New Delhi: The government may consider setting up a regulator for the fertilizer industry if urea prices are freed from state control, two senior government officials said.
The regulator may be given similar powers as the Telecom Regulatory Authority of India (Trai), the officials independently confirmed.
“The primary responsibility of such a regulator will be to monitor fertilizer prices and quality issues,” said one of the two officials cited above. “It could also have other powers, including making recommendations.”
The officials, who declined to be identified, said a detailed framework hadn’t been drawn up for the establishment of a regulator.
Currently, the price, distribution and quality of urea is monitored by the so-called Fertilizer Control Order (FCO), which was created in 1973 under the Essential Commodities Act. When it was formed, FCO was also supposed to monitor non-urea fertlizers.
The government will have to annul FCO if a new regulator is set up, said Tarun Surana, an analyst with Mumbai-based Sunidhi Securities and Finance Ltd.
“As it is, most controls over non-urea fertilizers are no longer with the FCO,” he said. “Once urea prices are decontrolled, the FCO will lose its meaning. ”
The government currently sets the maximum retail price (MRP) at which urea is sold. Companies are allowed to fix MRPs for all the other fertilizers such as di-ammonium phosphate and muriate of potash.
The prices for these fertilizers were freed from government control in April 2010 and they were brought under the so-called nutrient-based subsidy plan.
Another reason that might make a regulator necessary is the likelihood of the government pooling gas at the level of the fertilizer industry coordination committee (FICC), a government body, in the event that it deregulates urea prices, said the officials cited above.
Under such a mechanism, the government would buy gas directly from suppliers and distribute it among fertilizer companies at weighted average cost.
Pooling of gas at FICC’s level is one of the important recommendations on urea pricing that have been made by the committee of secretaries under the chairmanship of Planning Commission member Saumitra Chaudhuri.
“To begin with, pooled gas prices will be monitored by the department of fertilizers itself,” said the second of the two officials cited above. “But if a regulator comes into effect, such functions would be transferred to it.”
In fact, officials point out that in 2007 a group of ministers (GoM) under agriculture minister Sharad Pawar had recommended the setting up of a fertilizer regulatory authority of India, on the lines of Trai. GoM had looked into various aspects related to fertilizer policy, including price deregulation.
“Back then, senior department of fertilizers officials were not too keen on the proposal; so it was never implemented,” said the second official.
The industry is not enthusiastic at the prospect of a new regulatory body being set up. “As it is, the fertilizer sector is under multifarious regulations and controls,” said a senior executive of the Fertiliser Association of India, an industry body, who also declined to be identified. “The government should have a very good reason to set up another body .”