Panel recommends hike in fixed cost paid for urea

Written by fe Bureau | New Delhi | Updated: Jan 31 2014, 08:32am hrs
The group of ministers (GoM) headed by agriculture minister Sharad Pawar on Thursday decided to raise the fixed cost of urea manufacturing units by R350 per tonne for plants below 30 years of age. Also, for plants that are older than 30 years, the fixed cost component will be increased by R150 per tonne.

These steps will increase the subsidy outgo for the government by Rs 900 crore a year, assuming other things being equal, Srikant Jena, minister of chemicals and fertilisers said after the meeting.

Currently, fixed cost is R2,300 per tonne for all units. The fixed cost component that goes into calculation of concession price had not been revised since 2002-03 and the industry had been complaining that unless this is hiked, their operations could become unviable, amid mounting losses due to costlier inputs. The difference between the concession price and the maximum retail price (net of dealer's margin) is the subsidy.

The fertiliser industry had been seeking a hike of R700 per tonne in the fixed-cost component of their total production cost.

For FY14, about R31,579 crore in subsidies had been carried over from last year. Given the budgeted subsidy of R65,971 crore for the year, this means almost half of the amount has been used to pay last year's bills.

According to sources, around R34,000-35,000 crore would be the demand for subsidy this year from the industry over and above the budgeted amount, which means rolling over of more than R60,000 crore to the next fiscal as the government is keen to keep the fiscal deficit for this year at or below 4.8% of GDP.

The fertiliser ministry has recently received R9,000 crore from the finance ministry to clear pending subsidy bills for the current financial year. This has been provided under the special banking arrangement (SBA) at an interest rate of about 9.5% which has to be borne by the industry.

This is the second time in the current fiscal that the

fertiliser ministry has received funds as SBA towards their subsidy entitlement

for selling products below cost to farmers. Earlier, R5,500 crore was made available under the SBA.

It was also decided by the GoM that high energy units will be phased out in due course of time after addition of new capacity.

The inter-ministerial panel decision will now go to the Cabinet Committee on Economic Affairs for approval. "The new scheme would remain applicable for one year from the date of notification," Jena said.

Urea is the only fertiliser that is still under control and sold at a government-notified price, while the subsidy elements on phosphatic fertilisers and potash are fixed.

The last major revision of urea price was on April 1, 2010, when it was increased to R5,310 per tonne from R4,830 per tonne.

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.