Govt Mulls Windfall Tax on Fertilizer Companies

The government is considering imposing a cess on fertilizer companies to recoup windfall profits, with the proceeds proposed to be ring-fenced for farmers’ benefit, reported Business Recorder.

The move is under discussion at the highest level, with a committee constituted to evaluate options for recovering excess gains from the sector while aligning with broader energy and agriculture policies.

The committee includes Minister for Petroleum and Natural Resources Ali Pervaiz Malik, Minister for Climate Change Dr Musadik Masood Malik, the Secretary Finance, Chairman Federal Board of Revenue and the National Coordinator of the Petroleum Sector Task Force.

The proposal was initially floated by FBR Chairman Rashid Mehmood Langrial before a committee led by Deputy Prime Minister and Foreign Minister Ishaq Dar, which is overseeing gas pricing and fertilizer gas allocations.

During deliberations, the climate minister stressed that gas allocation to fertilizer plants must be reviewed in light of declining gas reserves in the Sui network. He argued that the Weighted Average Cost of Gas is the only sustainable long term solution and suggested that industries facing high gas prices should be treated uniformly.

He also proposed treating gas allocation as import substitution, with investment through the Public Sector Development Programme to process low BTU gas for price equalization.

The petroleum minister informed the committee that new gas allocations would materialize after two years and would resolve supply constraints for three fertilizer plants connected to the network. He emphasized maintaining the sanctity of contracts and said the Petroleum Division has sought legal opinion on reopening pricing arrangements. He also recommended separating the issue of windfall profits from gas allocation decisions.

The FBR chairman presented multiple options to recover windfall profits, including a windfall tax on income, though this would leave only 43 percent with the federal government.

Another option discussed was adopting the Independent Power Producer model, where returns such as Return on Equity and Internal Rate of Return are regulated while ensuring uniform consumer pricing. He also proposed creating an escrow account for internally accounting windfall profits, with funds later transferred to farmers.

Tariq Bajwa, Special Assistant to the Prime Minister, suggested imposing a legally backed cess, proposed to be named the Agriculture Development Cess, with proceeds ring fenced for farmers. The deputy prime minister, however, noted that low BTU gas cannot be injected into the network without significant investment, which cannot be financed through the Public Sector Development Programme, adding that gas depletion can only be addressed through new exploration.

Separately, the federal cabinet approved gas allocation for fertilizer plants in December 2025 on the recommendations of the committee and the Economic Coordination Committee, transitioning the sector to a Mari-based standalone gas supply system. The move aims to ensure long term sustainability of fertilizer production, support food security and protect farmers from price volatility.

Under the plan, Fauji Fertilizer Company at Port Qasim will receive 104 mmcfd of raw gas, translating into 80 mmcfd of processed gas, while Fatima Fertiliser at Sheikhupura will receive 68 mmcfd of raw gas and 52 mmcfd of processed gas.

Agritech at Daudkhel will be allocated 50 mmcfd of raw gas and 38 mmcfd of processed gas, alongside reallocation of gas volumes, including supply to Engro Fertilizer’s base plant at Mari.

The fertilizer companies will install gas processing and compression facilities to transport processed gas through Sui network companies. The investment required for processing low BTU gas with high CO2 content is estimated at over $200 million and will be borne by the industry. Gas supply arrangements will be governed through agreements with Mari Energies and third party access frameworks, including swap arrangements for supply to Port Qasim.