Category: Retention Price Scheme (RPS)

Tata exit from fertilizers – symptomatic of deeper malaise

Tata Chemicals Limited [TCL] made headlines on August 10, 2016 by announcing sale of its urea business [it has a plant in Babrala, Uttar Pradesh with 700,000 tons ammonia and 1.2 million ton urea capacity] to Yara Fertilizers India Private Limited [YFIL] – Indian arm of Norway’s Yara lnternational ASA – for a sum of Rs 2670 crores [after obtaining all regulatory approvals and court sanction, the transaction will be consummated within 9-12 months]. TCL had decided to exit fertilizers long back. However, a number of earlier attempts had failed as it did not find any taker; even this one is a distress sale and will fetch the company only 2/3rd of the money so far invested. Tata has also...
More 2 comments

‘Make in India’ skips fertilizers

Even as Modi – government has unleashed a wave of reforms to accelerate the pace of foreign direct investment [FDI] and give a boost to prime minister’s flagship “Make in India”, fertilizers happens to be one sector that has been completely bypassed. While, indigenous production in all segments of this crucial industry continues to languish, the most neglected is DAP [di-ammonium phosphate; it contains 18% nitrogen [N] and 46% phosphate [P]] where traders have hey-day at the expense of domestic industry. Of the total DAP consumption in India, nearly 60% is met from imports. India is the single biggest buyer of DAP in global market with a share of more than 50 per cent of globally-traded DAP. Even for domestically-manufactured...
More No comments

Perception vs reality

BAD SUBSIDIES : The only way to remove fertiliser subsidy is through direct benefit transfer in place of routing subsidy through the industry. Addressing a global business summit recently, Prime Minister Narendra Modi for the first time, shared at length his thinking on subsidies. He said, “We have to eliminate bad subsidies, whether or not they are called subsidies. But, some subsidies may be necessary to protect the poor and the needy and give them a fair chance to succeed. Hence, my aim is not to eliminate subsidies but to rationalise and target them.” He continued: “I am referring to cooking gas, fertiliser and kerosene subsidies. I must confess that I am surprised by the way words are used by...
More No comments

Bad subsidies – perception vs reality

Addressing the ET Global Business Summit, prime minister, Modi for the first time ever, shared at length his thinking on subsidies. The relevant excerpts are reproduced below:- “We have to eliminate bad subsidies, whether or not they are called subsidies. But, some subsidies may be necessary to protect the poor and the needy and give them a fair chance to succeed. Hence, my aim is not to eliminate subsidies but to rationalize and target them. I have been referring to cooking gas, fertilizer and kerosene subsidies. I must confess that I am surprised by the way words are used by experts on this matter. When a benefit is given to farmers or to the poor, experts and government officers normally...
More No comments

Go for course correction in urea pricing

The real reason for diversion of urea to industrial use, smuggling, black marketing and its excessive use is its ridiculously low selling price. On May 13, the government approved the Comprehensive New Urea Policy, which seeks to promote energy-efficiency, maximise indigenous urea production, and reduce subsidy burden on the budget. At present, under the New Pricing Scheme (NPS), in use since 2003, each of the 30 urea manufacturing units gets a retention price (or ex-factory price) based on the production cost specific to it. Since all of them are required to sell urea at ‘uniform’ controlled price which is lower, the difference is reimbursed as subsidy. NPS was designed as a group-based uniform pricing scheme, whereby each unit in a...
More No comments

HIGH COST OF POPULIST UREA POLICY

By keeping urea fertiliser prices artificially low, while non-urea fertilisers have been de-controlled, the Modi regime is encouraging an unhealthy dependence on this product, ignoring its smuggling and pilferage, and allowing the subsidy bill to increase The Union Government’s decision to freeze the maximum retail price of urea for four years is bewildering. The decision was taken on May 13 at a Union Cabinet meeting chaired by Prime Minister Narendra Modi. During the past one-and-a-half decade or so, the MRP of urea, which has been under statutory control for close to six decades now, was not touched at all — except once in 2010, when it was increased by a meagre 10 per cent. This was despite the fact that...
More No comments

New urea policy – rocks reforms boat

On May 13, 2015, the government approved a so called ‘Comprehensive new urea policy’ which seeks to (i) promote energy efficiency; (ii) maximize indigenous urea production and (iii) reduce subsidy burden on the budget. At present, under the new pricing scheme (NPS) in vogue since 2003, each of the 30 urea manufacturing units gets a retention price (or ex-factory price) based on production cost specific to it. Since, all of them are required to sell urea at ‘uniform’ controlled price which is lower, the difference is reimbursed as subsidy. Initially, NPS was designed as a group-based uniform pricing scheme whereby each unit in a given group [6 groups were carved out depending on feedstock and vintage based on recommendation of...
More No comments

Uniform gas pricing – precursor to full-fledged urea reforms?

In the CCEA (cabinet committee on economic affairs) meeting on March 31, 2015, the government decided on a uniform gas pricing policy and pooling of domestic and imported liquefied natural gas (LNG) for urea plants. Under it, gas will be supplied at ‘uniform’ delivered price to all urea plants on gas grid through a pooling mechanism. What do these announcements have in store for the industry? Does it mean Modi – dispensation has finally got cracking on big bang reforms in fertilizers after a 10 month wait and 2 full-fledged budgets? Currently, there are a total of 30 urea producing units in India. Of these, 27 are based on gas which is considered to be the most energy efficient and...
More No comments

Urea ‘black-marketing’ – tackle the root cause

During April–November, 2014, urea imports were 900,000 tons (16 percent) less when compared to corresponding period in 2013. The shortfall was aggravated by drop in supplies from OMIFCO (Oman-India Fertilizer Company) – a joint venture between IFFCO, KRIBHCO and Oman Oil Company (OOC) – with whom India has a long-term off-take agreement. This together with shortfall in domestic production (3 naphtha-based plants viz., Madras Fertilizers; Mangalore Chemicals & Fertilizers and Southern Petrochemicals Industries had stopped producing due to government’s decision to suspend subsidy payments) led to aggravation of imbalance in the demand–supply in the run up to Rabi season (October, 14 to March, 15). The result was proliferation of black-marketing especially in northern and eastern parts with urea selling at over...
More No comments

What is holding back direct fertiliser subsidy transfer?

SUMMARY Direct transfer of subsidy to farmers holds the key to countering all ills afflicting the fertiliser sector Direct transfer of subsidy to farmers holds the key to countering all ills afflicting the fertiliser sector in India. Successive governments have talked about it and yet none has ventured to implement this. What has held them back? The idea was first mooted nearly four decades ago when, in March 1976, faced with increasing prices of complex phosphate fertilisers—then, there were no controls and manufacturers were free to fix price—the government introduced a flat subsidy at the rate of R1,250 per tonne phosphate nutrient (P2O5). The initial plan was to give the money directly to farmers so that the effective price (net...
More No comments
error: