The government on Friday decided to provide an additional fixed cost of Rs 350 per tonne to 30 urea manufacturing units to boost domestic production and reduce imports.
The decision was taken in April 2014 but was not implemented. The fertilizer industry has been urging the government to provide this additional fixed cost to urea plants.
Sources said a cumulative impact of Rs 5,600 crore could be released to the fertilizer companies as result of the Cabinet decision. The Centre fixes the maximum retail price (MRP) of urea. The difference between the cost of production and selling price is reimbursed to manufacturers. India's domestic production of urea is around 25 million tonnes (mt), while demand is over 30 mt.
“The Cabinet Committee on Economic Affairs has given its approval to the proposal of department of fertilizers to remove ambiguities in the Modified New Pricing Scheme -III (NPS-III) for determination of fixed costs for the urea units. Modified NPS-III was notified on 2nd April, 2014,” an official statement said. “However, due to ambiguous language of the notification, it could not be implemented," it added.
The decision will facilitate its smooth implementation which will result in grant of additional fixed cost of Rs 350 per tonne to 30 urea manufacturing units.
For urea plants, the fixed cost mainly includes salary and wages, contract labour, repair and maintenance and selling expenses.
The step will ensure maximum domestic production of urea and reduce import dependency.
"The implementation of the Modified NPS-III will result in gains to existing urea units to the extent of their actual increase in fixed cost with ceilings as mentioned in the proposal which will ensure that no unit is benefited unduly," the statement said.
This will facilitate the continued operations of the urea units resulting in sustained and regular supply of urea to the farmers.
"The approval will also grant the special compensation of Rs 150 per tonne to urea units which are more than 30 years old and converted to gas which will incentivize these units to remain viable for sustained production," it added