Pakistani Government Ends Subsidised Gas for Fertiliser Industry to Directly Support Farmers

The federal government has decided to end subsidised gas for the fertiliser industry, aiming to address a key demand from the International Monetary Fund (IMF) and ensure that the benefits of subsidies reach farmers directly. This decision was made during a recent federal cabinet meeting where the Economic Coordination Committee (ECC) decisions of May 7, 2024, were presented for ratification under the title “Fertiliser Requirement for Kharif 2024 and Measures to Meet the Requirement of Urea Fertilizer for Kharif 2024.”

During the discussions, the Petroleum Division highlighted that providing gas to plants at the OGRA notified price would result in a price differential that either domestic consumers would have to bear or would need to be subsidised by the Finance Division. The Ministry of Industries and Production noted that the benefits of subsidised gas had not reached farmers, as evidenced by the lack of corresponding decreases in urea prices.

It was suggested that the pricing distortion for the fertiliser sector should be eliminated. Given the financial constraints, the Finance Division did not support further subsidising gas to meet the resultant price differential. Consequently, the cabinet unanimously decided that gas should be supplied to fertiliser plants at full prices, with any necessary subsidies provided directly to farmers.

The cabinet directed the Petroleum Division to monitor the implementation of this decision. Earlier in January 2024, the Apex Committee (AC) of the Special Investment Facilitation Council (SIFC) had ordered the Federal Board of Revenue (FBR) to conduct a tax audit of urea/fertiliser companies to review tax invoices on income earned by urea sellers and dealers.

A report by the former caretaker Minister for Power and Petroleum, Muhammad Ali, revealed that fertiliser companies were making substantial profits due to stagnant gas prices. For instance, the profit after tax (PAT) for FFC is projected to be Rs 33.165 billion in FY 2023-24, up from Rs 20.410 billion. Similarly, M/s EFERT’s PAT profit will be Rs 17.5 billion, and M/s Fatima Fertiliser’s will be Rs 14.494 billion.

Muhammad Ali proposed ending the era of providing cheap gas and subsidies, citing their strain on the fiscal deficit and encouragement of smuggling, which worsens the trade deficit. The former minister also noted that subsidies were not reaching farmers, with informal channels absorbing the benefits and causing significant revenue losses for the government.

The government currently loses over Rs 120 billion to informal channels, with an estimated 200,000 tons of urea being smuggled out of Pakistan due to lower local prices. Chief of Army Staff General Syed Asim Munir recently stressed the need for a nationwide crackdown on hoarding and smuggling, urging provincial authorities to take strict action against those involved and ensure transparency in fertiliser operations to support farmers.