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NEW DELHI, Oct. 9

THE Government's subsidy burden on indigenous fertilisers aggregating Rs 6,500 crore for the current fiscal, may ease considerably next year, going by the recommendations of the Group of Ministers (GoM) on the long-term fertiliser policy.

The GoM headed by the Deputy Chairman of the Planning Commission, Mr K.C. Pant which finalised its report on Wednesday has recommended phased decontrol of urea distribution and movement beginning April 1, 2003, along with a switch over from the existing unit-wise retention price-cum-subsidy (RPS) scheme to group concession scheme (GCS) for indigenous urea plants from April 1, 2003. The recommendations have to be cleared by the Cabinet.

The new pricing policy will reward efficient units as the concession rates will be modulated by efficient energy norms. Inefficient units will be given three years' time for financial and technological advancement. Simply put, the fertiliser industry may be in for a shakeout in the coming years.

According to the GOMs recommendations, fertiliser companies will be divided into six groups based on technological vintage and feed stock. These six groups would be pre-1992 gas-based, post-92 gas-based, pre-92 naphtha based, post 1992 naphtha/furnace oil-based and LSHS-based and mixed energy based units.

Currently, there are 32 operational urea plants, each being assigned a separate retention price. The GoMs recommendations are an improvement over the report of the Expenditure Reforms Committee, which had suggested five groups.

The units in each group would be allowed concessions based upon the weighted average retention prices. Units having a retention price lower than the group average will get the actual individual retention price during Stage 1 (April 1, 2003 to March 31, 2004).

Units with retention price at levels higher by 20 per cent than the group average will get the concession as per the group average rate. The special treatment (or concession) for such units will not be available after Stage 1.

For the first time, the GoM has also liberalised the distribution norms for urea by recommending sale of 50 per cent of production of each unit directly to farmers in the first stage. Price controls will, however, stay as the maximum retail price for free sale will be notified by the Department of Fertilisers.

The department will, however, have the right to scale down prices in case of need. A further increase in the free sale quota will be considered in the second phase (April 1, 2004 to March 31, 2006).

A formula for escalation and de-escalation in variable costs will be decided by the Government later keeping in view the report of the Gokak Committee, which is working on the energy efficiency norms.

The increase or decrease in variable cost due to changes in the prices of feed stock on fuel will be linked to the level of energy consumption in the respective groups. In the last stage starting from April 1, 2006, it is envisaged that all non-gas based units will switch over to gas-based or LNG.

The pricing policy for the Seventh and Eighth pricing periods under the existing RPS was notified on June 4, 2002.

The GoM has, however, dropped the proposal to set up a development fund to revive sick fertiliser units, following objections from the Finance Ministry.

The GoM has recommended that the transport subsidy be reduced to 50 per cent from next year and the remaining from 2004. The pricing policy for the Seventh and Eighth pricing periods under the existing RPS was notified on June 4, 2002.

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