Alagiri opposes urea price decontrol in letter to PM

Written by Gireesh Chandra Prasad | Gireesh Chandra Prasad | New Delhi | Updated: Aug 24 2011, 08:00am hrs
Chemicals and fertilisers minister MK Alagiri has opposed the plan to raise urea prices by 10% and decontrol the mass-use fertiliser from the next fiscal. In a letter to Prime Minister Manmohan Singh, Alagiri said this proposal, if implemented, would only help producers make huge gains at the expense of farmers.

On August 5, a group of ministers led by finance minister Pranab Mukherjee had recommended bringing urea under the nutrient-based policy, raising price by 10% immediately and partially decontrolling the commodity from the next fiscal. The cabinet committee on economic affairs chaired by the Prime Minister is expected to consider this proposal for final approval in a few weeks.

Alagiri has now urged Singh to intervene in the matter as bringing other commonly used plant nutrients phosphorous and potash under the nutrient-based policy from April 2010 has not helped farmers either in terms of price reduction or in a wider choice of fertilisers.

On the contrary, farm gate prices of phosphatic and potash fertilisers have risen. Furthermore, the subsidy bill of the government in these fertilisers is also growing incessantly, the minister told Singh, emphasising the point that the industry was making huge benefits with no commensurate gain for the farmer. For example, the price of diammonium phosphate has gone up by R3,000 a tonne or R150-200 per bag.

Opposing deregulation, Alagiri told Singh that three out of four farmers are in the small and marginal category, who do not have any marketable surplus and are unable to recover higher fertiliser cost from the market. Any increase in the minimum support price of farm produce would bring negligible benefit to them, the minister said.

The Pranab Mukherjee-led GoM also recommended the government to work on introducing notional price pooling of natural gas for the fertiliser sector so that investors do not hesitate in putting up new gas-based plants on worries about the higher cost of importing liquefied natural gas (LNG) in the absence of domestic gas supply. Alagiri said price pooling could result in legal complications as some gas consumers will have to pay more for domestic gas to make imported LNG less expensive for others.

Alagiri is of the view that further reforms, particularly removing state control over the price, can happen once most of the urea units shift to gas over a period of three years and the sector becomes less heterogeneous in terms of production cost. Until gas pipeline connectivity is achieved, the existing pricing scheme for urea could continue with some amendments. If price is decontrolled when production costs differ, efficient gas-based plants may resort to either profiteering or to predatory pricing to finish off their rivals operating on naphtha, a costlier and less efficient liquid hydrocarbon. That would eventually lead to further import dependence. The minister said that private investments of about R50,000 crore are now on hold in the absence of a new investment policy for the sector. The existing investment policy for urea has failed to attract capital. Alagiri, who has conveyed these sentiments to Mukherjee too, wants the pricing policy for existing units and the new investment policy to be taken up together in a comprehensive manner.