Engro Fertilizers welcomes the fact that the government has taken a bold first step by removing the subsidy for fertilizer manufacturers that get their gas from the SNGPL network, which represents 60% of all fertilizer manufacturing capacity.
They have done that by increasing the feedstock prices from PKR 580/mmbtu to PKR 1,597/mmbtu, almost a 300% increase in the cost of producing fertilizer.
While this is a step in the right direction, the battle is half won, as the remaining 40% of fertilizer manufacturing capacity that is on the Mari network, is still at the subsidized price of PKR 580/mmbtu.
Pakistan’s current financial position is distressed, it is in a debt crisis, with the debt-to-GDP ratio already above 70 percent and more than USD 27 billion of foreign debt to be repaid by November 2024. The country cannot afford further fiscal pressures or half measures that do not go all the way in solving Pakistan’s problems. The dependence on government subsidies must end, for Pakistan to really move forward and break away from the vicious cycle of debt.
Therefore, in the national interest of the country and to fix the problem at the source, we urge the government to completely remove all subsidies from the fertilizer sector. Only with the complete removal can the government free the nation from this debt and truly benefit the people of Pakistan.
With this complete removal, the government is expected to collect PKR 150 billion, which can then be used for targeted agricultural projects and initiatives that generate economic activity and growth in the country.
This is a fantastic opportunity for all fertilizer manufacturers to demonstrate that even without subsidized gas they are globally competitive. In fact, when everyone has the same gas price, it will encourage the manufacturers to become more efficient and lean and encourage capital investment in the fertilizer industry.
In addition, the fertilizer industry will emerge as a role model that can operate efficiently without any subsidies, thereby encouraging the government to potentially look at removing subsidies from other sectors of the economy as well.
In conclusion, we fully support the government in taking this first step to partially remove the existing subsidy given to fertilizer manufacturers. We encourage the government to continue with this bold strategy and completely remove all subsidies so that it can reduce its debt burden, promote efficiency, attract new investments, and help build a stronger future for Pakistan.
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