Fertiliser industry awaits DAP subsidy formula

While companies had started negotiating on phosphoric acid prices, the chief ingredient of DAP, no one was importing now. International prices for phosphoric acid have soared to $1985 per tonne, a 250 per cent rise over last fiscal when prices hovered around $566.25 per tonne.

It was chiefly imported from countries like Morocco, Tunisia, Senegal, South Africa, apart from the US. India imported around 2.5 mt of phosphoric acid annually from these countries.

The Indian manufacturing units would have to bargain to reach a comfortable price and that could be worked out only after the details of the subsidy was known to them, said a senior official in the Fertiliser Association of India(FAI). In case the global phosphoric acid manufacturing units raised prices on high demand, the option of importing DAP still remained with the companies, he added.

However, it all depended on the specifics of the regime now that was eagerly awaited.

More details on the new subsidy regime that was not yet officially notified by the government was expected to be out in a fortnight's time, informed sources close to the development in FAI. The matter was lying with the committee of secretaries headed by the fertiliser secretary before it could go to the Cabinet Committee on Economic Affairs(CCEA) for approval.

The new regime would be based on previous month's actual landed price of DAP that will not factor in the nitrogen component or the conversion cost of phosphoric acid to phosphate by using ammonia. DAP was 18 per cent nitrogen and 46 per cent phosphoric acid.

This was done to make the subsidy formula World Trade Organisation(WTO) compatible, FAI sources said. Price of imported DAP currently was around $988 per tonne while the maximum retail price (MRP) in the domestic market was Rs 9350 per tonne.

The delay in announcing the new formula that was expected by January this year is due to the government's reluctance to take up additional burden on the exchequer, alleged industry sources on conditions of anonymity.

Subsidy for Single Super Phosphate(SSP) by importing rock phosphate to manufacture was cheaper compared to that of DAP and the government was keen that SSP production grew in the country, the source added who was a senior official at a government of India undertaking fertiliser firm. The current subsidy regime for SSP was Rs5630 per tonne for the variety that was manufactured from imported rock phosphate and Rs 3650 per tonne for SSP from indigenous rock phosphate.

As against this, the DAP subsidy for the fourth quarter of 2007-08 was Rs 8467 per tonne and annual consumption for the fiscal ended was around eight million tonnes(mt) out of which around 3 mt was imported.