On May 13, 2015, the government approved a so called ‘Comprehensive new urea policy’ which seeks to (i) promote energy efficiency; (ii) maximize indigenous urea production and (iii) reduce subsidy burden on the budget. At present, under the new pricing scheme (NPS) in vogue since 2003, each of the 30 urea manufacturing units gets a retention price (or ex-factory price) based on production cost specific to it. Since, all of them are required to sell urea at ‘uniform’ controlled price which is lower, the difference is reimbursed as subsidy. Initially, NPS was designed as a group-based uniform pricing scheme whereby each unit in a given group [6 groups were carved out depending on feedstock and vintage based on recommendation of...
More
No comments
Category: Pricing policies & subsidies
Uniform gas pricing – precursor to full-fledged urea reforms?
In the CCEA (cabinet committee on economic affairs) meeting on March 31, 2015, the government decided on a uniform gas pricing policy and pooling of domestic and imported liquefied natural gas (LNG) for urea plants. Under it, gas will be supplied at ‘uniform’ delivered price to all urea plants on gas grid through a pooling mechanism. What do these announcements have in store for the industry? Does it mean Modi – dispensation has finally got cracking on big bang reforms in fertilizers after a 10 month wait and 2 full-fledged budgets? Currently, there are a total of 30 urea producing units in India. Of these, 27 are based on gas which is considered to be the most energy efficient and...
More
No comments
Fertilizer subsidy – direct transfer ‘miles away’
Those of us expecting big bang announcement in budget for 2015-16 in regard to fertilizer reforms may have been disappointed. The budget for 2014-15 had mentioned that the government would set up an Expenditure Reforms Commission (ERC) on rationalizing subsidies. ERC under Dr Bimal Jalan ex-governor, RBI submitted its interim report about a month back which heightened the possibility of major initiatives being taken in this budget. Yet, in his speech, finance minister maintained a stout silence. Are we then to conclude that government has missed an opportunity to reform the sector yet again? Such a conclusion may be a bit premature if one were to take a cue from post-budget briefing of Chief Economic Adviser (CEA), Arvind Subramanian and...
More
No comments
DE-CONTROLLING UREA PRODUCTION
Removing the archaic ceiling on urea prices, which is a political sop to secure votebanks, will energise domestic production. This, in turn, will ensure consistent supply and also lessen the public’s subsidy burden India was able to import only about 9,00,000 tonnes of urea between April and November, 2014, which was 16 per cent less than what was imported during the same period in 2013. This put tremendous pressure on local markets. The problem was aggravated by a drop in supply from the Oman India Fertiliser Company SAOG. At home, three naphtha-fed urea production plants viz, Madras Fertilisers Limited, Mangalore Chemicals and Fertilisers, and Southern Petrochemicals Industries Corporation, also had to stop production after the Government decided to suspend subsidy payments....
More
No comments
Urea ‘black-marketing’ – tackle the root cause
During April–November, 2014, urea imports were 900,000 tons (16 percent) less when compared to corresponding period in 2013. The shortfall was aggravated by drop in supplies from OMIFCO (Oman-India Fertilizer Company) – a joint venture between IFFCO, KRIBHCO and Oman Oil Company (OOC) – with whom India has a long-term off-take agreement. This together with shortfall in domestic production (3 naphtha-based plants viz., Madras Fertilizers; Mangalore Chemicals & Fertilizers and Southern Petrochemicals Industries had stopped producing due to government’s decision to suspend subsidy payments) led to aggravation of imbalance in the demand–supply in the run up to Rabi season (October, 14 to March, 15). The result was proliferation of black-marketing especially in northern and eastern parts with urea selling at over...
More
No comments
Self-sufficiency in fertilizers – a pipedream
For nearly 4 decades, successive governments have vowed to achieve self-sufficiency in production of fertilizers yet, this much trumpeted goal has eluded them barring a brief stint in early 90s. Will things be different under Modi – dispensation? Immediately after the present government took charge in May, 2014, fertilizer minister, Ananth Kumar reiterated the dire need for achieving self-sufficiency in fertilizers by re-invigorating sick plants of Fertilizer Corporation of India (FCIL) and Brahmaputra Valley Fertilizer Corporation of India (BVFCL) (earlier known as HFCL) both undertakings of central government. Both these undertakings have been incurring losses for several years in fact decades. Indeed, some plants under them viz., Ramagundum and Talcher (FCIL) and Haldia (BVFCL) were babies born sick. It would...
More
No comments
What is holding back direct fertiliser subsidy transfer?
SUMMARY Direct transfer of subsidy to farmers holds the key to countering all ills afflicting the fertiliser sector Direct transfer of subsidy to farmers holds the key to countering all ills afflicting the fertiliser sector in India. Successive governments have talked about it and yet none has ventured to implement this. What has held them back? The idea was first mooted nearly four decades ago when, in March 1976, faced with increasing prices of complex phosphate fertilisers—then, there were no controls and manufacturers were free to fix price—the government introduced a flat subsidy at the rate of R1,250 per tonne phosphate nutrient (P2O5). The initial plan was to give the money directly to farmers so that the effective price (net...
More
No comments
Direct fertilizer subsidy payment to farmers – why dither?
Direct transfer of subsidy to farmers hold the key to countenancing all ills afflicting the fertilizer sector in India. Successive governments have talked about it and yet, none has ventured to implement this concept. What has held them back? The idea was first mooted nearly 4 decades ago when in March 1976, faced with increasing prices of complex phosphate fertilizers (then, there were no controls and manufacturers were free to fix price), the government introduced flat subsidy @ Rs 1250 per ton phosphate nutrient (P2O5). The initial plan was to give the money directly to farmers so that the effective price (net of subsidy) paid by them for these fertilizers was correspondingly reduced say by Rs 575 per ton in...
More
No comments
We need a coherent urea investment policy
A burden: And nobody will gain from it – A MURALITHARAN The urea industry is in need of wholesome nourishment rather than the piecemeal changes the Centre has been offering October 26, 2014: In January 2013, the Government had notified a urea investment policy (UIP) for new greenfield projects; expansion of existing units; additional urea from revamp of existing units and revival of projects of sick public sector units of the Fertilizer Corporation of India (FCIL) and Hindustan Fertilizer Corporation (HFCL). Early this year, it made two amendments in the UIP. The first dispensed with the “dispensation of guaranteed buy-back”, while the second requires interested private companies to give a bank guarantee of ₹300 crore for every project, while PSUs...
More
No comments
Urea investment policy – a dream shattered
In January 2013, government had notified a urea investment policy (UIP) for new green field projects; expansion of existing units; additional urea from revamp of existing units and revival projects of sick public sector units of Fertilizer Corporation of India (FCIL) & Hindustan Fertilizer Corporation (HFCL). Early this year, it made two amendments in UIP. The first amendment dispensed with the “dispensation of guaranteed buy-back ” outlined earlier. A second amendment requires interested private companies to give a bank guarantee (BG) of Rs 300 crore for every project, while PSUs firms are exempted from it. (In view of general elections and model code of conduct coming in to force, its notification was kept in abeyance. The amended policy has now...
More
No comments