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  3. CCEA to consider proposal for raising urea fixed cost soon

CCEA to consider proposal for raising urea fixed cost soon

28 Feb 2014 Evaluate

The Cabinet Committee on Economic Affairs (CCEA) is likely to consider Fertiliser Ministry’s proposal to raise the fixed cost of urea by up to Rs 350 per tonne, a move that would lead to increase in subsidy burden to government by about Rs 900 crore. Earlier, the Group of Ministers (GoM) had approved Ministry's proposal to raise the urea fixed cost under the New Pricing Scheme (NPS) III.

As per the Fertiliser Ministry’s the fixed cost of urea would be raised by up to Rs 350 per tonne and an additional increase of Rs 150 per tonne for plants which are 30 years old. The base year for calculating fixed cost of urea has been changed from 2002-03 to 2008-09 and maximum fixed cost would be Rs 2,300 per tonne. Further, this scheme would remain applicable for one year from the date of notification. Fixed cost for a urea plant mainly includes repair & maintenance, salary & wages, contract labour and selling expenses. However, the proposed urea fixed cost at Rs 350 per tonne subsidy is lower than the industry demand at Rs 700 per tonne by using 2011-12 as the base year. The government introduced the New Pricing Scheme (NPS) Stage-III for urea units in 2007 and was originally effective from October 2006 to March 2010. Now, the scheme has been extended for three more years and was based on cost of production with 2002-03 as the base year.

In another proposal, CCEA would also consider a proposal to modify the New Investment Policy (NIP) for urea to remove the 'guaranteed buyback' clause, that assured buyback of urea for eight years from start of production. Owing to this clause, the government had received about 13 investment proposals entailing capacity addition of 16 million tonne. Meanwhile, the proposed capacity addition by the applicants was more than double the actual requirement. India produces about 22 million tonnes (MT) of urea annually and also imports around 8 MT to meet the total domestic requirements.

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