Pegging policy to output

new delhi: petroleum minister ram naik’s announcement that gas would be supplied at market rates to fertiliser companies may well have tipped the scales decisively in favour of junking feedstock consumption as a yardstick for government subsidy to fertiliser manufacturing units. that subsidy for fertiliser units should be judged only by the quantum of production of urea and not by feedstock consumption as is the case now was suggested recently by members at the group of ministers (gom) to decide on urea pricing policy for the viith and viiith pricing period, as well as the shape of the long term fertliser policy. while the gom took a final decision on the viith pricing period during its last meeting, it is scheduled to take a long term view on fertliser policy during its next meeting here scheduled for april 11. the last meeting, held here on march 27, had revised the feedstock consumption norms for the viith pricing period, leading to a retrospective recovery of aroudn rs 2000 crores in excess subsidies ( for the period between july 1, 1997 to march 31,2000) from the 32 operational urea plants. that meeting had also decided to withdraw the vintage allowance extended to plants over 10 years old for the viith period, earning the governmetn savings to the turne of rs 150 to 200 crores. the fertiliser ministry had forwarded no suggestion on these lines for the viith pricing period, but for the viiith pricing period, the pricing mechanism outlined by it had suggested that the capacity utilisation norms be reassessed to 100 per cent, from the current 95 on the basis of feedstock. for gas-based units, the suggested deadline was 2003. for the less efficient fuel oil and naptha based units, the deadline was set at a later 2004. however, the overall efficiency of both gas and non-gas based units have improved mcuh since the pricing period and that is being acknowledged in coining the long term policy. the withdrawal of the vintage allowance ——now it may be also withdrawn fro the viiith pricing period—- to the over 10 year old fe fertiliser plants would primarily affect the older, less efficient plants, even the gas based ones with older feedstock conversiaon technology. however, the newer plants which have incorporated state of the art technology in feedstock conversion would naturally produce more urea with more efficient consumption of feedstock. given this, any longer term decision that would free subsidies to fertiliser companies from being pegged significantly in feedstock consumption alone would definitely advantage the newer companies the most. the decision to offer gas to fertiliser companies at market prices from now on, yet to be endorsed by the union cabinet, would affect the newer companies the least, therefore. market prices for feedstock to fertliser companies would also naturally weed out the less efficient, less urea producing units through tougher financial pressure. that, again, is something that an informal consensus has already developed among the gom on: to weed out the less efficient units by a natural process that will be aided by subsidising on the basis of urea production rather than “extraneous and complicated� issues such as an unit-by-unit assessemnt of the kind of feedstock used, the feedstock consumption patterns etc. in fact, the older units would either have to go bust or spend in a hurry on making their technology state of the art in order that paying market rates for feedstock would not hurt them badly and it would be offset by optimum urea production. the erc had outlined a total decontrol map with a deadline of april 1,2006 for the fertiliser sector. the suggestion was that the price for urea should be hiked annually by 7 per cent —-and this has been stringently opposed by the states thus far——from april 1,2001. this way, the open market price would reach rs 6903 by april 1,2006, a level at which the industry could be freed from all controls and be re required to compete with imports, with variable levey ensuring availability of such imports at the farm gate at rs 7000 per tonne of urea, the erc had suggested. from that date onward, no concession would be necessary for gas based plants. others using mixed feedstock, fuel oil or naphtha and those that went in for modernisation or newer plants would be entitled ot feed stock differential with gas based plants serving as ceiling, the erc had said. group based concessions would be move to in the interim instead of the currretn unit by unit retention pricing scheme and full decontrol would be implemented by 2006.