LAHORE: Fertiliser players have reportedly approached the government, requesting recovery of outstanding Gas Infrastructure Development Cess (GIDC) dues (Rs109bn on non-concessionary gas) in 10 years instead of two years, as decided by the Supreme Court.
Fertiliser players have cited their “worsening liquidity situation” as the reason for seeking an extention in GIDC collection. In case the request is dismissed, the players may resort to increasing urea prices by Rs500 per bag to Rs2,100 per bag.
Earlier this year, the fertiliser sector had reduced urea price by Rs400 per bag on the expectation of GIDC waiver.
According to Ailia Naeem, a senior research analyst AKD Securities Ltd, the government and fertiliser players may chalk out a more amicable solution with respect to the recovery of outstanding GIDC dues.
“The recent decision of the Supreme Court should result in an outflow in the range of Rs6-60bn from the fertiliser sector, while netting off GIDC payables by available cash and short term investments imply a net cashflow burden of Rs3-20bn for these players.”
According to Naeem, amid the aforementioned background, “our numbers suggest that a 48-months extension for GIDC should be sufficient for the players worst hit by the GIDC decision”.
On the possibility of a price hike, she said it could be a possibility given the urea inventory at 334,000 tonnes is much lower than the last 12-month average of approximately 590,000 tonnes.
Naeem informed that local prices are currently at a steep 50pc discount to international prices.
“An increase in urea price by Rs500 per bag would be more than sufficient for Fauji Fertiler Company Limited (FFC), Engro Fertilizers Limited (EFERT) and Fatima Fertilizer Company Limited (FATIMA) to meet the net cash burden resulting from GIDC outflow,” she maintained. “However, we see limited possibilities for such a price hike.”
A more likely situation could be a 12 to 24-month extension along with Rs100-200 per bag urea price hike.