annual report english 2011 0

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ANNUAL REPORT

2010-2011

GOVERNMENT OF INDIA

MINISTRY OF CHEMICALS & FERTILIZERS

DEPARTMENT OF FERTILIZERS


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ANNUAL REPORT

2010-2011

GOVERNMENT OF INDIA

MINISTRY OF CHEMICALS & FERTILIZERS

DEPARTMENT OF FERTILIZERS


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CONTENTS

S.No. Subjects Page No.

1. Introduction 5-11

2. Organizational Set up and Functions 12-13

3. Development & Growth of Fertilizer Industry 14-21

4. Availability of Major Fertilizers during 2010-11 22-23

5. Plan Performance 24-25

6. Measures of Support for Fertilizers 26-41

7. Public Sector Undertakings and Cooperative Society 42-71

8. Fertilizer Education Projects 72-73

9. Information Technology (IT) 74-76

10. Vigilance Activities 77

11. Right to Information Act, 2005 78

12. Progressive Use of Official Language (Hindi) 79-80

13. Welfare of SCs, STs, OBCs and Physically Handicapped Persons 81-82

14. Women Empowerment 83-84

15. Citizen Charter/Grievance Redress Mechanism 85

16. Annexure I to XVI 86-108


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Dr. Chandra Pal Singh, Vice-Chairman and Shri B.D. Sinha, Managing Director, KRIBHCO handing over the DividendCheque of Rs. 37.78 crore to Shri M.K. Alagiri, Honble Union Minister for Chemicals & Fertilizers in the presenceof Shri Srikant Jena, Honble State Minister for Chemicals & Fertilizers, Shri S. Krishnan, Secretary (Fertilizers), Shri

Deepak Singhal, Joint Secretary (F&P), Shri S.L. Goel, Joint Secretary (P&P), Shri Satish Chandra, Joint Secretary(A&M) along with Shri N. Sambasiva Rao, Marketing Director of KRIBHCO and other officers of Ministry of Chemicals

& Fertilizers, GOI.


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1.1 Introduction

1.1.1 Agriculture which accounts for one fifth ofGDP, provides sustenance to two-thirds ofour population. Besides, it provides crucialbackward and forward linkages to the rest ofthe economy. Successive five-year plan havelaid stress on self-sufficiency and self-reliancein food grains production and concertedefforts in this direction have resulted insubstantial increase in agriculture production

and productivity. This is clear from the factthat from a very modest level of 52 millionMT in 1951-52, food grain production roseto about 218.20 million MT in 2009-10. InIndias success in agriculture sector, not onlyin terms of meeting total requirement of foodgrains but also generating exportablesurpluses the significant role played bychemical fertilizers is well recognized andestablished.

1.1.2 Keeping in view the vital role played by

chemical fertilizers in the success of Indiasgreen revolution and consequent self-reliancein food-grain production, the Government ofIndia has been consistently pursuing policiesconducive to increased availability andconsumption of fertilizers in the country. Asa result, the annual consumption of fertilizersin nutrient terms (N, P & K), has increasedfrom 0.7 lakh MT in 1951-52 to 264.86 lakhMT 2009-10, while per hectare consumptionof fertilizers, which was less than 1 Kg in1951-52 has risen to the level of 135.27 Kg

(estimated) in 2009-10.

1.1.3 As of now, the country has achieved nearself-sufficiency in production capacity of ureawith the result that India could substantiallymanage its requirement of nitrogenousfertilizers through the indigenous industry.Similarly, adequate indigenous capacity has

been developed in respect of phosphaticfertilizers to meet domestic requirements.However the raw materials and intermediatesfor the same are largely imported. As forpotash (K) since there are no viable sources/reserves in the country, its entire requirementis met through imports.

1.2 Growth of Fertilizer Industry

1.2.1 The industry made a very humble beginning

in 1906, when the first manufacturing unit ofSingle Super Phosphate (SSP) was set upin Ranipet near Chennai with an annualcapacity of 6000 MT. The Fertilizer &Chemicals Travancore of India Ltd. (FACT)at Cochin in Kerala and the FertilizersCorporation of India (FCI) in Sindri in Bihar(now Jharkhand) were the first large sized -fertilizer plants set up in the forties and fiftieswith a view to establish an industrial base toachieve self-sufficiency in food-grains.Subsequently, green revolution in the late

sixties gave an impetus to the growthof fertilizer industry in India and theseventies and eighties then witnessed asignificant addition to the fertilizer productioncapacity.

1.2.2 The installed capacity as on 31.03.2009 hasreached a level of 120.61 lakh MT of nitrogenand 56.59 lakh MT of phosphatic nutrient,making India the 3rd largest fertilizer producerin the world. The rapid build-up of fertilizerproduction capacity in the country has been

achieved as a result of a favourable policyenvironment facilitating large investments inthe public, co-operative and private sectors.Presently, there are 56 large size fertilizerplants in the country manufacturing a widerange of nitrogenous, phosphatic andcomplex fertilizers. Out of these, 30 (as ondate 29 are functioning) units produce urea,

Chapter-1


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21 units produce DAP and complex fertilizers,5 units produce low analysis straightnitrogenous fertilizers and the remaining 9manufacture ammonium sulphate as by-product. Besides, there are about 85 mediumand small-scale units in operation producing

SSP. The sector-wise installed capacity isgiven in the table below: -

SECTOR-WISE, NUTRIENT-WISE INSTALLED

CAPACITY OF FERTILIZER MANUFACTURINGUNITS AS ON 31.03.2010.

