Ministerial panel recommends hike in fixed cost paid for urea

A ministerial panel today recommended increase in fixed cost paid to urea by Rs 350 per tone but there will be no increase in the rate of crop nutrient for farmers, as government will subsidise the additional cost, pegged at Rs 900 crore.

Fertiliser Ministry had moved the proposal for modified New Pricing Scheme (NPS) III, according to which department calculates production cost of urea to pay subsidy. The ministry had proposed to raise the fixed cost of urea by Rs 350 per tonne.

"The Group of Ministers (GoM) has agreed to raise the fixed cost of urea by Rs 350 per tonne and it would lead to increase in subsidy by Rs 900 crore," Fertiliser Minister Srikant Jena told reporters here.

Mr Jena added that now proposal would be moved to Cabinet Committee on Economic Affairs (CCEA).

"The new scheme would remain applicable for one year from the date of notification," he said.

As per the proposal, the fixed cost of urea produced by plants which are 30 years old or more would be increased by Rs 150 per tonne, while for all other plants it would be raised by Rs 350 per tonne.

The minimum fixed cost would be Rs 2,300 per tonne though this would not have any impact on urea prices.

The base year for calculating fixed cost of urea has been changed from 2002-03 to 2008-09.

But the industry has been arguing that fixed costs have risen since then and demanding revising it upwards by Rs 700 per tonne by using 2011-12 as the base year.

For a urea plant, fixed cost mainly includes salary & wages, contract labour, repair & maintenance and selling expenses.

In 2007, the government approved the New Pricing Scheme (NPS) Stage-III for urea units in the country.

The scheme was originally effective from October 2006 to March 2010 and now has been extended for three more years. NPS-III scheme was based on cost of production with 2002-03 as the base year.

During the first meeting of GoM in June this year, fertiliser companies had made a presentation before the panel and demanded a hike in subsidy by Rs 700 per tonne on the grounds of increase in their fixed costs.

To ensure availability of urea to farmers at an affordable price, the government has subsidised it by fixing the maximum retail (MRP) price at Rs 5,360 per tonne, which is lower than the production cost. It reimburses the difference between production cost and MRP to urea firms in the form of subsidy.

Government has provided Rs 70,585 crore as fertilizer subsidy in this year's budget.

India produces about 22 million tonnes (MT) of urea and imports 8 MT to meet the shortfall.

Industry body FAI has recently said that another Rs 40,000 crore would be required for clearing the total subsidy payment including arrears of last year.