Fertilizer industry's retention price cut

By Our Special Correspondent

NEW DELHI, JUNE 29. The Government today announced a cut in the fertilizer industry's retention prices, leading to a saving of Rs. 600 crores as subsidy in the current financial year. This step has been taken to prevent fertilizer units from drawing excess subsidy through the practice of ``gold-plating'' or hiding higher production capacities.

According to the Chemicals and Fertilizers Minister, Mr. Suresh Prabhu, the arrears due from the fertilizer companies on account of excess subsidy drawn in the past will be determined by an expert group, headed by Dr. Y.K. Alagh. As an immediate step, however, it has been decided to re-assess the capacities of various units based on an expert committee, appointed by the Fertilizer Industry Coordination Committee (FICC). A CBI inquiry has also been initiated, he said, to determine if there was any criminal intent in the scheme.

Briefing newspersons on the decision, he said the problem of excess subsidy payments had been identified as long ago as 1992, but no action has been taken till now. In order to ensure that there is no further delay, it has been decided to take this interim measure which becomes effective retrospectively from April 1 this year. He said the need for minimising the outgo on subsidy assumed added importance owing to urea production rising from 12.83 million tonnes in 1991-92 to 19.87 million tonnes in 1999-2000. This output level was achieved with an installed capacity of 18.6 million tonnes.

Mr. Prabhu said domestic producers have offered to produce 21.24 million tonnes of urea in the current year. But the Government has decided to restrict acceptance of urea for direct sales to 100 per cent of installed capacity for each unit. On this basis, nearly 20 million tonnes of urea will be made available for direct sale. But he clarified that any surplus output can be sold to complex fertilizer producers at import parity prices to curb imports and resulting outgo of foreign exchange.

Giving details of the decision to re-assess capacities, the Fertilizers Secretary, Mr. A.V. Gokak, explained that a distinction has been made between old and new units in this exercise. The old units comprise those set up prior to the introduction of the relevation pricing scheme (RPS) and new units are those set up after 1992. The contention of the old unit companies was that they could not have designed their capacities to suit the RPS, as it had not yet been introduced. For this reason, it was felt that the two sets of units should be assessed differently.

Regarding the new fertilizer policy, Mr. Suresh Prabhu said the draft will be considered by the Committee Secretaries on July 4. Subsequently, five major seminars will be held on this issue in different parts of the country involving all stakeholders like farmers, consumers and producers. The aim is to make the policy transparent and it will finally be displayed on the Internet. He expected the policy to be finally cleared by the Government at all levels by August or September.

Mr. Prabhu also disclosed that the Department of Fertilizers has set up a task force to study the impact of the World Trade Organisation (WTO) agreements on the fertilizer industry. The task force, headed by the Fertilizers Secretary, will evaluate the provisions of the agreement on agriculture in the context of the removal of quantitative restrictions (QRs).

He said the domestic urea industry will lose protection from free imports from April 1, 2001 when QRs on urea imports will be removed. The industry will then face the threat of competition from the West Asia and the CIS countries which produce low cost urea. The need for corrective tariff protection measures will, therefore, be examined by the task force, he said.

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Section  : Business
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