Pakistan must import about 300,000 MT of urea fertiliser, and commercial import prices may be out of the grower’s reach, necessitating a budget-breaking subsidy.
By Muhammad Ali
ISLAMABAD: Pakistan’s efforts to source urea fertiliser inexpensively through G2G deals have come to nothing, raising the spectre of exorbitant prices for the vital agricultural input, or a budget-breaking subsidy.
Reeling from the impact of this monsoon’s cataclysmic floods, Pakistan’s farm sector is projected to contract this fiscal, forcing the country to resort to food import.
Against this backdrop, the prospect of high prices off urea prices, comes as a potentially crippling blow to growers of wheat, the country’s number one food staple.
In their search for a government-to-government deal on favourable terms, Pakistani officials reached out to their counterparts in China, Azerbaijan, Iran, Saudi Arabia, among others. However, no favourable response was forthcoming.
The most likely reason for this could be the disruption of the international fertiliser market by the war in Ukraine, as both Russia and Ukraine are major exporters of fertilisers as well as good grains.
Initially optimistic to clinch a G2G deal, the Trading Corporation of Pakistan (TCP) had estimated the cost of imported urea at PKR 27.33 billion. Commercial imports are expected to cost considerably higher.
This brings the government to the old dilemma: Pass the additional burden on to the growers or jack up the subsidy amount to keep urea prices stable in the domestic market.
The government had fixed the imported urea price of PKR 2,150 per 50 kg bag and it was calculated by the National Fertiliser Marketing Company (NFML). The Economic Coordination Committee (ECC) of the Cabinet granted approval of this price of urea fertiliser in its meeting held on September 30, 2022.
The Finance Division had stated in its written position that the subsidy allocation for the federal government might remain within the budgetary allocation of PKR 6 billion as previously confirmed by the IMF. It was decided that the cost of the subsidy will be shared by the centre and provinces equally.
Official sources say the Ministry of Industries and Production has submitted a summary on the subject for the approval of the federal cabinet proposing that the TCP may be allowed to simultaneously exercise both G2G and commercial imports.
The cabinet has since greenlit the proposal, requiring the offer prices for both G2G and commercial imports to be presented before the ECC of the Cabinet.
The ministry of industries and production and TCP made collective efforts to procure urea from abroad on a G2G basis.
In this regard, Secretary (I&P) and Chairman (TCP) visited Azerbaijan from September 26-28, 2022 to explore the option of importing urea on a G2G basis, but no response has been received.
Likewise, the Pakistan Embassy in Tehran was also requested to facilitate the import of urea from Iran but the efforts did not yield desired results.
The Trading Corporation of Pakistan (TCP) being the procuring agency on behalf of the government also approached China, Azerbaijan, and Saudi Arabia. The minister for industries and production also wrote to the authorities in China and Azerbaijan. However, none of these efforts have yielded any results.
Now the TCP floated international tender for import of urea and received no bids in first instance. The TCP floated second tender in this regard on October 19, 2022, which was opened on October 26, 2022. Of the four bidders who participated, only three quoted prices.
The lowest responsive bid is from m/s Makhdoom Logistics Services, which quotes USD 520 PMT for 300,000 MT +/-5% MOLSO urea on CFR bulk pit Karachi port basis. According to TCP calculations, this works out to approximately PKR 6,327/ per 50 kg bag of urea at Karachi port.
The ministry of national food security & research also recommended that timing for import of 300,000 MT urea is very critical and have informed that if SNGPL based plants are closed, some 300,000 MT would have to be import by end November 2022.
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