Minister of State for Fertiliser Srikant Jena has opposed his ministry's proposal to hike subsidy payments to some urea plants, saying the companies had already recovered most of their costs and there was no rational for increasing reimbursements now.
In an internal note, Jena has questioned the intention of revamped urea units seeking additional Rs 350 a tonne as compensation citing increase in fixed costs as he felt these firms had already recovered their investment under the New Pricing Scheme (NPS-III) of 2008.
Sources said the minister has demanded a detailed study of entire production and updation of fixed costs of all urea units till this year.
The NPS-III was launched in 2008 to boost domestic urea production by encouraging companies to produce urea beyond 100% of their installed capacity by incentivising payouts based on international prices.
Last month, the Fertiliser Department had moved a cabinet note seeking permission to modify NPS-III to reimburse higher fixed costs of urea units and also hike retail price of urea by 10%. However, the Cabinet had referred the matter to Group of Ministers.
According to sources, Jena wants that there should be a uniform policy for all existing gas-based urea units. He also felt that compensation of Rs 350 a tonne to urea firms and increase in retail price would hurt farmers, who are already bearing high prices of phosphatic and potassic fertilisers.
The fixed cost of urea units differs and ranges between Rs 1,500 and Rs 3,000 a tonne, according to experts.
The minister has also asked the department to analyse the possibility of recovery of cost of cheap gas made available to the urea units, producing beyond 100% of their installed capacity, based on global prices.
Sources said that the argument is in line with the decision of Group of Ministers on Gas issues to recover the differential cost of cheaper gas made available to phosphatic and potassic fertiliser industry, which is decontrolled and is making profits by selling at these nutrients at high prices.
Urea is the only fertiliser that remains under full price control. Its current maximum retail price (MRP) is Rs 5,313 per tonne. The difference between the cost of production and the MRP is paid to manufacturers as subsidy.
In 2011-12, urea is estimated to have contributed Rs 24,500 crore to the fertiliser subsidy bill.
The country's domestic urea production is estimated at 22 million tonnes and shortages are met through imports.
