Fertiliser dept starts review of urea policy for proposing price hike

Urea manufacturing plants will get subsidy only if they are using gas based plants

The department of fertiliser has started a comprehensive review of the urea policy especially its pricing with the objective of effecting a 10-15% increase in price.
 
Official sources said that it is contrary to the earlier stance when the ministry had decided not to make any revision in the urea prices.
 
They added that the ministry has taken a view that urea prices will be hiked but its impact and consequent increase in prices will not be passed on to the farmers.

The urea manufacturing plants will get the subsidy only if they are using gas based plants but the farmers across the country will continue to get urea at subsidised prices. Albeit for farmers, the hike in prices will be very marginal.

Later this proposal for hiking urea price will be placed before cabinet, said sources.
 
In order to subsidise the sector, it has proposed to the oil and petroleum ministry that the entire gas allotted to the fertiliser sector may be directed towards manufacturing of urea . Thus non urea manufacturing plants like NPK and others will not get gas from domestic sources . They will have to import natural gas , said an official source.

Last year in 2013-14, such a measure of diverting natural gas from no urea plants to urea manufacturing units has resulted in saving of around Rs 1,000 crore .

Thus a major part of cost borne by the government as part of subsidy will be neutralised by the natural gas which is under administred pricing of the aoil and natural gas ministry . Thereby, fertiliser subsidy aimed towards urea to a large extent will be set off.

Urea is under floating subsidy plan where irrespective of international price fluctutations in case of imports or increase in manufacturing price domestically, the manufacturers get subsidised while keeping the market price of urea fixed.

This is unlike other category of fertiliser where the subsidy portion is fixed and market price keeps changing as per manufacturing or importing costs.

India is one of the largest importers of fertiliser urea and non urea variety. Therefore the importers could negotiate better price and manage the fluctuating price rather than just entering into long term contracts.

An official source said, a 10% rise in urea prices would bring down the subsidy component by around Rs 1,600 crore. The government had last revised the urea prices on April 1, 2010 from Rs 4,380 a tonne to Rs 5,310 a tonne.

The government proposes to import urea to ensure adequate supply to farmers at subsidised price and stop subsiding the urea manufacturing units in case they continue to rely on naphtha for fuel. Accordingly there will be no new investments in naptha-based urea pants afresh.

According to official sources, the government is not in favour of extending the deadline for the domestic urea companies to switch over to gas from naphtha.

Official sources said that even if withdrawal of subsidy would hamper the production of urea in these plants, farmers would not get affected as the urea supply will be ensured from imported source.