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Urea policy amendment to cost govt Rs.167 crore more

Urea policy amendment to cost govt Rs.167 crore more
The proposal to amend NUP-2015 may be taken up by the cabinet soon. Photo by Shah Junaid.

The government would have to bear an additional financial burden of Rs.167 crore this financial year on account of amending the New Urea Policy (NUP) 2015, aimed at increasing domestic urea production.

InfraCircle had on 23 January first reported that the department of fertilisers is mulling to amend NUP 2015 and may scrap the import parity price (IPP) ceiling, to ensure that domestic urea production does not suffer due to higher costs. 

“If the IPP ceiling is scrapped, the urea units whose variable cost is more than present IPP are likely to produce beyond reassessment capacity (RAC). This will be compensated through variable cost and a uniform million tonne (MT) incentive. The uniform incentive will be equal to the lowest per MT fixed cost of indigenous urea units without any IPP restriction. The additional financial burden on the government will be around Rs.167 crore for 2016-17,” said a senior government official on condition of anonymity.

With the implementation of modified new pricing scheme (NPS) III, the minimum fixed cost of all urea units would be Rs.2,300 per MT. Therefore, the additional financial burden on the government would increase to Rs.277 crore for the current fiscal, the official added.

According to New Urea Policy 2015, for production beyond the reassessment capacity, fertiliser units are entitled for their respective variable cost and a uniform per MT incentive equal to the lowest of the per MT fixed costs of all the indigenous urea units, subject to IPP, which the government incurs on imported urea.

The proposal to amend NUP-2015 may be taken up by the cabinet soon. A second government official, who did not wish to be named, said that various urea manufactures, including National Fertilisers Ltd (NFL) and Kribhco, had said that with the variable cost of around $180 per MT and downward trend of IPP about $180 per MT there is no incentive left to produce beyond RAC.

“With the proposed amendment to NUP-2015, it is likely that indigenous production of urea in 2016-17 may cross last year’s 24.5 MT. This will lead to supply throughout the year and saving of forex reserve, apart from relief on infrastructure such as ports and railways during the peak season,” the second official said.

The annual consumption of urea, after remaining stagnant at around 19-20 MT from 1996-97 to 2003-04, has sharply increased during the last few years to reach 30.4 MT in 2013-14, 30.8 MT in 2014-15 and 31.9 MT in 2015-16.

“It is expected that urea requirement in 2017-18 will reach around 33.7 MT. So, the amendment to NUP-2015 will push the Make in India campaign and there will be less dependency on imports,” said a third government official.

According to information available on the website of fertilisers department, total urea imports till January 2017 stands at 5.155 MT.


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