Gas price hike could hit fert subsidy plan
The C Rangarajan committee’s proposal to nearly double the domestic price of natural gas, if implemented, could adversely affect the government’s subsidy reduction plan and make the new urea investment policy “redundant”, is the thinking at the ministry of chemicals and fertilisers. The administrative ministry for the fertiliser industry, whose output is sold at heavily subsidised prices and through whom the subsidy is currently routed, has written to the finance ministry to assess the budget implications of the panel’s proposal before taking a call on it.
If the Rangarajan committee’s views are accepted, the gas price would be around $8 per mmBtu (exclusive of transportation charges and marketing margins), compared with $4.20 at present. Sources said that the fertiliser ministry has contended that such a price won’t be viable for the fertiliser industry, which needs to add capacities to keep pace with the rising demand for fertilisers.
Basically, the fertiliser ministry wants the finance ministry to give clarity over the subsidy structure before the gas price is revised. It has estimated that a $4 per unit increase in price of gas would push up the cost of urea by R5,200 per tonne, and the annual fertiliser subsidy bill by around R10,000 crore at current (subsidised) retail prices for urea. Gas accounts for over three-fourths of the cost of production of fertilisers. A proposal to decontrol retail prices of urea has been hanging fire for long due to political sensitivities while there have been protests over the spike in prices of the
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