FinMin against urea price decontrol

The Finance Ministry has shot down the Planning Commission's suggestion of freeing urea prices from government control, saying complete deregulation of the sector may impact farmers badly.

The Finance Ministry instead wants to continue with the existing urea price policy with more focus on improving domestic output by providing subsidies to laggard units.

Urea is the only fertiliser that remains under full price control after the government partially freed the prices of phosphatic and potash fertilisers in April, 2010. Its current retail price is Rs 5,310/tonne.

The suggestion of the Planning Commission on urea decontrol was ruled out by the Department of Expenditure (DoE), which had initially pushed for deregulation, concerned over the huge subsidy burden on account of the fertiliser.

"The complete deregulation of the maximum retail price (MRP) in the urea sector may adversely impact farmers unless the gap between the price of imported and indigenous urea is significantly bridged," the DoE observed on the new draft urea price policy in the inter-ministerial note.

It also mentioned that in the recent event of a significant jump in potassium and phosphate prices, "The chances of a run-away price increase in the domestic urea market cannot be ruled out. In view of this, the DoE supports the proposal of the Department of Fertiliser."

Besides the Finance Ministry, the ministries of agriculture and fertiliser have also opposed the move to free urea from price control.

However, the final call on the draft policy will by taken by Cabinet soon.

In August, 2011, the GoM headed by Finance Minister Pranab Mukherjee approved the new draft urea policy prepared by the Committee of Secretaries headed by Planning Commission Member Soumitra Chaudhury.

Under the draft policy, partial freeing of retail prices of urea was proposed and fertiliser companies were to be allowed to raise urea prices by up to 10% in the first year of the policy.

To improve production efficiency, it suggested that the government would provide a subsidy of Rs 4,000 per tonne to gas-based urea plants and a higher subsidy to naphtha-based units for three years to convert themselves into gas-based plants.

The draft policy has also recommended notional pooling of natural gas prices for the fertiliser sector. Under notional gas price pooling, the government will calculate the subsidy on urea based on the weighted average pooled gas price.

About 80% of the country's urea production is gas-based. Currently, domestic production is stagnant at 21-22 million tonne against demand of 27-28 million tonne.

Retail prices of di-ammonium phosphate (DAP) and muriate of potash (MoP) have more than doubled under the decontrolled regime. DAP is available at around Rs 20,000 per tonne and MOP costs Rs 12,000 per tonne in retail markets.