GoM to clear draft urea policy on Friday

GoM to clear draft urea policy on Friday

New Delhi: A group of ministers (GoM) headed by finance minister Pranab Mukherjee is likely to clear the proposed urea price policy on Friday. Two fertilizer ministry officials have independently confirmed this. A committee of secretaries (CoS) headed by planning commission member Soumitra Chaudhury has already cleared the new draft price policy that will partially decontrol urea prices. The CoS cleared the policy on 30 April 2011.

Once the GoM clears the policy, it will go to the cabinet for approval.

Mint reported on 24 March that India was likely to adopt a model that would partially free retail prices of urea and provide additional subsidies to laggard units for two years to help them improve production efficiency.

If the proposal comes into effect, urea makers will be able to raise the maximum retail price (MRP) of fertilizers by up to 10% of current prices. The proposed pricing model is, however, likely to be restricted to units that use natural gas as feedstock and not naphtha.

As much as 80% of India’s production of urea is gas-based.

The government will likely follow a flat subsidy structure under which it will extend a subsidy of 4,000 per tonne to every gas-based urea unit.

Some units that have substantially higher costs of production will be given extra relief for two years, by when they would be expected to improve efficiency and lower cost.

The naphtha-based units will continue to follow the current pricing model till they switch to gas as feedstock. These firms have indicated they would switch to natural gas by 2014.

The proposed model also suggests the government buy natural gas directly through the Fertilizer Industry Co-ordination Committee and supply it to the companies at a “weighted average price". Urea makers now buy gas from suppliers through separate production sharing contracts.

In a free MRP regime, the government could also ask companies to pass some of their subsidy burden to farmers by increasing this periodically.