Policy Division for Urea

For sustained agricultural growth and to promote balanced nutrient application, it is imperative that fertilizers are made available to farmers at affordable prices. With this objective, urea being the only controlled fertilizer, is sold at statutory notified uniform sale price, and decontrolled Phosphatic and Potassic fertilizes are sold at indicative maximum retail prices (MRPs). The problems faced by the manufactures in earning a reasonable return on their investment with reference to controlled prices, are mitigated by providing support under the New Pricing Scheme for Urea units and the concession Scheme for decontrolled Phosphatic and Potassic fertilizers. The statutorily notified sale price and indicative MRP is generally less than the cost of production of the irrespective manufacturing unit. The difference between the cost of production and the selling price/MRP is paid as subsidy/concession to manufacturers. As the consumer prices of both indigenous and imported fertilizers are fixed uniformly, financial support is also given on imported urea and decontrolled Phosphatic and Potassic fertilizers.

Urea Pricing Policy :

Until 31.3.2003, the subsidy to urea manufacturers was being regulated in terms of the provisions of the erstwhile Retention Price Scheme (RPS). Under RPS, the difference between retention price (cost of production as assessed by the Government plus 12% post tax return on net-worth) and the statutorily notified sale price was paid as subsidy to each urea unit. The expenditure Reforms Commission (ERC), headed by Shri K.P. Geethakrishnan, had also examined the issue of re nationalizing fertilizer subsidies. In its report submitted on 20th September, 2000, the ERC recommended, inter-alia, dismantling of existing RPS and in its place the introduction of a Concession Scheme for urea units based on feed-stock used and the vintage of plants.

New Pricing Scheme (NPS) for urea was introduced w.e.f. 1st April, 2003. The Stage- I of NPS was of one year duration from 1 April, 2003 to 31st March, 2004 and Stage-II was of two year duration from 1st April to 31st March, 2006. With the Stage-III of NPS being implemented w.e.f. 1st October, 2006, the Stage-II of NPS stands extended upto 31st September,2006.

Amendments to New Pricing Scheme Stage - III for Urea Units.

Following amendments in NPS III have been made

It has been decided that the reduction in the fixed cost of each Urea units strictly due to Group Averaging principle under the New Pricing Scheme III will be restricted to 10% of the Normated Fixed Cost computed under the base concession rates. The limitation on reduction of fixed cost will be applicable w.e.f. 1st April, 2009.

Capacity utilization of Post – 1992 Naptha based Group Average will be considered as 95% instead of 98% for calculating the base concession rates of urea units provided no cost towards conversion is recognized under NPS III. The approved amendments will help the indigenous urea units reduce their losses due to the group averaging under New Pricing Scheme Stage - III and help them to generate resources for reinvestment in their plants towards modernization and increased efficiency.

To maintain stocks of urea in case there is either a shortfall in production due to disruption in supplies of feed-stocks or delay/ disruption in imports and to tide over the sudden spurt in demand/shortages, a buffer stocking scheme for urea is under implementation in major States. The companies are reimbursed buffer stocking expenses on following parameters. The company operating the buffer stock will be entitled to Inventory Carrying Cost (ICC) at a rate 1 percentage point less than the PLR of SBI as notified from time to time. This rate would be applicable at Rs 4650 per MT (MRP less than the dealer’s margin i.e. Rs 4830- Rs 180) for the quantity and the duration for which the stock is carried as buffer. In case of cooperatives, it will be at Rs 4630 per MT as dealers margin in this case is Rs 200 per MT.

  • The company will be paid warehousing and insurance charges at the rate of Rs 23 per tonne per month on the quantity carried as buffer.
  • Since the material will be moved in two stages i.e. from the plant to the buffer stocking point and then on to consumption points, additional handling charges at the rate of Rs 30 per MT will be paid to the Fertilizer Company on the quantity sold from the buffer stock.
  • In addition, freight from the buffer stocking warehouse to the block in case of movement outside the district in which buffer stocking go-down is located, will also be paid to the company, in accordance with the provisions under the Uniform policy for freight subsidy announced by the Government with effect from 1st April, 2008.