Fertilizer ministry turns down proposal to free urea prices

Fertilizer ministry turns down proposal to free urea prices

New Delhi: The department of fertilizers (DoF) has rejected the finance ministry’s recommendation for decontrolling urea prices, and has decided to go ahead with its initial plan to implement the next stage of the new pricing scheme (NPS)—the so-called “modified NPS-III".

Officials in the DoF said a detailed note was being prepared on the implementation of the modified NPS-III and consultations with the industry had begun.

The note will be finalized and sent for ministerial assent in the next few weeks, after which it will be put up before an inter-ministerial group (IMG), the officials said.

Once the IMG approves it, the note will be taken to the cabinet for its consent.

“Frankly, most of the contours of the model suggested by the finance ministry made little sense. Besides, a complete decontrol of urea prices at this stage is not desirable," said a senior DoF official on the condition of anonymity as he is not authorized to speak to the media.

The DoF has, however, agreed to incorporate two of the finance ministry’s recommendations in its draft policy document.

First, it has agreed to go ahead with the ministry’s recommendation to decanalize urea, that is remove all restrictions on who can import the fertilizer.

At present only three government-owned entities—Minerals and Metals Trading Corporation of India Ltd (MMTC), State Trading Corporation of India Ltd (STC) and Indian Potash Ltd (IPL)—import urea.

This, if implemented, would let private players import urea under an open licence.

The DoF has also agreed to allow urea manufacturers limited manoeuvrability in determining the maximum retail price (MRP) at which they wish to sell the fertilizer.

Manufacturers would, however, be required to give the government a written assurance that they will not raise the price by more than 10% over and above the government-mandated MRP.

“Just as in the case of the decontrolled fertilizers, we are offering the private manufacturers a narrow band within which they can move their MRP," said a second official with direct knowledge of the matter.

Another important provision of the draft policy document is an additional consideration of 350 per tonne in the calculation of the “fixed cost" component that goes into determining the total cost of producing urea.

Officials say that this additional consideration—on account of an increase in the wage bill and marketing costs—will be uniform for all gas and non-gas based units.

Officials said once the new policy guidelines get cabinet approval, they will be implemented with retrospective effect from 1 October. This policy will hold good for the next three years.

On 18 November, Mint had reported that the finance ministry had sent a detailed note to the DoF, in which it had recommended that urea prices be decontrolled.

The finance ministry’s note had come amid growing differences between the two departments on decontrolling urea pricing.

While the finance ministry has been pushing for decontrol, the majority view in the DoF is opposed to the idea.

Earlier, Mint had first reported on 18 October that these differences had been holding up the implementation of the fourth stage of the new pricing scheme (NPS-IV), which was due on 1 October.

On the same day, fertilizer secretary Sutanu Behuria had said that instead of NPS-IV, the DoF was looking to implement a “modified NPS-III".