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Monday, Mar 28, 2005

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Govt yet to finalise new subsidy methodology — Fertiliser industry unable to tie up phosphoric acid supplies

Ambarish Mukherjee

New Delhi , March 27

WITH the Government unable to devise an alternative mechanism for calculating subsidy on phosphatic fertilisers for fiscal 2005-06, even though fiscal 2004-05 is ending, Indian fertiliser companies have not yet been able to begin negotiations with international companies for phosphoric acid supplies for the next fiscal.

This poses the risk of disrupted supplies of phosphoric acid from the beginning of April as the suppliers have already indicated that they will discontinue shipments when the existing contracts end in March. This in turn would lead to serious shortage of complex fertilisers in the ensuing kharif season.

Phosphoric acid is the principal raw material for manufacturing di-ammonium phosphate (DAP), a complex nutrient that contains nitrogen, hydrogen, phosphorus and oxygen.

In case the phosphoric acid manufacturers discontinue supplies from April, the Indian manufacturers of DAP would be starved of raw materials and forced to cut down production.

The companies that would be hit hard due to shortage of phosphoric acid include Tata Chemicals, Godavari Fertilisers, Madras Fertilisers, Gujarat State Fertiliser Corporation, Zuari Agro, IFFCO and Paradip Phosphates.

India is expected to import about 2.5 million tonnes during the current year. The price of imported phosphoric acid is negotiated every year and is valid for the entire fiscal. This provides stability in price and certainty of supplies for planning of production and imports of DAP, fertiliser company officials said.

These negotiations are carried out by a group of fertiliser companies buying phosphoric acid. The Government takes into account the price of imported phosphoric acid actually paid by the importers while calculating the rate of concession for phosphatic fertilisers.

This year, the Government had proposed to change this methodology and device an alternative formula for arriving at the price of imported acid. However, the alternative mechanism has not yet been finalised as a result of which the process of negotiating the price for the year 2005-06 has not been started.

It takes a minimum of four weeks after finalisation of contracts to get the first delivery of shipment. So, even if it starts now, shipments would be delayed and there may be serious shortages from around the end of April that could spill over to May or even June, fertiliser industry sources said.

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