Ministry Has Own Proposals On Urea Subsidy
The fertiliser department has rejected the recommendations of the high-powered Hanumantha Rao Committee and has come up with its own set of policy changes to cut down the urea subsidy.
These policy changes will be discussed by the department with urea producers here on August 4 before being submitted to the committee of secretaries for consideration. The final approval to the policy changes will be given by the Cabinet Committee on Economic Affairs.
Officially, however, the department maintains that it is still studying the report of Hanumantha Rao Committee, which it had set up to review the fertiliser pricing policy. But in reality, the policy measures now being enunciated by the department show that the report is being bypassed. The report came in for all-round criticism from the industry that dubbed it "impractical."
The department has now proposed to modify the manner in which retention price is calculated with regard to capital-related charges, conversion charges and energy-related costs for urea plants.
As per the proposed formula, capital-related charges will comprise only two components -- the depreciation and the return on net worth. Interest charges, which currently is part and parcel of capital-related charges, will be charged on actuals. Interest has been kept aside and will be calculated separately as a fixed amount. 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.
While depreciation will continue to be calculated on the straight line method, post-tax return on net worth will be revised upward to 14 per cent from the existing 12 per cent. This will result in a post-tax return of around 21.5 per cent. For calculating conversion charges, a normative number will be fixed and this will be indexed to the rate of inflation. The conversion charges will thus be revised every year. Regarding energy-related costs, the department has proposed that these will be Based on energy consumption at 1997-98 levels. Payment will be strictly according to consumption.