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Fertilizer makers may not meet demand: Exports
to Kabul
KARACHI, April 9: The fertilizer sector during the
past few months has undergone many changes, which
include: higher urea prices due to culmination of
a 10-year subsidy on feedstock gas for expansion
plants of major fertilizer producers; higher local
DAP prices following international markets;
proposals for modification in the Fertilizer
Policy 2001 to attract new investment in this
sector; and demand for fertilizer from
Afghanistan.
In his report on the fertilizer sector, Shahab
Farooq, analyst at First Capital Securities,
stated that according to his calculations,
Pakistan was not in a position to export the
required quantity of fertilizer to Afghanistan as
the domestic demand supply situation was
neck-to-neck.
According to the Fertilizer Policy 2001, feedstock
gas rates were expected to increase by 10 per cent
from July 1, 2004. The 10-year subsidy for
feedstock gas rates had expired in 2003 for the
expansion plants of Fauji Fertilizer and Engro
Chemical.
As a result rates had increased by 7.5 per cent on
July 1, 2003. Urea prices remained stable during
2003. However, from December 2003, they had
started to surge ahead and from Rs422 per bag in
December, prices had climbed to Rs430 per bag in
February 2003.
"It is expected that the manufacturers are likely
to further increase urea prices to absorb the
impact," the analyst pointed out. During March
2003, urea manufacturers had raised urea prices by
Rs5 per bag, which had been effective from April
1, 2004 (beginning of Rabi season).
Market expects another rise in prices of urea by
June 2004 in order to fully absorb the increase in
costs. The fertilizer off take numbers for March
are likely to show an increase before price
increase comes into effect.
Taking note of ineffectiveness of the Fertilizer
Policy 2001 in attracting the investment in the
fertilizer sector, the government had asked for
proposals for modifications in the current
fertilizer policy to be approved in the budget for
2004-05.
As for the proposals for modification, most of the
stakeholders compared incentives for new
investment in the fertilizer sector of Pakistan
with those offered in the Middle Eastern countries
and emphasised on the following: Composite fuel
and feed gas prices be fixed at Middle Eastern
levels for 15 years; priority for gas allocation
and uninterrupted gas supply be ensured; gas
prices be fixed in Pakistani rupee terms instead
of US dollar terms; extension in deadline for
signing of GSAs for availing the benefits of fixed
gas rates from 2005; tax-holiday of 10 years for
new investors and removal of import duties on
fertilizer machinery and equipments; and finally
the abolition of GST on agricultural inputs.
Market reports suggests that Afghanistan has
informed Pakistan that it would require around
280KT of urea and 185KT of DAP for its internal
consumption during the current year.
Pakistan's fertilizer sector does not have enough
strength to meet the domestic demand for
fertilizer and also to be able to export the
surplus. The domestic demand supply is currently
neck-to-neck. In the year 2003, local fertilizer
off take was 4.5 million tons, which was just
close to the installed capacity in the country.
The DAWN
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Pakissan.com; Advisory Point
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