Panel seeks hike in subsidy rate for fertiliser companies

Rs 35,000 crore investments hinge on new fertiliser policy

A parliamentary panel has opposed the chemicals and fertiliser ministry's move to do away with the practice of calculating fertiliser subsidy and introduce a system based on import parity prices.

The panel preferred a modification to the existing fertiliser policy by increasing the allowable rate of return to companies from 12 per cent to 18 per cent to make it more attractive. Chemicals and Fertiliser Minister Ram Vilas Paswan is known to have supported the suggestions.

The ministry's plans to do away with the practice of calculating the subsidy on cost-plus margin and import parity basis was rejected by the Parliamentary Consultative Committee attached to the ministry.

The discussions on changes in the investment policy for fertilisers are being keenly watched as top fertiliser companies and industrial majors like Reliance Industries Ltd (RIL) are interested in investing around Rs 35,000 crore for creating new capacities. The plans to increase the production of fertiliser by 75 per cent to 35 million tonne per annum (mtpa) from the current 20 mtpa is dependent on the investment policy the government puts in place.

The ministry had pointed out four different options for increasing the availability of urea and attracting investment. These included modifying the existing policy to make it more attractive to investors, adopting a pricing policy based on import parity benchmark for recognition of the cost of production from new investments, introducing a procurement policy based on long-term global bidding and setting up of new plants in identified locations through reverse bidding.

Of the four, the committee favoured modification of the existing policy as well as setting up of new plants in identified locations through the reverse bidding procedure.

Urea imports as a percentage of consumption touched a new high in 2005-06. The contribution of imports was 20.57 lakh tonnes of the total consumption of 222.98 lakh tonnes during the period. With the import of urea being just 6.41 lakh tonnes in 2004-05, this amounted to a three-fold increase in imports on a year-on-year basis.