LAHORE - The Engro Fertilizer has increased the urea prices by Rs180 per bag while other players are considering to follow this move after the government decision to increase cess on industrial gas consumers in line with IMF requirements.

Industry sources said that the move has resulted in additional cess of Rs103/mmbtu on feed (previously Rs197/mmbtu) and Rs50/mmbtu on fuel (previously Rs50/mmbtu) for fertilizer companies.

The urea companies were of the view that the price has been increased by slightly higher quantum as compared to the impact.  As per the notification, the government has raised the Gas Infrastructure Development Cess (GIDC) on gas consumers (excluding domestic and commercial) by 52% to 100% as agreed with IMF in the letter of intent. The increase in GIDC is aimed at generating an additional Rs125 billion (0.4% of GDP) in revenue for the government. Experts said that GIDC for fertilizer feedstock has been increased by Rs103/mmbtu to Rs300/mmbtu (up by 52%). To quantify, the incremental Rs103/mmbtu feed gas costs requires urea price hike of Rs130-Rs145/bag for the local players to maintain margins.

Experts said that Fatima fertilizers will emerge as the biggest beneficiary of the aforementioned increase in urea prices as it enjoys constant feedstock rates locked at USD0.7/mmbtu.

On the other hand, an additional PKR50/mmbtu in GIDC has been imposed on Industry and Captive Power Plants to PKR100/mmbtu. The additional cost impact on export oriented textile sector will be nullified given the incremental margins emanating from a grant of GSP plus status to Pakistan by EU and weakening Rupee against USD, reported Affan Ismail, an industry expert.