The Hindu Business Line : Less policy uncertainty for fertiliser makers?

The proposal to have an independent regulator to oversee the fertilizer sector, which would formulate a pricing policy on an ongoing basis, should be positive for the listed companies in the fertilizer sector. An independent regulator who would decide on pricing issues could reduce delays in decision making, ad-hoc changes in pricing formulae and unexpected year-to-year fluctuations in subsidy allocations, which now combine to create an uncertain policy environment for fertilizer producers. Selling prices for both nitrogenous and complex fertilisers are now fixed by the Government at levels much below costs of production, with the balance being reimbursed as subsidy.

Upward revisions in these selling prices have usually been mired in controversy, given the politically sensitive nature of the issue.

These uncertainties have discouraged even low-cost and efficient fertilizer producers from capitalising on a robust Indian demand scenario (for both urea and complex fertilizers) and formulating long-term investment plans.

A transparent formula for pricing of fertilizers based on prices of imported fertilizers or inputs (which is being contemplated) would also set clear performance and efficiency benchmarks for players and remove yearly parlays with the government on input price escalations. The buoyant pricing scenario for fertilisers globally and greater domestic availability of gas to feed fertilizer production expected over the next few years, should also tilt the balance in favour of domestic manufacturers looking to compete with import parity prices.

Nitrogenous producers who have fuel/gas-based facilities with a low cost structure such as Tata Chemicals, Aditya Birla Nuvo and GNFC, among urea producers could be well placed initially to capitalise on a new market-determined pricing regime.