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New pricing
policy for urea units:
1. Given the importance of fertilizer
pricing and subsidisation in the overall policy environment
impinging on the growth and development of the fertilizer
industry as well as well of agriculture, the need for
streamlining these policies has been felt for a long
time. A High Powered Fertilizer Pricing Policy Review
Committee (HPC) was constituted to review the existing
system of subsidization of urea, suggest an alternative
broad-based, scientific and transparent methodology,
and recommend measures for greater cohesiveness in the
policies applicable to different segments of the industry.
The HPC, which submitted its report to the Government
on 3rd April 1998 has, inter-alia, recommended that
unit-wise RPS for urea may be discontinued. It has recommended
that instead of unit-wise RPS, a uniform Normative Referral
Price (NRP) be fixed for existing gas based urea units
and also for DAP. A Feedstock Differential Cost Reimbursement
(FDCR) be given for a period of five years for urea
units.
2. Expenditure Reforms Commission
(ERC) headed by Shri K.P. Geethakrishnan had also examined
the issue of rationalizing fertilizer subsidies. The
Commission submitted its report on 20th September 2000.
ERC has recommended inter-alia, dismantling of existing
RPS and in its place introduction of a Concession Scheme
for urea units based on feedstock used and the vintage
of plants in respect of gas based units.
3. The Department of Fertilizers
has examined the recommendations of ERC in consultation
with the concerned Ministries/Departments. The Department
has also obtained the views of the fertilizer industry
and the State Governments/Union territories, Ministry
of Agriculture and economists/research institutes on
the ERC report.
A new pricing policy keeping
in view the recommendations of Expenditure Reforms Commission
for replacing the existing RPS has been approved by
the Government on 19.12.2002. The new pricing scheme
will come into existence w.e.f 1.4.2003. A letter giving
the salient features and modalities for implementation
of new scheme has also been issued to all urea units
on 30.1.2003. The new policy aims at greater transparency,
uniformity and efficiency in disbursements of subsidy
payments to urea units and will induce them to take
cost reduction measures on their own and be competitive.
Contents of DOF’s letter dated 30.1.2003
containing salient features and modalities of implementation
of new pricing scheme for urea units:
No. 12019/5/98-FPP
Government of India
Ministry of Chemicals & Fertilizers
Department of Fertilizers
…
Shastri Bhawan, New Delhi.
January 30, 2003
To,
The Executive Director,
Fertilizer Industry Coordination Committee,
8th Floor, Sewa Bhawan,
R.K. Puram,
New Delhi.
Subject: Pricing policy for urea manufacturing
units
Madam,
I
am directed to say that the Government have approved
a new pricing policy for urea units which will replace
the existing Retention Price Scheme and will come into
effect from 1.4.2003.Salient features of the policy
as also the modalities for implementation of the Scheme
are as follows:
1. The primary consideration and goal of the new
pricing policy is to encourage efficiency parameters
of international standards based on the usage of the
most efficient feedstock, state-of-art technology and
also ensure viable rate of return to the units.The new
scheme will come into effect from 1.4.2003 and will
be implemented in stages.Stage-I would be of one year
duration, from 1.4.2003 to 31.3.2004.Stage-II would
be of two years duration, from 1.4.2004 to 31.3.2006.The
modalities of Stage-III would be decided by the Department
of Fertilizers (DOF) after review of the implementation
of Stage-I and Stage-II.
2. There will be six groups based on
vintage and feedstock for determining the group based
concession under the new Scheme, namely, pre-1992 gas
based units, post-1992 gas based units, pre-1992 naphtha
based units, post-1992 naphtha based units, fuel oil/low
sulphur heavy stock (FO/LSHS) based units and mixed
energy based units.The mixed energy based group shall
include such gas-based units that use alternative feedstock/fuel
to the extent of more than 25% as admissible on 1.4.2002. Classification of units among different groups
so determined shall remain unchanged during Stages-I
and II.
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