KARACHI - The government’s Rs36 billion subsidies on urea and massive cut in sales tax has rekindled hopes for a 20 percent fall in domestic fertiliser prices during the upcoming crop season, said Rohail Mohammed, Chief Executive Officer (CEO) of Engro Fertilizers on Wednesday.

“Yes, fertiliser prices are being reduced by around Rs390/bag, which is  20 percent cut from the prevailing prices,” he added. “Of the total price cut, Rs50 are being borne by the manufacturers, whereas the remaining will come from reduction in GST (General Sales Tax) and subsidy by the government,” Rohail said in a company statement.

The government has proposed Rs36 billion subsidies on urea, cut in sales tax to five percent from the current 17 percent and a cap in gas tariff in the budget for the fiscal year 2016/17.

The move is likely to result in fertiliser prices plunging from the current Rs1, 800/bag to Rs1, 410/bag by the start of the next fiscal year.

The government, in the Finance Bill for the next fiscal year, has proposed that urea fertiliser price be brought down to Rs1, 400/bag, from Rs1,800/bag, and DAP from Rs2,800 to Rs2,500/bag to help ease financial pressure on farmers.

Rohail said the manufactures wanted the removal of GST on natural gas, as without the move “the fertiliser manufacturers will be in a constant GST-refund situation. Fertiliser companies have already taken a hit on the margins by absorbing gas price increase in September last year, and fall in prices would further reduce the manufactures’ margins at least by Rs50/bag.”

People belonging to fertilizer industry say that manufacturers have around 1.5 million tonnes of urea, excluding around 0.27 million tonnes held by the National Fertilizer Marketing Limited.

“This level may slightly come down post July period, however, the industry will see pilling inventories up to one million tonnes at the end of the ongoing fiscal year in the absence of any measures to export,” Rohail added.

“Fertiliser manufacturers have a potential to bring in foreign exchange of more than $200 million, if urea export is allowed,” Engro CEO said.

He further added that stakeholders were in the process of taking up the export issue with the government and expected that “a rational decision for the benefit of the country would be taken.

“The government has focused on reviving the agriculture sector, which showed a negative growth of 0.19 percent due to slow down in international commodity market.

The government also opted to provide growers cheaper input to help enhance the productivity of the farm sector,” Rohail noted.

“Demand for this year was forecast at around 5.3 million tonnes before the price decrease, which is now expected to be somewhere close to 5.5 million tonnes for this year,” Ruhail said, and added, “Unless there is a change in any other factor, we will see the same levels next year.”