Govt weighs higher fertilizer export quota to offset rising fuel costs amid Iran war

The government is holding consultations to increase the price of gas it supplies to fertilizer manufacturers — the single largest energy-consuming industry in the country — in light of the global energy crisis caused by the American-Israeli war on Iran, according to two government sources who spoke to Mada Masr on condition of anonymity. The government currently pays a large subsidy on the natural gas it supplies to the industrial sector. But “in order to maintain stable returns” for fertilizer manufacturers, as one of the two sources put it, the government will also increase the price it pays to procure fertilizers for domestic agriculture and raise the ceiling for how much manufacturers are legally permitted to export. The second source said that each extra US$1 increase in gas prices raises the cost of producing urea fertilizer by $30. The same source explained that a price formula is already in place to ensure that when global urea prices go up, the manufacturers pay the government more, keeping the manufacturers’ profit margin steady. This time, however, the source said that the rate of increase that the government wants to introduce outstrips the usual pricing formula. The shock of the war as well as Iran’s retaliatory strikes on Gulf energy facilities and selective blockade on the Strait of Hormuz — through which around 20 percent of the world’s fuel shipments pass — have already reverberated through the supply chain to hit energy-intensive commodities like fertilizers. Global urea prices have jumped nearly $300, reaching around $750 per ton since the beginning of the war, and are expected to climb even further. The spike marks the commodity’s second-highest  in the last five years, exceeded only by the surge resulting from Russia’s invasion of Ukraine in 2022. The government’s first step to address the crisis was to raise the cost of all categories of fuel by as much as 31 percent — the highest single price hike since the state slashed energy subsidies and adopted automatic fuel pricing. The move has triggered a wave of inflation across all goods and services, placing heavy pressure on households nationwide. During a press conference last week, a journalist asked Prime Minister Mostafa Madbuly why the government raised fuel prices for the public before energy-intensive industries. “A decision [to that effect] has already been taken,” Madbuly responded. Another minister present at the conference chipped in to stress that this would not worsen inflation further down the supply chain, claiming the decision was taken “without any impact on market prices.” Madbuly concurred, adding, “we have done so through a clear formula: we observed how much the price abroad is, and how much the profits are, and we reached a particular formula to make sure that no one is impacted and that market prices stay the same for farmers.” But farmers are already feeling the supply-chain shock. The government increased  the price of subsidized fertilizers it provides to agricultural cooperatives, according to a March 27 ministerial decision reviewed by Mada Masr. Two sources from agricultural cooperatives, one in Monufiya and another in Minya, who spoke to Mada Masr on condition of anonymity, also confirmed the increase. They said the price of a sack of nitrate fertilizer has increased by LE5 to reach LE285, and urea fertilizer has climbed to LE290 a sack. The sources said that these fertilizers are now being sold on the informal market for around LE1,200 to LE1,300 a sack. These increases are being rolled out before peak buying season, which begins in the second half of April, in the leadup to the spring planting season, the sources said. The government held industrial gas prices steady for four consecutive years until September, when it increased them by $1-$2 per British Thermal Unit. At the same time, it increased the price at which it buys fertilizers from manufacturers by around 33 percent, to LE6,000 per ton. At that time, the government also gave the fertilizer sector, the largest fuel-consuming industry, permission to increase exports from 45 percent to 53 percent. Ten percent were earmarked for sale on the domestic commercial market. This corresponded to an 18% decrease in the amount of fertilizer manufacturers are required to give the government, diminishing in turn the amount of subsidized fertilizer allotted to local farmers and agribusinesses. A third government source who also requested anonymity said that the ongoing consultations are set to increase the export quota from 53 percent to 60-65 percent. At the time of the September restructuring, the former deputy agriculture minister told Mada Masr that any agreement diminishing how much fertilizer output goes to the domestic market will negatively impact the domestic agricultural sector — the opposite of the agricultural expansion the government had said it wants to achieve. A former official in the Egyptian General Petroleum Corporation also told Mada Masr last month that leaving the door wide open to fertilizer exports is a mistake, given Egypt’s current natural gas production falls short of domestic demand. The source said exporting fertilizer is akin to exporting the limited gas Egypt has, calling for fertilizer production to be scaled back to the level of domestic need. But a proposal to that effect, put forward last year by the Petroleum Ministry and seeking to gradually increase the price at which the government supplies gas to the industrial sector, has failed to gain traction. At the time, gas stood at around $7.5 per million Btus, a far cry from the current rate of $9. Egypt has been hit doubly hard by the energy crisis caused by the war due to its heavy dependence on Israeli gas. Declaring a state of emergency, Israel reduced output at the gas fields supplying Egypt as it launched war on Iran at the end of February. To scale back domestic consumption, the government has rolled out a plan to decrease the strain on power plants, switching off street lights in some areas at night and enforcing a strict 9 pm closing time for shops and restaurants. But it is yet to reduce its energy supply to the industrial sector in favor of electricity generation, as it has done during other fuel shortages in recent years. The third government source said the situation could change if the war continues until the summer, Egypt’s peak energy demand season. At that point, the source said, the government will have to reduce industrial gas supply to maintain electricity generation. “The problem will be one of supply, rather than a cost issue,” they said. Madbuly announced at a press conference last Saturday that Egypt’s energy import bill has more than doubled in March, going from $1.2 billion to $2.5 billion. Foreign trade data indicates that Egypt’s natural gas import bill had jumped to historic levels prior to the war on Iran, totaling $7.2 billion during the first ten months of last year. Egypt was among the fastest growing natural gas importers worldwide last year, importing an additional nine billion cubic meters, compared to three billion the previous year —  a 280 percent increase, according to the the International Energy Agency’s latest report . The post Govt weighs higher fertilizer export quota to offset rising fuel costs amid Iran war first appeared on Mada Masr .