Govt con­sid­ers re­duc­tion in gas tar­iff

Pakistan Observer - - ECONOMY WATCH -

AMAN­UL­LAH KHAN KARACHI—The gov­ern­ment is con­sid­er­ing a pro­posal for re­duc­tion in the gas tar­iffs in lieu of com­mit­ment from man­u­fac­tur­ers for a re­duc­tion in urea prices, it is learnt from re­li­able sources. It is be­lieved that re­ver­sal of gas tar­iffs to pre-Sep 2015 lev­els and de­cline in urea prices may present an op­ti­mal so­lu­tion as it would re­duce in­ven­tory lev­els, ob­vi­at­ing the need for any ex­ports which would re­duce mar­gins dras­ti­cally, and it would pro­vide a respite to the farm­ers and have the same im­pact as a sub­sidy on urea and DAP fer­til­iz­ers.

Cut­ting fuel rates alone would not be ef­fec­tive as con­sump­tion is ~5mmbtu/ ton only. Fol­low­ing re­ver­sal in tar­iffs, quan­tum of the fi­nal re­duc­tion in urea prices will dic­tate the im­pact on the earn­ings of the firms. The per­for­mance of the fer­til­izer sec­tor con­tin­ues to be hit by dou­ble whammy of higher in­ven­tory amid re­cov­ery in pro­duc­tion and low farmer de­mand due to in­crease in cost of in­puts and lower com­mod­ity prices. Ac­cord­ing to de­tails to­tal urea in­ven­tory crossed 1.2mil­lion tons at the end of March 2016.

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