The government decided last week to raise the prices of subsidised fertilisers by up to 40 per cent, with prices of urea fertilisers from state-owned companies increasing to LE2,000 per ton from LE1,450 as a result and nitrates increasing to LE1,900 per ton from LE1,350. The move was inevitable in order to support the state-owned companies in a sector that has been suffering due to the energy crises, according to Mohsen Nasser, manager of the Delta Company for Fertilisers and Chemical Industries, one of the largest state-owned producers. Energy shortages have escalated to unprecedented levels since the 25 January Revolution due to mounting government debt to foreign companies and a slowdown in exploration activities that have hit the energy-intensive fertilisers industry hard. The problem intensified after the government increased fuel prices in July by reducing the subsidies that eat up to a fifth of the government's annual budget. The price of natural gas supplies to fertiliser factories rose by between 30 to 75 per cent to reach $4.5 per million thermal units (mtu) compared to its previous level of $4. This was not the first increase as the government pushed up prices of natural gas from $3 to $4 last year. Natural gas represents 60 to 80 per cent of the overall cost of fertilisers, and while all fertiliser producers are suffering from the decreasing supply of natural gas, the state-owned companies are shouldering the largest burden. These companies sell the majority of their production at fixed prices to farmers. Moreover, they are not paid in cash but in credit offered by the Bank for Development and Agricultural Credit. Nasser said that his company, which provides 60 per cent of subsidised fertilisers in Egypt, had started to register losses since last year's price increases. He said that this week's decision would make things better for the state-owned companies as the gap between their profit margins and those of the private producers would be narrower. However, farmers are not happy with the decision. The Farmers Syndicate said last Saturday that it did not accept the decision and that the government would not be able to implement the increase, a claim that Nasser denied. “If the government freezes the decision, this will destroy the public-sector companies,” he said. Osama Al-Kholi, a farmer in the Delta region, said that farmers were furious at the decisions. While the government had increased the prices of fertilisers, it had not compensated farmers by increasing the prices it pays for crops like wheat, rice and cotton, he said. There are eight fertiliser companies in Egypt, four of which are state-owned. The overall annual production was 17 million tons last year, decreasing to 15.5 million tons due to natural gas shortages. Total production is equally divided between public and private-sector companies, but the latter export 85 per cent of their annual output. The government has been seeking a solution to the problems, but so far without success. Government representatives have met with the companies several times without agreement being reached, and there are now no plans to meet again, said an official from the Ministry of Investment who requested anonymity. On Sunday, the government decided to allow state-owned fertiliser companies to export their production surplus after supplying mandatory quotas set by a government panel. According to a decision issued by the ministry of agriculture, private-sector fertiliser firms have to secure around 350,000 tons a month to meet the needs of the local market before exporting any excess. The state-owned Delta Company will provide 45,000-50,000 tons monthly, and the Abu Qir Fertilisers and Chemical Industries Company has reported it will supply about 140,000 tons monthly. Experts believe the decision will curb the black market, in which fertilisers are sold at more than LE3,000 per ton, and will increase the profitability of public-sector companies. An economic expert who requested anonymity said that the government had not created real solutions for the crisis, however, as it had “transferred the burden to the final consumer who will suffer from higher prices, especially of food,” he said.
