• Investment World
• eWorld
• Catalyst
• Mentor
• Life
• Canvas
• Praxis
• Urban Pulse
• Brand Quest

Harish Damodaran

NEW DELHI, March 28

THE proposal to introduce a Group Concession Scheme (GCS) for indigenous urea plants to replace the existing unit-wise retention price-cum-subsidy (RPS) scheme is slated to undergo significant modification, with the Department of Fertilisers recommending a nine-group classification as against the originally envisaged five-group formula.

The Group of Ministers, under the Deputy Chairman of the Planning Commission, Mr K.C. Pant, set up to work out a new pricing policy for urea, was currently examining the feasibility of the proposed nine-group formula, official sources told Business Line.

Under the prevailing RPS scheme, each urea plant is entitled to a retention price, which covers its normative production cost, besides allowing a 12 per cent post-tax return on net worth. The cost (and the resulting retention price) varies from unit to unit depending upon plant vintage, feedstock used, capacity utilisation levels, energy consumption, other input costs, etc.

Under the GCS, there will be no separate retention price for each plant. Instead, all plants within a particular "group" are to be assigned a single retention price for disbursal of subsidy (covering the difference between the retention price and the farmgate price of urea).

Currently, there are 32 operational urea plants in the country, each being assigned a separate retention price. Under the original GCS formula of the Expenditure Reforms Commission (ERC), it was proposed to classify all urea plants into five groups based on the feedstock used — pre-1992 gas-based units, post-1992 gas-based units, naphtha-based, fuel oil-based and mixed feedstock-based. Thus, there would be a single, uniform retention price for all pre-1992 gas-based plants and similarly one each for all naphtha and fuel oil-based units, and so on.

In fact, in his 2000-01 Budget speech, the Finance Minister had even announced that the Government would implement ERC's recommendations and RPS would be replaced by GCS from April 1, 2001 and "the concession for each group calibrated to enable the units to sell urea at the stipulated MRP". But as it turned out, ERC's formula was not implemented.

Moreover, even the original five-group plan has been modified, with the Department of Fertilisers now proposing a further sub-division of the 32 urea plants into nine groups, of which three will fall under the category of gas-based units, three under naphtha, two under fuel oil and one under mixed feedstock.

The three groups under the gas-based category are: Plants commissioned after 1992 (Chambal Fertilisers' Gadepan I, IFFCO's Aonla II, Nagarjuna Fertilisers' Kakinada I, National Fertilisers Ltd's Vijaipur II, Oswal Chemical's Shahjahanpur, Tata Chemical's Babrala); plants commissioned before 1992 and located at landfall point (KRIBHCO's Hazira, Hindustan Fertiliser Corporation's Namrup and Rashtriya Chemicals and Fertilisers' Trombay); and

plants commissioned before 1992 and located along the HBJ pipeline (Indo-Gulf's Jagdishpur, IFFCO's Aonla I, NFL's Vijaipur I).

The naphtha-based plants have been grouped as under: Post-1992 (Chambal's Gadepan II, IFFCO's Phulpur II);

pre-1992 with capacity above five lakh tonnes per annum of urea (IFFCO's Phulpur I, Duncan Industries' Kanpur, SPIC's Tuticorin); and pre-1992 with capacity below five lakh tonnes (Zuari's Goa, Shriram Fertiliser's Kota, MCFL's Mangalore, Madras Fertilisers' Manali, FACT's Kochi).

The fuel oil-based plants have been grouped under those having annual production capacity below five lakh tonnes (FCI's Sindri, NLC's Neyveli, NFL's Nangal) and those above five lakh tonnes (GNFC's Bharuch, NFL's Panipat and Bhatinda).

The plants operating on mixed feedstock include GSFC's Vadodara, RCF's Thal, IFFCO's Kalol and Nagarjuna's Kakinada II.

Send this article to Friends by E-Mail

Stories in this Section
9-group norm for urea retention price proposed

Copyright © 2002, The Hindu Business Line. Republication or redissemination of the contents of this screen are expressly prohibited without the written consent of The Hindu Business Line