State fertiliser subsidy bills escalate to Rs.27 b
The Government owes Rs.27 billion in subsidy payments to private sector fertiliser companies since the first quarter of 2020. Companies are now facing the daunting task of importing stocks at skyrocketing prices with dollars that are hard to find in local banks.
The Treasury has not been making regular bill payments to fertiliser companies since the second quarter of 2021 as a result of which the companies are finding it difficult to open letters of credit when making successive orders, the companies have pointed out in a letter dated October 25 to Finance Ministry Secretary S.R. Attygalle. The total bill since Q1 of 2020 has topped Rs.27 billion, the letter highlighted.
By end November 2021, the full sum of Rs.27,235 million will fall overdue, a first time occurrence in the history of the fertiliser industry, the letter stated.
The letter also notes that the companies have repeatedly been writing to the ministry in respect of the “long overdue subsidy payments” to the private sector fertiliser importers namely CIC Agribusinesses, A. Baur & Co., AgStar PLC, Hayleys Agro Fertilizers, Allied Commercial Fertilizers PLC, Diesel & Motor Engineering Lanka Industrial Estate Ltd and Asia Commercial Fertilizer.
Since the last three to four months they have received only Rs.60 million out of a total of Rs.4.7 billion that the Treasury owes to Agstar, the company’s Managing Director Pasad Weerasekara told the Business Times.
Since the letter was sent the government is learnt to be trying to release over Rs.300 million to companies through the Agriculture Ministry for December. “If they release this kind of small amount of money, then how can we import even for Yala?” he queried. Due to the pressure on the rupee that is being artificially controlled by the government, importers believe the government will find it difficult to hold onto the current Rs.203 rate of exchange against the dollar. Should this rate increase by around Rs.40 within a short period “then we don’t have the cash to pay as we have already sold the cargo,” he said.
Cargo is imported on 180 days credit and is sold to farmers and subsequently paid to the supplier. “But with today’s currency uncertainty if we sell it at current rates and if the currency devaluation is drastic then we will face problems,” he noted.
Moreover, he asserted that banks are reluctant to give an additional facility to companies since the Rs.27 billion is not yet paid up.
He also noted that they would be compelled to re-think their operational strategy in Colombo should their current issues persist.
Mr. Weerasekara said they are looking at opportunities outside the country where their group operations have already been established. AgStar is part of the LOLC group.
Importers are further worried due to the possibility of a recurrence of a 2008/2009 commodity price collapse occurring at very short time periods causing possible losses to importers.
Moreover, farmers are compelled to buy fertiliser at very high prices as the subsidy has been removed.
Despite issuing the gazette, companies are still awaiting the Acting Registrar of Pesticides to grant approvals to import the required agro chemicals.
With China closing its doors to fertiliser exports, countries like Sri Lanka will have to buy stocks from elsewhere at competitive prices. Although February has usually seen drops in world fertiliser prices in the past this is unlikely to happen next year since China starts its cultivation season from February and they are unlikely to open up fertiliser exports by then.
Other major fertiliser companies also told the Business Times that they were not looking at importing right now despite the lifting of the ban on chemical imports since the time taken to order and import will not be in time for this Maha season that ends next March.
Fertiliser importer Star Trading Company CEO Hiran Doranegama stated that fertiliser at the current world market prices may not be affordable to local farmers. As per the new gazette issued, chemical fertiliser can be imported and sold at the market price by local private importers but no subsidy is paid for chemical fertiliser.
He also noted they may face difficulties in establishing LCs due to shortage of foreign currency.
Colombo University’s veteran economist Prof. Sirimal Abeyratne said that even if the Central Bank relaxes artificial propping of the foreign exchange controls it could go up between the black market rate and the official rate.
He also pointed out that there is widespread sentiment on the uncertainty and risk and as a result not just fertiliser but other sectors too might have to face serious repercussions due to changing government policies.
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