The Hindu Business Line : Gas-based urea units feel squeezed

Facts and figures
Total domestic production stood at 20,286.6 thousand tonnes in 2006-07 as against the total official capacity of 21,007.4 thousands tonnes. Overall production has been lower than the aggregate installed urea capacity because of lower production by naphtha-based units.

New Delhi May 19 At the Government's bidding, a large number of gas-based urea manufacturing units have produced in excess of their rated capacities during fiscal 2006-07. This has helped to rein in a severe bulge in the fertiliser subsidy bill, which would have ballooned since the overall urea production has been below capacity, resulting in higher imports.

Overall production has been lower than the aggregate installed urea capacity because of lower production by naphtha-based units.

Total domestic production of urea stood at 20,286.6 thousand tonnes in 2006-07 as against the total official capacity of 21,007.4 thousand tonnes, according to figures available with the Fertiliser Association of India (FAI).

Subsequently, the expected cut in fertiliser subsidy bill due to excess production by gas-based plants has been offset since the shortfall in production of naphtha-based units has resulted in higher imports.

Subsidy paid per tonne of urea produced with natural gas is around one-third of what the Government has to pay for a tonne of urea produced from naphtha.

The production cost for gas-based units is in the range of Rs 7,000-8,000 per tonne, while for naphtha-based units the production cost is in the range of Rs 14,000-15,000 per tonne. The maximum retail price for urea is Rs 4,830 per tonne out of which the manufacturers' realisation is Rs 4,650, and Rs 180 is dealers margin. The rest is made up through subsidy. The average subsidy paid by the Government for imported urea is higher than the weighted average subsidy paid for domestic production.

According to FAI officials, the Government's tendency to get excess production from gas-based units could not be a long-term solution because of technological reasons.

"Normally a plant should function for 325-330 days a year and is shut down for the remaining days for mandatory maintenance, preventive maintenance which are strictly required to meet safety standards. But this year on Government request, in order to meet the shortfall, these plants have operated on an average 340-345 days in a year," FAI officials said.

Lack of funds

This also leads to more wear and tear on the machinery and cannot continue year after year, they said adding that the situation had worsened because the industry was starved of funds required for replacement of worn-out parts. For 2006-07, around Rs 11,000-crore subsidy has not been paid yet. Even during 2006-07, the industry was starved of funds since the carry over from the previous fiscal was around Rs 6,000 crore.

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