FERTILIZER  POLICY  -  2001

 

Whereas the Fertilizer Policy announced by the Government of Pakistan in 1989 was successful, assuring reasonable prices of fertilizer to farmers below import price and in bringing substantive investment to enhance domestic production and has completed its stipulated time frame, and whereas it is felt that further investment in fertilizer production is required keeping in view the importance of fertilizers in increasing the country’s agricultural output, a need is felt to review and update the policy to encourage new and existing investors to come forward to invest. Accordingly, the following policy is adopted, after due authorization by the Cabinet, with effect from 1st July, 2001:

 

1.            EXISTING PLANTS

 

1.1 a)   To enable local fertilizer price to stay below imported fertilizer prices, the escalation of   existing feed gas prices will be as follows:

                       

DATE

ANNUAL INCREASE (%)

1.7.01

NIL

1.7.02

5.0

1.7.03

7.5

1.7.04

10.0

1.7.05

12.5

1.7.06

15.0

 

b)                 Thereafter, the price is to be $ 1.10/MMBTU or prevailing Middle East price determined in accordance with 2.1.2 whichever is higher, only for those existing investors who bring in new plant (minimum Capacity 0.5 MT/year) under clause 2.

 

c)                 Fuel gas price will be the same as for other industrial consumers in the country. Fuel gas will continue to be defined as gas which is used for generation of electricity and steam and for usage in housing colonies.

 

d)                 Concessional feed gas allowed under the 1989 Fertilizer Policy to companies that undertook expansion will be continued until their 10 year period is exhausted. Thereafter the feed gas price will be same as in 1.1 (a) and (b).

 

2.      NEW INVESTMENT

2.1             NATURAL GAS

 

2.2             It is the intent of this policy to provide investors in new fertilizer plants in Pakistan a gas price that enables them to compete in the domestic market with fertilizer exporters of the Middle East so that indigenous production is able to support the agricultural sector’s requirement by fulfilling fertilizer demand.

 

2.2.1       The price of feed gas will be the Middle Eastern Price prevailing on the date of singing of the GSA or $ 0.77/MMBTU which ever is higher (less the discount of 10% mentioned in 2.1.3) and shall remain fixed at such price till the expiry of 10 years from the date of commissioning. This price will be determined by the Gas Regulatory Authority of Pakistan, from the published international data, in dollar terms , on the principle of general parity with the price prevailing in Middle East.

 

2.2.2       A discount of 10% will be allowed on such determined price as at 2.1.2 to facilitate new investment. The discount price i.e. the price fixed as per 2.1.2 and 2.1.3 will remain fixed, for a period of 10 years from the date of commissioning, in dollar terms. The rupee parity will be determined as defined in para 2.1.6. This price will be inclusive of all taxes, duties, levies, fees and charges whatsoever, whether local, federal or provincial. However, GST or similar duty may be imposed on such determined price provided it is adjusted against GST, payable on the fertilizer produced.

 

2.2.3       The investor may avail this opportunity to sign GSA (Gas Sales  Agreement) as detailed in 2.1.2 & 2.1.3 by 30th June, 2005.

 

2.2.4       Fuel gas prices shall continue to be treated as at par with other Industrial consumers.

 

2.2.5       For billing purposes, the price fixed in dollars will be calculated in Pak Rupees, at the average interbank rate. The average interbank rate shall be fixed twice in a year i.e. on 1st January, and 1st July, based on the average of the previous six months daily interbank rate.

 

2.2.6       Gas Companies will build adequate safeguards in the GSA to ensure that the investor proceeds without delay in installing the plant after signing of the GSA, so as not to pre-empt the use of available gas to another investor. The Government will ensure that Gas Companies do not cause undue delays in signing of GSA.

 

2.2.7       Gas will be allocated to new fertilizer plants on the principle of first come, first served. Recognizing the expected growth in fertilizer demand, the importance of steady supply and the suitability of Mari Gas production, the government has decided to dedicate the shallow reservoir of Mari gas field to the Fertilizer Industry while the new deep reservoir is to be developed for power sector as it is suitable for power generation.

