea, touching 6.2 million tonnes compared to a five-year average of 5.7m tonnes.
In December 2019, the industry recorded a sale of 1.4m tonnes – highest ever for the month of December with prices at Rs2,040.
Whereas the analysts believe that current conditions would create market distortion as all players are needed to fill in the demand-supply gap.
If FFC reduces prices with its ability to meet 50 per cent of market demand, other industry players can still maintain the prices at the current level.
On the other hand, the industry is also divided over the gas rates hike because the FFC has asked the government to increase fuel gas price, instead of feedstock, as it is uniform at Rs1,021 per mmbtu for all the plants.
Whereas, Engro and Fatima fertilizers have suggested that the government increase the feedstock rates because it is fixed at $0.70 per mmbtu for them compared to Rs 300 per mmbtu for Fauji Fertilizers.
Different players would continue to have a disparity in their cost structures, as is the case right now, the selling prices of urea had been and would continue to be determined by the demand-supply dynamics.
