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Harish Damodaran

NEW DELHI, March 19

BY drastically revising downwards the retention prices for 13 out of the country's 32 operational urea plants, the Centre has not only effected savings of almost Rs 1,000 crore in its fertiliser subsidy bill for 2001-02, but has also significantly addressed the problem of disproportionate claims made by some companies relative to their production levels.

During 2000-01, the 13 plants received an aggregate subsidy of Rs 4,464.44 crore, accounting for 47.09 per cent of the Centre's total subsidy of Rs 9,480 crore disbursed to indigenous urea manufacturers. This was despite these plants producing only 44.92 per cent of the country's total urea output of 196.51 lakh tonnes (lt) last year.

But in the current fiscal (up to February 28), the combined subsidy availed by the 13 plants was only Rs 3,336.81 crore, constituting 44.93 per cent of the Centre' indigenous urea subsidy outgo of Rs 7,426.76 crore for this period. The decline in subsidy drawn — in relative as well as in absolute terms — happened even though the share of these plants in domestic urea production rose from 44.92 per cent in 2000-01 to 48.32 per cent during 2001-02 (till January).

In other words, while till last year, the 13 plants together were drawing a subsidy amount disproportionate to their combined urea output, the situation has been totally reversed following the Centre's move, on November 5, to drastically reduce their retention prices.

The 13 plants included Chambal Fertilisers' Gadepan-I, Zuari Industries' Goa, Indo-Gulf's Jagdishpur, KRIBHCO's Hazira, National Fertilizers Ltd's (NFL) Nangal and Vijaipur-I, Tata Chemicals' Babrala, Duncans Industries' Kanpur, Shriram Fertilisers' Kota, IFFCO's Phulpur-I, SPIC's Tuticorin, GNFC's Bharuch and Mangalore Chemicals and Fertilisers Ltd (MCFL). The price reductions were especially sharp for Duncans, Zuari, SPIC and MCFL.

The end-result of this rationalisation in retention prices can be seen from the accompanying table. During 2000-01, the two cooperatives, IFFCO and KRIBHCO, together produced over 26 per cent of the country's urea and yet drew less than 18 per cent of the Centre's subsidy on indigenous urea. Similarly, NFL, Nagarjuna, Oswal Chemicals & Fertilisers, Indo-Gulf, Tata Chemicals, GSFC and GNFC claimed subsidy amounts lower relative to their production shares.

On the other hand, SPIC accounted for only 3.2 per cent of the total domestic urea output, even as it claimed over 6.6 per cent of the aggregate subsidy cake. The story was the same for Duncans, Shriram, MCFL, FACT, Madras Fertilisers and the K.K Birla Group-controlled Zuari and Chambal Fertilisers. Zuari, last year, drew a subsidy amount thrice that of KRIBHCO, despite its urea production being less than a quarter of the latter's!

This apparent inequity in subsidy claims has, however, been substantially corrected during 2001-02. Companies that were drawing subsidy in excess of their relative production levels have seen their individual shares in the total urea subsidy bill fall. This has been so for Duncans (from 7.2 to 4.2 per cent), SPIC (6.6 to 6.2 per cent), Zuari (5 to 4.2 per cent), Shriram (2.9 to 2.4 per cent), FACT (3.4 to 0.9 per cent) and MFL (4.5 to 4.2 per cent).

Only in the case of Chambal Fertilisers has the gap between relative share in subsidy drawn and production of urea widened further this year. But this has been entirely due to the company's Gadepan-II plant, commissioned in October 1999. The retention price was lowered only for Gadepan-I, whose share in total subsidy actually fell from 3.5 per cent in 2000-01 to 3 per cent this year), even as that of Gadepan-II soared from 6.4 to 8.4 per cent.

The fact that the Centre's rationalisation exercise of November 2001 only covered relatively old urea plants and spared newly commissioned units such as Gadepan-II and IFFCO's Phulpur-II is perhaps indicative of the future targets of retention price reduction.

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