The Group of Ministers (GoM) on urea, headed by finance minister Pranab Mukherjee is expected to meet by next week to discuss the draft policy on decontrolling prices of urea. At the start of last fiscal year, government had partially deregulated the prices of phospahatic and potash fertilizers. However, it had not deregulated the prices of urea. Urea is the only fertiliser that remains under full price control and currently the retail prices of urea are Rs 5,310 tonne.
A senior fertilizer ministry official said, “The meeting of the GoM is scheduled for next week and will discuss a draft policy on urea price decontrol, by adding further he said, the note for GoM is ready. A draft policy is prepared by the Committee of Secretaries (CoS) under the chairmanship of Planning Commission member Sunmitra Chaudhuri, and it had recommended for partially freeing the retail prices of urea additional raising the rate by 10% after a year of implementing the new policy.
The committee has also suggested ‘notional price pooling’ of natural gas for the fertilizer sector and an additional subsidy for under-performing units to improve the production efficiency. In the national gas price pooling, the government will estimate the subsidy on urea based on a weighted average pooled gas price.
The gas price pooling model and decontrolling of urea prices is expected to have positive impact on the domestic production of urea as the cost of gas based units is less than the imported urea prices. Around 80% of country’s urea production is gas based and the urea manufacturers now buy gas from suppliers through separate Production Sharing Contracts.
The daft policy also recommends government to buy natural gas directly through the Fertiliser Industry Coordination Committee and supply it to manufacturers at a “weight average price.” The committee has recommended notional gas price pooling for 17 fertilizer units and said the government will calculate the subsidy on urea based on weighted average gas price. But, four units i.e. RCF Trombay, GSFC and two units of BVFCL will be out of the gas price pooling model. After the approval of the GoM, the draft recommendations will be sent to the cabinet for finale decision.
In the next five years, the demand for urea is expected to increase to 30 million tonnes, and country needs to increase the domestic production to meet the demand for the urea. During 2009-10, the urea production stood at 21.2 million.
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