The Hindu : 'Fertilizer industry must gear up for post-APM period'

Online edition of India's National Newspaper
Saturday, Apr 20, 2002

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'Fertilizer industry must gear up for post-APM period'

By Our Special Correspondent

NEW DELHI April 19. The Chemicals and Fertilizers Minister, S.S. Dhindsa, has called upon the fertilizer industry to gear up to meet the challenge posed by the dismantling of the administered pricing mechanism (APM) in the energy marketing sector.

Delivering the keynote address at a conference organised by the Infrastructure Power and Petroleum Association of India and the Independent Power Producers Association, he noted that petroleum products constituted a significant part of the total cost of urea production. While the cost of gas constituted half of the cost of urea in gas-based plants, it could go up to as much as 80 per cent in naphtha-based plants.

Over the years, the Government had been examining the need to decontrol urea marketing. However, the controls could be removed only in a phased manner. In the interim, therefore, the industry would have to come to terms with a situation where the output remained controlled though the input cost would be market determined.

Mr. Dhindsa said the fertilizer industry had already gained some experience of the scenario when the prices of naphtha and fuel oil were decontrolled four years ago. With gas prices also shifting from the administered to the market-determined regime, the industry would have to gear up to meet the new environment. In the short term, the fertilizer industry might have operate in a sellers market as far as petroleum products were concerned, he felt. This could severely strain the margins of urea manufacturers, considering the high percentage of feedstock cost on the total production costs.

The Minister said it would be imperative for the industry to create an environment where it would have multiple choice in terms of energy sources to be able to maximise the benefits of globalisation and a market-driven economy.

The industry should work out its strategy in a manner that it gets feedstock at import-parity prices, he suggested. Since existing facilities at ports to import fertilizers were concentrated in the hands of a few oil companies, the industry associations had a role cut out for them in creating common infrastructure facilities.

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