Fertiliser: Does it mean favouring farmers?


WEB DESK: The government is often tempted to favour a particular group of producers for a variety of reasons and recover the cost of such a favour by burdening some other sector.

According to a notification issued on 29th April, 2016 by Oil and Gas Regulatory Authority (Ogra), natural gas rates for fertiliser plants have been reduced and increased simultaneously for all power plants with backdated recovery.

As per the notification, a cut of Rs 76.59 per million British thermal unit (mmbtu) was made in gas rates for fertiliser plants and an increase of Rs 13 per mmbtu for power plants was to come into force retrospectively w.e.f 1st April, 2016. The new gas tariff for the power sector was set at Rs 613 per mmbtu while the feedstock rate for the fertiliser sector was fixed at Rs 123.41 per unit.

Ogra officials said that new tariff for domestic and commercial consumers would be increased from 1st July, 2016 under a commitment with the IMF to revive biannual price adjustment mechanism from the same month. The new price of gas would apply to Dawood, Pak-Arab, Pak-China and Hazara phosphate fertiliser plants on SNGPL network and Fauji Fertiliser Bin Qasim Ltd and Engro Fertiliser Company on the SSGCL system. However, gas prices for the fertiliser sector being used as fuel to generate electricity will remain unchanged at Rs 600 per mmbtu.

As has become the norm in the present set-up, the decision to reduce gas rates of fertiliser feedstock (basic raw material for fertilisers) was taken at a recent meeting presided over by Finance Minister Ishaq Dar who was reported to have asserted that the government is committed to developing the agriculture sector and protecting farmers’ interest. It was also assured that the government would reduce the cost of other agricultural inputs to increase yield and productivity in the sector.

While the government wanted to benefit the farming community, it was obviously aware of the need to protect the revenue stream of the gas companies which was sought to be maintained by shifting the burden of farmers to common electricity consumers. Overall, therefore, an increase in generation cost for gas-based power plants due to higher input price would be recovered from ordinary consumers on account of monthly fuel-adjustment cost.

However, while the decision of the government would appear to a routine matter, it smacks of discrimination due to differentiation in prices for the same product for various sectors and could lead to misallocation of resources due to the likelihood of greater flow of investment resources to the fertiliser sector at the cost of power sector. In our view, if at all the government wanted to favour the agriculture sector, the subsidy of such a policy should have been provided from the budget and on a selective basis.

For instance, while the subsistence farmers need to be protected from excessive downward trend in prices of agricultural products, there was no reason to shelter the big landlords who have luxurious lifestyles and do not pay taxes. Also, it needs to be recalled that farmers have already been favoured by a historic Kissan package of Rs 342 billion announced by the Prime Minister.

Besides, government policies should never be guided by vested interests but only decided by economic criteria and justification. The meeting in which the new gas prices were decided was attended by a delegation of the fertiliser industry led by the Fauji Fertiliser. Power consumers were not represented at the meeting which reflects the tendency of the government to bow to the demands of powerful groups. Unfortunately, such a tendency is not peculiar to the present government but has been prevalent all along.

Source: Business Recorder