Urea P&D cost skyrockets by 81% in 1995-2006 period

Written by ASHOK B SHARMA | New Delhi, Dec 2 | Updated: Dec 3 2007, 04:29am hrs
The Fertiliser Association of India (FAI) has estimated that the cost of urea production and distribution in the period 1995-2006 increased by 81% to around Rs 12,220 crore.

The FAI study said that the total cost push of Rs 12,220 crore was, however, offset to the extent of Rs 4,480 crore, on account of increases in the maximum retail prices (MRPs) for urea in this period. Increases made in the subsidy to the industry also could offset high accumulated cost to the extent of Rs 6,110 crore. The burden of the balance Rs 1,630 crore had to be borne by the industry due to disallowance of genuine costs actually incurred by the industry, the study said.

Saying that the burden of Rs 1,630 crore had severely hit the industry bottomline, the study said that the removal of the administrative price mechanism (APM) for naphtha, fuel oil, LSHS had already distorted the situation and significantly increased the subsidy bills

Keeping in view the results of the phasing out of the APM for naphtha, fuel oil, and LSHS, the FAI suggested that the APM for gas should not be phased out in a hurry. The government should not only facilitate priority allocation of gas in adequate quantity at a reasonable price to the fertiliser sector but also help the industry in gas pipeline connectivity. The gas pipeline connectivity has a potential for substantial savings in subsidy and to prepare the industry for the ultimate decontrol regime, the study said.

The FAI study pointed out the structural mismatch within the sector, with controls on urea and indirect controls over phosphatic and potash fertilisers. While the central government fixes the concession (subsidy) rate on single super phosphates (SSPs) on a uniform basis, its MRPs are decided by the state governments, leading to multiplicity of prices across the country.