Urea GoM to discuss price decontrol next week

A Group of Ministers (GoM), headed by finance minister Pranab Mukherjee, is likely to discuss the draft policy on urea price decontrol next week. 

Urea is the only fertiliser that remains under full price control after the government partially freed the prices of phosphatic and potash fertilisers at the beginning of the previous financial year. Its current retail price is Rs 5,310/tonne. “The meeting of the GoM is scheduled for next week and will discuss a draft policy on urea price decontrol," a senior fertiliser ministry official said. The note for GoM is ready, the official added.

A draft policy, prepared by the Committee of Secretaries headed by Planning Commission member Saumitra Chaudhuri, has suggested partially freeing the retail price of urea besides raising the rate by 10 per cent after a year of implementing the new policy.

It has also recommended ‘notional price pooling’ of natural gas for the fertiliser sector and an additional subsidy for under-performing units to improve the production efficiency.

Under notional gas price pooling, the government will calculate the subsidy on urea based on a weighted average pooled gas price.

The CoS has noted that the gas price pooling model and freeing of urea retail prices would enhance domestic production, as the cost of production of gas-based units is much lower than the imported urea price.

As much as 80 per cent of India’s production of urea is gas-based and the urea manufacturers now buy gas from suppliers through separate Production Sharing Contracts.     The draft policy has also suggested that the government should purchase natural gas directly through the Fertiliser Industry Coordination Committee and supply it to companies at a “weighted average price’’.      It has recommended ‘notional gas price pooling’ for 17 fertiliser units and said the government will calculate the subsidy on urea based on a weighted average pooled gas price.      However, four units — RCF Trombay, GSFC and two units of BVFCL — will be kept out of the ambit of this gas price pooling arrangement.      Demand for urea is expected to rise to 30 million tonnes in the next five years and India has to enhance the domestic production, which remained stagnant at 21.2 million tonnes in 2009-10.      After the approval by the GoM, the draft proposal would be sent to the Cabinet for its final approval.