 

2.3             IMPORT AND LOCAL MANUFACTURE OF PLANT

 

2.3.1       The Government of Pakistan encourages investment and a number of concessions are available as per the Investment Policy and applicable Tariff Structure. Investors may avail these concessions with reference to import and local manufacture of plant, equipment and machinery, including deferred duty payable through customs debentures.

 

2.4             IMPORT OF SECOND HAND PLANT

 

2.4.1       Investors will be allowed to relocate second hand plant, equipment and machinery, with the same concession/exemption as applicable to new plants.

 

2.5             EXPANSION/BMR/DE-BOTTLENECKING

 

2.5.1       If an investor undertakes an expansion, major BMR or de-bottlenecking of an existing plant, which results in increase in the production capacity of the plant, such additional feed gas shall be treated at par with a new plant for 5 years for purposes of concessions / exemptions outlined in 2.1.2, 2.1.3, 2.1.4,  2.1.5 and 2.2.1, 2.2.2 and 2.3.

 

In a subsequent decision, ECC enhanced the period for the projects as mentioned in 2.4.1 from 5 years to 7 years.

 
 

 

 

 

 

2.6             EQUAL TREATMENT

All the fertilizer producers, domestic and foreign, public and private will be treated equally in commercial, fiscal, corporate and contractual matters.

 

3.      PHOSPHATIC FERTILIZER

3.1             Considering the importance of Phosphatic Fertilizer, the Government plans to continue to encourage its local production. For the said purpose, the following measures shall be taken:

 

3.1.1       Rock phosphate and phosphoric acid importable by manufacturers of fertilizer shall remain importable free of duty and sales tax.

 

4.      N.P.K

 

4.1.1       All raw materials required for NPK production i.e. Di-Ammonia Phosphate (DAP), Mono-Ammonia Phosphate (MAP), Triple Super Phosphate (TSP), MOP, SOP and micro nutrients are allowed to be imported free of duties & taxes.

 

4.1.2       Import and local manufacture of plant, equipment and machinery shall be treated as per Section 2.2.1 for concessions and exemptions.

 

5.      GENERAL

 

5.1             Selling price of fertilizer shall remain deregulated on the understanding that while manufacturers will allow free market forces to prevail they will pass the benefits in the form of lower price of fertilizer to the farmers. In order to ensure this objective is achieved a Committee will be set up and shall meet as and when required, but at least on a regular quarterly basis and take appropriate steps as necessary. The Committee will be headed by the Minister for Industries & Production and will include Minister for Food, Agriculture, Livestock as well as a senior representative from the Ministry of Finance.

 

5.2    Withholding tax collected at the time of import of fertilizer, shall be adjusted against assessed income tax of the year during which such import takes place, in case the fertilizer is imported by a manufacturer of fertilizer.

 

         _______________________   End of Fertilizer Policy  __________________________

 

SROs for Tariffs Structure on Fertilizers

·        For import of DAP, withholding tax was reduced from 6% to 1% vide SRO notification No. 619(1)/2004 dated July 17th, 2004.

 

·        Custom duty on the import of plant and machinery (New/2nd hand) has been slashed down to 5% from 10% in the Budget 2004-05 vide SRO-441(1)/2004 dated June 12th, 2004.

 

·        Deemed prices for charging Sales tax on the phosphatic fertilizer has been revised vide SRO 609(I)/2004 dated July 16th, 2004.

 

·        Deemed price for charging sales tax on urea was revised vide SRO 545(1)/2004 dated June 30th, 2004 to Rs 7,900/ton but it was amended back to Rs 6660/-ton vide SRO 699(1)2004 dated August 13th, 2004.

 

·        Deemed price of phosphoric acid has been fixed at Rs 7,000/ton vide SRO 494(1)/2004 dated June 12th, 2004 for the purpose of charging sales tax.