Industry Opposes Cut In Urea Subsidy

Fertiliser industry has turned down the policy changes suggested by the fertiliser department to cut down urea subsidy.

These changes, according to the industry, will further retard the industry's growth and bring down urea manufacturers' margins drastically.

The industry was unanimous in condemning the move to reassess the capacity of urea plants for the purpose of calculating retention price for urea.

This, according to industry representatives, would be a retrograde step and could do incalculable damage to the fertiliser economy of the country.

Chief executives and senior officials of public, private and cooperative fertiliser manufacturers were attending a meeting convened here yesterday by minister for chemicals and fertilisers S S Barnala to discuss the report of the high-powered Hanumantha Rao Committee on fertiliser pricing policy and the new policy changes suggested by the fertiliser department to cut urea subsidy.

The department has suggested that for capital-related charges, urea capacity will be reassessed from 1,350 tonnes per day (tpd) to 1,500 tpd thereby increasing the denominator for calculating capacity utilisation by a margin of 10 per cent.

Moreover, the extra production above 110 per cent of the reassessed capacity will get either the import parity price or the retention price, whichever is lower. All interest charges will be given as actuals.

Industry representatives said the capacity was being sought to be reassessed since the government thought that all the urea plants were "gold plated" and had hidden capacity to exploit retention price formula.

However, it could not be true for most of the plants set up before the retention price scheme came into force.

In fact, according to them, most of these plants were operating much below their capacities. It was only after they renovated their plants that the capacity utilisation increased to profitable levels.

In case their capacities are reassessed again, the industry representatives said, it would amount to punishing them for increasing their efficiency by modernising their plants.

The representatives, however, suggested a cap of 120 per cent on capacity utilisation by urea plants. They said that ordinarily, capacity of a urea plant is calculated on the basis of 330 working days in a year.

Thirty-five days are kept for maintenance shut-down. However, the modern plants do not need a shut-down for the initial two-to-three years. This way they can achieve 120 per cent capacity.

For the production above 120 per cent, the government could give a uniform capital charge of Rs 1,000 a tonne against the normal Rs 4,000-5,000 a tonne.

At this rate, the government would get urea cheaper than even the dumping price of imported urea and would be much less than the cost of urea produced if new capacities have to be set up to meet urea demand in the country.

The industry has already rejected the recommendations of the Hanumantha Rao Committee. It was later decided that another meeting would be convened to work out alternative methods of reducing urea subsidy.