The Finance Ministry has reportedly decided to ask provinces to share financial burden of all subsidies on the lines of agriculture tubewells and domestically produced fertilizers.

The proposal was floated at a recent meeting of Economic Coordination Committee (ECC) of the Cabinet during discussion on a summary of Ministry of Industries and Production (MoI&P) titled fixation of imported urea price.

Presided over by Finance Minister Shaukat Tarin, the ECC also directed Ministry of National Food Security and Research to take up the matter with the provinces on 50:50 cost sharing basis. However, provincial governments especially Sindh government has complained that federal government is arbitrarily adjusting billions of rupees from its NFC share.

Following proposals were submitted for consideration and approval of the ECC: Dealer Transfer Price (DTP) of 50 kg imported Urea bag be fixed at PKR 1718/bag by NFML (exclusive of dealer margin of PKR 50/bag). Difference in Urea imported price and suggested Dealer Transfer Price (DTP) for NFML dealers has been estimated at Rs 9.291billion (subsidy to be borne by GoP on account of deferential between imported urea with addition of NFML charges with subtraction of DTP price).

Further, the MoI&P proposed that TCP’s commission @ 2 per cent C&F may be changed to 2 per cent DTP at Rs 1718/bag (TCPs commission has been estimated at Rs 58.72 million resulting in saving of Rs 154 million to the national exchequer). ECC of the Cabinet will accord approval to incidental charges estimated by NFML, ie, transport charges, Rs 289 per bag (subject to actual), TWPP -Rs 92 per bag and stock handling, warehousing and labour charges Rs 92 per bag. The total estimated incidental charges are Rs 465 per bag.

TCP to invoice NFML at price excluding the incidentals by NFML, ie, Rs.456/bag. Invoice price by TCP for NFML to be at PKR 1252 per bag (exclusive of markup).

The Finance Division to directly provide the differential resulting out of subject transaction to Trading Corporation of Pakistan (TCP) which is subject to be furnished by TCP to Finance Division (as per existing SOP); or based on the comments from Finance Division, ECC may approve Technical Supplementary Grant (TSG) of Rs 12.345 billion during the CFY 2021-22 for clearing dues of TCP (inclusive of markup).

During the ensuing discussion, the Chairman ECC observed that agriculture is a devolved subject to the provinces. Therefore, they should share the subsidy incurred on the import of urea. The Ministry of National Food Security and Research was directed to take up the matter with the provinces on 50:50 cost sharing basis. The Finance Division suggested that the Provinces should be asked to share all other subsidies on agriculture as well as tube wells, fertilizers, etc.

The forum also discussed the 2% commission charged by the TCP on the import price of urea. The Ministry of Industries and Production suggested that the TCP may be directed to charge the commission @ rate of 2% on the selling price instead of the import price. The chair stated that it was essential for the TCP to charge commission, to meet its expenditures. However, it was suggested that the charge should be based on the actual cost with some reasonable margin.

Finance Division said that necessary consultations may be undertaken by the MoI&P with the provincial governments with a view to supply imported urea through NFML/provincial authorities on cost-sharing basis among the Federal and Provincial Governments preferably on 50:50 basis as before. Incidental charges of NFML may be allowed on provisional basis to be approved later by Finance Division on actual cost basis on submission of audited and reconciled accounts.

The MoI&P may obtain the requisite amount of subsidy in its own demand for the next FY through the normal budgetary process for payment to TCP after due reconciliation and verifications. A specific timeline may be suggested for sale of urea by NFML to avoid undue accrual of mark-up. Moreover, NFML to ensure immediate transfer of funds to TCP on sale of urea and the mark-up accrued due to delay in transfer of funds to TCP to be borne by NFML.

After detailed discussions, the ECC decision is as follows: (i) full amount of subsidy shall be provided on demand of Ministry of Industries and Production on sharing basis of 50:50 with provinces and provincial share to be reimbursed to the Federal Government later; (ii) TCP commission shall be determined by the Finance Division on the basis of cost plus reasonable margin of the entity; and (iii) incidental charges of NFML allowed on provisional basis to be approved by Finance Division later as per standard procedure.

This story was first published in Business Recorder on February 23, 2022.