The federal government is expected to allocate Rs20 billion in subsidies for the fertilizer sector in the upcoming federal budget to help settle outstanding gas price arrears and ensure the continued production of essential agricultural inputs, sources said.
The proposed financial support comes as authorities attempt to address long-standing challenges in Pakistan’s energy and fertilizer sectors, where disputes over gas pricing and tariff adjustments have led to the accumulation of significant liabilities over time.
Officials believe the subsidy will ease financial pressure on fertilizer manufacturers, support uninterrupted operations at fertilizer plants, and help maintain adequate supplies of urea and other key fertilizers critical for the agriculture sector.
Pakistan’s fertilizer industry relies heavily on natural gas both as a feedstock and an energy source. Changes in gas tariffs, differential pricing mechanisms, and delays in subsidy settlements have contributed to the buildup of arrears, affecting the financial position of several producers.
The government views the proposed allocation as a temporary relief measure, while broader structural reforms are being considered to address persistent issues in the energy and fertilizer value chain.
The subsidy is also aimed at protecting farmers from sharp increases in fertilizer prices. Agriculture accounts for nearly one-fifth of Pakistan’s GDP and employs a significant share of the workforce, making fertilizer affordability a key policy concern. Higher fertilizer prices can raise production costs for farmers and contribute to food inflation.
Sources said the government is simultaneously evaluating energy sector reforms, including the rationalization of gas tariffs, reduction of circular debt, and the introduction of a more uniform pricing framework for industrial consumers. These measures aim to improve transparency, reduce fiscal pressure, and ensure a sustainable gas supply to industries.
Officials added that timely settlement of gas-related dues would strengthen the fertilizer supply chain, support agricultural productivity, and improve food security.
Sources further said the proposed subsidy mechanism would facilitate the settlement of outstanding gas price differentials, enabling SNGPL to recover the full notified gas price from fertilizer manufacturers. The move is expected to resolve long-standing payment issues between the gas and fertilizer sectors, improve liquidity in the energy supply chain, and help contain the buildup of circular debt.
