The federal government has decided to eliminate subsidised gas for the country’s fertiliser industry, particularly for the production of urea, Business Recorder reported.

This move comes after it was determined that the impact of the subsidy was not being passed on to farmers, a key demand from the International Monetary Fund.

The decision was made during a recent cabinet meeting, where the Petroleum Division explained that without the subsidy, the price differential would need to be borne by either domestic consumers or the Finance Division.

The Ministry of Industries and Production noted that the benefits of subsidised gas had not translated to lower urea prices for farmers.

Given the financial constraints, the Finance Division did not support providing further subsidies on gas for the fertiliser sector. After deliberations, the cabinet unanimously concluded that gas should be supplied to fertiliser plants at full prices, rather than subsidised rates.

The cabinet directed that any required subsidies should be provided directly to farmers, rather than through the fertiliser companies. The Petroleum Division was tasked with monitoring the implementation of this decision.

This move comes on the heels of a tax audit ordered in January 2024 by the Special Investment Facilitation Council’s apex committee. The audit aimed to review the tax invoices and profits earned by urea sellers and dealers, amid concerns that fertiliser companies were making significant profits due to stagnant gas prices.

According to a former caretaker minister’s report, major fertiliser companies saw substantial increases in their profits after tax in the 2023-24 fiscal year, despite no corresponding drop in urea prices for farmers.

It was estimated that around 200,000 tons of urea were being “smuggled out of Pakistan,” with subsidies benefiting farmers across the border.