Unkind burden And illogical too jorgen mcleman / shutterstock.com The Gujarat government’s efforts to squeeze out more royalty from ONGC could impact production and exploration The Modi government is keen to take up administrative and judicial reforms in a big way, but the actions of the Gujarat government may become a stumbling block. A case in point is the Gujarat government’s decision to collect a royalty of 20 per cent on the discount given by the Oil and Natural Gas Corporation (ONGC) on sale of crude to downstream oil PSUs. It stands to reason that royalty or cess should be levied on the sale price (after discount), as has been established by precedent as well. However, the Gujarat government’s...
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Category: Fertilizers
Prune subsidies vide censoring producers
Contrary to expectation, there was no big bang reform in regard to subsidies in Modi-government’s maiden budget presented on July 10, 2014. However, Arun Jaitley announced setting up of an expenditure reforms commission (ERC). While, we may have to wait for ERC recommendations until next budget in February, 2015, meanwhile Jaitley has given some ideas on direction in which government intends to move forward. Thus, he opines that extant dispensation of subsidies which he describes as ‘un-quantifiable’ and beneficiaries ‘un-identifiable’ cannot be allowed to continue. He emphasized need for replacing this by a system of direct subsidy transfer to poor. To countenance menace of subsidies, Jaitely alluded to fundamental need for consumers/users to pay for increase in cost of goods...
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Fertilizer reforms – deliver bitter pill for ‘achchhe din’
While, replying to debate on President’s address, the prime minister unveiled a 5 points agenda for ushering in a technology-led second green revolution in India. One of these is issue of soil health card (SHC) to every farmer to apprise about status of his soil. SHC will mention inter alia recommendations for fertilizer use taking in to account nutrient status of soil and crop type. The information will be computerized and each farmer given a unique identification number (UIN) to download the card for his farm. If the mission can be achieved within 5 years term of this government and farmers start following recommendations as per their respective cards, it will revolutionize the way Indian agriculture is practised. However, mere...
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Fertilizer Industry in India – Challenges and Way-forward
Fertilizers – key to food security and sustainable agriculture Food security is of paramount importance to meet the growing food needs of an ever increasing population. Not having sufficient domestic production of food to meet requirement of 1.25 billion plus and still expanding will not only put a huge burden on scarce foreign exchange resources but can also expose us to exploitation in global market. Hence, there can be no compromise on this overriding goal. Agriculture has a share of around 15% in gross domestic product (GDP) and nearly 60% of population derives its livelihood from it. Industry and services sectors too depend heavily on it for their rapid and sustained growth. Therefore, agriculture needs to grow rapidly not only...
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RIL/BP/Niko exploit ‘fault line’ in Rangarajan formula – for a bonanza
On January 10, 2014, Government had notified new guidelines for pricing of domestic gas applicable from April 1, 2014 that would lead to doubling from current US$ 4.2 per mBtu. Even as EC has deferred its implementation for now, meanwhile, fertilizer industry has got another shocker. In the gas sales purchase agreement (GSPA) for supplies from D-6 block of Krishna-Godavari (KG-D6) basin, Reliance Industries (RIL) has proposed that government fixed rate will be charged on gross calorific value (GCV) basis instead of current practice of charging on net calorific value (NCV). It also moots marketing margin of US$ 0.135 per mBtu on GCV basis. For arriving at price applicable to all domestic gas, Rangarajan formula takes average of hub prices...
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Urea investment policy – a flop show, yet again
The Cabinet has recently approved an ‘amended’ new urea investment policy (UIP) which was notified in January 2013. The amendment drops the provision of guaranteed buy-back of urea from projects covered by it. Key features of the policy are in order. It assures investors in green-field and revival projects of sick public sector units of FCI & HFC a price linked to import parity price (IPP) with a floor (F) US$ 305 per ton and ceiling (C) US$ 335 per ton. This corresponds to gas price of up to US$ 6.5 per mbtu. For increase in gas price beyond this level, it provides for suitable adjustment in ‘F’ and ‘C’. Thus, for each $ increase up to US$14 per mbtu,...
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Enough of this urea populism
A urea price hike is in order to curb subsidy outgo and redress nutrient imbalance A Group of Ministers (GoM) was set up last year to suggest a suitable hike in urea price to neutralise increase in energy cost, so that subsidy can be reined in. The Government, however, has categorically ruled out any increase until general elections. The maximum selling price (or MRP) of urea has been under control since 1957. Until the late 70s — a period of low inflation and low feedstock price — the MRP was higher than the cost of production and distribution. Hence, there was no subsidy. Since 1977, equation was reversed, with cost exceeding selling price. The Government had to give subsidy to...
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Fertilisers: Back to the licence raj
Elections can wreck even the best policy reform. A vivid demonstration of this is available in the Office Memorandum dated June 26, 2013 issued by the Department of Fertilisers (DoF). It says that under the nutrient-based scheme (NBS) for de-controlled di-ammonium phosphate (DAP)/complex fertilisers, potash and Single Super Phosphate (SSP), the Government will fix ‘reasonable’ MRPs and manufacturers charging higher will be deemed to be ‘profiteering’ from the scheme. The Memorandum specifies action in cases of violation. This would take the form of denial of subsidy equal to the extent of the‘un-reasonable’ amount for the product/grade concerned or its ‘exclusion’ from the purview of NBS. Companies have been directed to submit detailed annual cost data from 2010-11 onwards, duly certified...
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Fertilizer bonds – a manifestation of deeper malaise
Fertiliser Association of India (FAI) has filed a petition in Delhi High Court (DHC) seeking compensation for losses incurred on ‘fertilizer bonds’ that were given to fertilizer manufacturers in lieu of subsidy during 2007-08 & 2008-09. These bonds were valued at Rs 27,500 crores accounting for 20% of subsidy payments during those 2 years. According to FAI, loss is estimated at Rs 3500 crores. About 50% of loss was on sale of bonds worth Rs 11,795 crores to RBI. Why were these bonds issued? What is their nexus with subsidy? What prompted companies to sell these? To unravel these questions, we need to look at ‘genesis’ of subsidy. Government of India (GOI) controls MRP of urea at a low level...
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A fertiliser plant closing near you
After netting the carryover subsidy from FY13, just Rs.30,000 crore is left in FY14 for fertiliser subsidies Finance minister P Chidambaram has achieved a fiscal deficit of 5.2% of GDP for 2012-13, thereby redeeming government’s commitment to contain it within the 5.3% target—though the latter, by itself, is higher than the 5.1% provided for by Pranab Mukherjee in the last Budget. Further, true to exhortations he made during his road-shows to demonstrate that India is serious about fiscal consolidation, he has budgeted the deficit at 4.8% during 2013-14. He also intends to reduce it to 3% by 2016-17. The achievement is more fortuitous rather than being a result of credible efforts made on ground zero. A substantial compression in Plan...
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