Ask Reliance Industries to forgo marketing margins or raise subsidy, fertiliser firms urge govt

Written by Prashant Mukherjee | New Delhi | Updated: Jan 11 2014, 01:22am hrs
RILFertiliser industry urges govt to either ask Reliance Industries to forgo marketing margins or...PTI
The fertiliser industry has urged the government to either ask Reliance Industries (RIL) to forgo marketing margins on sale of KG-D6 gas to fertiliser units or raise the subsidy amount to cover the margins.

According to officials in the fertiliser industry, Reliance Industries charges 13.5 cents per mmbtu as marketing margin over and above the government-fixed price of $4.2/mmbtu for KG-D6 gas supplied to urea manufacturing plants. At present, 11.48 mmscmd of gas is supplied to urea plants.

The fertiliser units want the government to either waive off the marketing margins levied by Reliance Industries or provide subsidy to negate their impact since 2009. GAILs marketing margins in sale of gas to fertiliser units dont hurt the latter as the subsidy covers this.

Sources said the Fertiliser Association of India has written to the ministry of chemicals and fertiliser considering gas prices are set for an upward revision starting April, which would mean a further upward revision in RILs marketing margin as well. The fertiliser industry is hit by delays in subsidy payments amounting to R40,000 crore.

The marketing margin charged by Reliance Industries for gas-based urea plants is not subsidised by the government. Every year, around R100 crore has been getting accumulated since 2009, and gas prices will come up for revision at the end March this year, said an official of a fertiliser company.

The petroleum ministry has said that the marketing margin charged by gas producers and sellers, like Reliance Industries and GAIL, should be fixed between sellers and buyers in sectors other than urea and LPG. According to sources, the Petroleum Natural Gas Regulatory Board is expected to free up the marketing margins for urea as well.

When contacted, officials in the fertiliser ministry said the matter was under consideration. Marketing margin is not in the approved category of subsidy and, therefore, we cannot provide any amount, a fertiliser ministry official said.

The price of urea, the most widely used fertiliser, is highly subsidised and fixed by the government. The last major revision was on April 1, 2010, when the price was increased to R5,310 per tonne from R4,830. In October last year, the price was marginally hiked by R50 to R5,360 a tonne. Attempts to increase urea prices in the recent past have not been successful due to lack of political consensus.

India produces about 22 million tonne (mt) of urea a year and consumes a little more than 30 million tonne. The gap is met by imports. The delayed release of subsidies and the resultant interest burden has hindered investments in the fertiliser sector.

Only recently did the finance ministry clarify that fertiliser companies, hamstrung by the requirement to sell their products at subsidised retail prices, won't need to pay excise duty on the subsidy component. That allayed fears that excise would be levied on the price inclusive of the subsidy.