A 2-judge bench of the Delhi High Court [DHC] in an interim order, has ordered the department of fertilizers [DOF], ministry of chemicals and fertilisers to resume supply of natural gas to Deepak Fertilizer and Petrochemicals Corporation Limited [DFPCL] – a company manufacturing complex phosphate fertilizers – which was suspended last year. The order is on an appeal by Government of India [GOI] seeking stay on an earlier order of a single-judge [July 7, 2015] which had directed resumption of gas supply.
The bench has stated that gas supply to DFPCL will continue till such time government finalizes the guidelines on supply of gas to fertilizer companies and implements the policy decision against two other manufacturers of complex phosphate fertilizers viz., Gujarat State Fertilizers and Chemicals Limited [GSFCL] and Rashtriya Chemicals & Fertilizers Limited [RCFL].
At the outset, we need to look at government’s rationale behind denying domestic gas to manufacturers of complex fertilizers. In this regard, DOF’s main argument is that these fertilizers are ‘decontrolled’ and their manufacturers enjoy freedom of fixing their maximum retail price [MRP]. Therefore, even if they do not get domestic gas and have to buy imported LNG which costs more, they have the option of recovering resultant higher cost of producing these fertilizers by increasing their MRP.
On the other hand, manufacturers of urea which is under control and MRP ‘statutorily’ fixed at a low level, do not have this freedom. In view of this, the government decided to reserve cheaper domestic gas [which is in short supply] for urea manufacturing units only so that its production cost and in turn, subsidy outgo [excess of cost over the MRP] can be kept low.
The argument is flawed. First, whether ‘controlled’ urea or ‘decontrolled’ complex fertilizers [or potash which is also decontrolled but, entirely imported] all provide essential plant nutrients viz., nitrogen [N], phosphate [P] and potash [K] for increasing crop yield and improving crop quality. These have to be used in proper balance for getting optimum results.
Therefore, MRP of all fertilizers has to be ‘affordable’ to farmers. This has to be ensured irrespective of whether manufacturers are free to fix the price or not. Even the government recognizes this fundamental reality and that is why it gives subsidy on decontrolled P & K fertilizers as well. Under Nutrient Based Scheme [NBS], all manufacturers get subsidy at a ‘uniform’ rate so that price to farmers can be lowered. However, in case cost of inputs is kept high, manufacturers will be forced to increase MRP.
DFPCL, RCF and GSFC use gas for making ammonia, an intermediate product which when combined with phosphoric acid yields complex fertilizers. In this backdrop, suspension in supply of domestic gas will force them to use costlier imported LNG thereby leading to increase in production cost. And since, subsidy amount remains unchanged – being uniform for all manufacturers – this will have the effect of increasing the MRP.
Any action which has the effect of making complex fertilizers un-affordable to farmers is unacceptable and that too in the backdrop of persisting imbalance in NPK use ratio [due to excessive use of urea] which needs to be corrected by increasing use of fertilizers carrying P & K. This would be possible only if policy in regard to allocation of cheaper domestic gas does not discriminate against manufacturers of complex fertilizers.
Ironically, government is pushing discrimination to absurd limits by continuing supplies of domestic gas to GSFCL/RCFL even while denying to DFPCL [despite all three being manufacturers of complex fertilizers]. DOF justifies continued supply of gas to former on the specious argument that they have integrated urea and complex operations whereas the latter produces only complexes. This does not hold water.
The production of urea and complex fertilizers in the same factory premises cannot be the basis for tweaking policy dispensation. It has to be related only to fertilizer type; thus if the government has decided not give domestic gas to makers of complex fertilizers then, it ought to have applied it uniformly to all. It is eminently possible to determine how much gas is needed for urea and accordingly restrict supply to that quantity.
In yet another anomalous decision, vide DOF office memorandum (OM) dt June 25, 2015 on “Implementation of NBS policy for P&K Fertilizers and revision in NBS Rates for 2015-16”, the government – as per clause 12 of OM – has decided to mop up the alleged benefit of cheaper domestic gas supplies to GSFC and RCF [albeit by giving an amount lesser than the uniform subsidy]. It is akin to giving from one hand and taking away from the other.
The government must take urgent steps to end this policy mess by ensuring supply of domestic gas to all fertilizer manufacturers without discrimination. It should not only restore supply to DFPCL but also refrain from mopping up alleged benefit to GSFC and RCF resulting from use of cheaper gas. It must not do anything which affects the sanctity of a uniform subsidy policy embedded in NBS.
Currently, fertilizer receives top priority in allocation of domestic gas considering that such use yields maximum national economic advantage as also its role in ensuring India’s food security and keeping subsidy payments low. It makes no sense to first increase cost of producing fertilizers [inevitable, if shortfall in domestic gas has to be made up by higher cost imported gas] and then, pay higher subsidy to prevent increase in price to farmers.
There is mounting pressure from various sectors viz., power, steel, sponge iron etc to change extant priorities for gas allocation and in this regard, several petitions have been made in the courts. The government must not budge. It should stick to continuing with top priority for allocation to fertilizers so that requirements of all segments of the industry including manufacturers of complex fertilizers are met to the maximum extent possible.
Gas being a natural resource that belongs to people of India, even as the government exercises its prerogative to decide the manner of its allocation, the process should be ‘policy driven’ and ‘transparent’ leaving no room for discretion. This is necessary to eliminate scope for judicial intervention which wastes the time of hard pressed judges and hurts the economy, only gainers being advocates.