It’s wrong to deny gas to the fertiliser sector

UTTAM GUPTA | Updated on March 09, 2018 Published on December 16, 2015

Spread it well Sans biases KK MUSTAFAH   -  The Hindu Business Line

And worse still, to favour urea producers over decontrolled fertiliser units in gas allocation, exacerbating the nutrient imbalance

The manner in which gas is allocated within the fertiliser sector smacks of arbitrariness. The Centre gives a uniform subsidy to all manufacturers, including those of decontrolled complex fertilisers, under the Nutrient Based Scheme (NBS) .

Why, then, does it use a different yardstick for allocation of gas to manufacturers of urea on the one hand and decontrolled fertiliser on the other?

A two-judge bench of the Delhi High Court has ordered the government to resume supply of natural gas to Deepak Fertiliser and Petrochemicals Corporation (DFPCL), a manufacturer of decontrolled phosphatic fertilisers, which was arbitrarily suspended last year.

The bench has stated that gas supply to DFPCL will continue till the government finalises the guidelines on supply of gas to fertiliser companies.

Now, the questions

Why is the government averse to supplying gas to manufacturers of decontrolled fertiliser – or worse, denying domestic gas only to some manufacturers in this category?

In other words, within the complex group, why did it deny supply only to DFPCL even while continuing supplies to Gujarat State Fertilisers and Chemicals Limited (GSFCL) and Rashtriya Chemicals and Fertilisers Limited (RCFL)?

The Department of Fertilisers (DoF) on whose recommendation ministry of petroleum and natural gas (MPNG) allocates gas, argued that manufacturers of ‘decontrolled’ fertilisers are free to fix maximum retail price (MRP).

Therefore, even if they use imported LNG (liquefied natural gas) which costs more, they can recover higher cost of production by increasing MRP.

On the other hand, manufacturers of urea are not free to fix MRP which is under ‘statutory’ control.

Cheaper domestic gas being in short supply is reserved exclusively for urea manufacturing units so that its production cost and subsidy outgo (excess of cost over MRP) can be kept low.

Affordability matters

The DoF’s argument is flawed. ‘Controlled’ urea or ‘decontrolled’ complex fertilisers or decontrolled MOP (muriate of potash) are essential plant nutrients. These have to be used in proper balance for getting optimum results.

Consequently, all categories of fertilisers including complex fertilisers have to be ‘affordable’ to farmers and no particular group can be singled out for preferential treatment (or discrimination).

DFPCL, RCF and GSFC use gas for making ammonia, which when combined with phosphoric acid yields complex fertilisers.

In this backdrop, denial of domestic gas will force them to use costlier imported LNG, increasing production cost. In the face of ‘uniform’ subsidy (or NBS), they will either have to increase MRP or stop production. Either way, farmers will be penalised.

As regards denial of gas only to DFPCL, the DoF’s logic is that it produces only complex fertilisers whereas RCF/GSFC have integrated urea and complex operations and are government undertakings. This is absurd and reminiscent of pre-reform era of 1970s and 1980s when policies were guided by ‘pick and choose’.

Check vested interests

The absurdity crosses all limits when having continued domestic gas supply to RCF/GSFC, the DoF treats resultant saving in cost as a bonanza and decides to mop up. The decontrolled segment of fertiliser industry faces a bigger threat.

This arises due to vested interests from sectors such as power and steel challenging “top priority” status hitherto enjoyed by fertilisers in allocation of gas.

Fertiliser companies already face diminished supplies (courtesy, virtual drying up of supplies from the KG-D6 field) and if the government acquiesces to pressure tactics, this will further reduce allocation for fertiliser industry.

Juxtaposed with the DoF’s flawed policy (gas to be reserved only for urea units) there won’t be any gas left for manufacturers of decontrolled fertilisers, not even for its favoured undertakings.

The government should take urgent steps to end this policy mess. It should maintain top priority for use of domestic gas in fertilisers where it yields maximum national economic advantage.

Second, it should ensure its supply to manufacturers of all fertilisers without discrimination. Finally, the process of gas allocation should be entirely ‘policy driven’ eliminating scope for discretion.

The writer is a policy analyst

Published on December 16, 2015
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