GIDC payment to hamper already burdened farmers: FMPAC

by index360

Lahore: Government has asked the fertilizer industry to pay Gas Infrastructure Development Cess (GIDC) within 24 months while industry experts believe that the decision will badly affect the farmers as Urea prices may rise significantly due to this decision.

While talking to a select group of journalists, Brig(R) Sher Shah Malik, Executive Director Fertilizer Manufacturers of Pakistan Advisory Council (FMPAC) said that the fertilizer industry is making efforts to get to a workable solution but the government is refuting proposals which stakeholders put forward. 

He warned that with the legal battle continuing, it is evident that if the court’s decision is implemented as such and no relief is offered, the industry will face serious consequences and the country’s food security is going to be the collateral damage.

Recently, after threadbare deliberations the government endorsed the industry’s point of view on GIDC and thereafter issued the ‘GIDC Ordinance 2019’. Now after the Supreme Court’s decision the sudden lack of understanding with the fertilizer sector by the government has shattered the industry’s confidence and the industry feels betrayed.

The Supreme Court’s decision also binds the government to cough out Rs295 billion and make considerable progress on gas infrastructure projects in next 6 months. Industry has requested the government to first utilize already collected GISC of more than rupees Rs295 billion for the proposed development of gas infrastructure but apparently, the funds collected by the previous governments in this head were utilized elsewhere and are no longer available.

The government has accused the industry of having high profitability margins however Shah termed it as an incorrect statement. “The actual profitability margins of the industry may be verified from the websites of fertilizer manufacturing companies, which are not as high as being accused by the Government”, he added.

The industry is also being unjustly accused of having a higher Return of Equity (ROE). The ROE is based on historical equity, which if had been invested in financial instruments would have been worth many times more and would have resulted in a much lower ROE.

FMPAC also refuted the government’s claim that the industry has collected over billions of rupees from customer and that the same is reflected in their financial statements saying that the fact of the matter is that the financial statements only reflect the amounts accrued as payable, and do not state that these amounts have been collected from the customers.

Since payment of GIDC by the industry was stayed by the courts of law, the industry was legally bound not to pay the GIDC. However the amounts were accrued as payable under the prudence principle of International Financial Reporting Standards by certain companies, he said.

The fertilizer industry has contributed a significant portion of around 43% of total collection of Rs295 billion by the government up to the period when further payment was stayed by the courts of law.

Fertilizer industry is also the only industry, which publicly defended the government’s initiative for the promulgation of GIDC Ordinance 2019. With a population growth rate of 2% (double of India and Bangladesh), we are going to have 50% additional population to feed by 2040, shah said.

Pakistani farmers will need an additional fertilizer at affordable prices to meet this challenge. Continuation of local fertilizer production and substantial increase in capacity is inevitable to ensure national food security as Pakistan has already tested and abandoned the idea of Public Sector fertilizer plants, shah added.

Industry experts hoped that the government realizes the strategic importance of this sector and deals with it accordingly.

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