Sr. Sector Capacity Percentage

No. (lakh MT) Share

N P N P

1 Public Sector 34.98 4.33 29.0 7.65

2 Cooperative Sector 31.69 17.13 26.27 30.27

3 Private Sector 53.94 35.13 44.73 62.08

Total: 120.61 56.59 100.00 100.00

1.3 Self-sufficiency in Fertilizer Sector

1.3.1 Out of three main nutrients namely nitrogen,phosphate and potash, (N,P&K) required forvarious crops, indigenous raw materials are

available mainly for nitrogenous fertilizers.The Governments policy has hence aimedat achieving the maximum possible degreeof self-sufficiency in the production ofnitrogenous fertilizers based on utilisation ofindigenous feedstock. Prior to 1980,nitrogenous fertilizer plants were mainlybased on naphtha as feedstock. A numberof fuel oil/LSHS based ammonia-urea plantswere also set up during 1978 to 1982. In1980, two coal-based plants were set up forthe first time in the country at Talcher,

(Orissa) and Ramagundam, (AndhraPradesh). These coal based plants have,however, been closed by Government w.e.f.1.4.2002 due to technical and financial non-viability. However, with natural gas becomingavailable from offshore Bombay High andSouth Basin, a number of gas basedammonia-urea plants have been set up since

1985. As the usage of gas increased and itsavailable supply dwindled, a number ofexpansion projects came up in the last fewyears with duel feed facility using bothnaphtha and gas. Feasibility of makingavailable Liquefied Natural Gas (LNG) to

meet the demand of existing fertilizer plantand/or for their expansion projects along withthe possibility for utilising newly discoveredgas reserves, is also being explored byvarious fertilizer companies in India.

1.3.2 In case of phosphates, the paucity ofdomestic raw material has been a constraintin the attainment of self-sufficiency in thecountry. Indigenous rock phosphate suppliesmeet only 5-10% of the total requirement ofP2O5. A policy has therefore been adoptedwhich involves mix of three options, viz,domestic production based on indigenous/imported rock phosphate, imported sulphurand ammonia; domestic production basedon indigenous / imported intermediates, viz.ammonia and phosphoric acid; and third,import of finished fertilizers. During 2009-10roughly 72% of the requirement of phosphaticfertilizers was met through the first twooptions.

1.3.3 In the absence of commercially exploitablepotash sources in the country, the entiredemand of potassic fertilizers for directapplication as well as for production ofcomplex fertilizers is met through imports.

1.3.4 Given the volatility in international market forfertilizer in general and urea market inparticular, marginal provision through importscould be used to the countrys strategicadvantage. This is also desirable as theinternational market, especially in case of

urea, is very sensitive to demand supplyscenario. Under the new pricing regime forurea units applicable from 01.04.2003, forsecuring additional indigenous supply of urea,economically efficient units are beingpermitted to produce beyond their re-assessed capacity to substitute/ minimizeimports.


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Dividend cheque given to Secretary (F) by MD, FAGMIL

1.4 Fertilizer Subsidy

1.4.1 The subsidy on fertilizers is passed on tothe farmers in the form of subsidized MRPs.The selling prices as notified by Governmentfor the subsidized fertilizers are much lowerthan the normative delivered cost of thesefertilizers at farm gate level. The differencebetween the normative delivered cost at farmgate level and the notified selling prices ispaid as subsidy to manufacturers/importerson sale of fertilizers to the farmers at thesubsidized prices.

1.4.2 The increase in rate of subsidy on fertilizerscombined with increase in consumption offertilizers has led to a substantial increase inrequirement of subsidy. In spite of increasein cost of fertilizers, the Government has

completely kept the farmers insulated fromthis increase in cost and have increased thesubsidy allocations to meet the consumptionneeds of the farmer at subsidized level ofprices. The subsidy on fertilizers has beenincreased sharply over the last few years.The details of fertilizer subsidy over the lastfew years are as below:-


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DETAILS OF EXPENDITURE ON SUBSIDY/CONCESSION

(Rs in crores)

Period Amount of concession disbursed Amount of Subsidy Totalon Decontrolled Fertilizers disbursed on Urea for all

(Indigenous+ imported) fertilizers

Indigenous Imported Total Indigenous Imported TotalP&K P&K (P&K) Urea Urea (Urea)

2006-07 6648.17 3649.95 10298.12 12650.37 5071.06 17721.43 28019.55

2007-08 10333.80 6600.00 16933.80 16450.37 9934.99 26385.36 43319.16

2008-09 32957.10 32597.69 65554.79 17968.74 12971.18 33939.92 99494.71

2009-10 16000.00 23452.06 39452.06 17580.25 6999.98 24580.23 64032.29

2010-11 13000.00 15500.00 28500.00 15980.73 8360.00 24340.73 52840.73(BE)

1.4.3 The steady increase in fertilizer subsidiesover the years has largely been the result ofincreasing production / consumption andincreases in the costs of inputs of indigenousfertilizers and prices of imported fertilizersfrom time to time. The cost of various inputs

/ utilities, such as coal, gas, naphtha, rockphosphate, sulphur, ammonia, phosphoric

acid, electricity, etc., as also the cost oftransportation, went up significantly duringthe eighties. The gas-based fertilizer unitscommissioned during this period alsoinvolved higher capital investment per tonneof installed capacity, necessitating constantupward revision in the retention prices. Theselling prices of fertilizers to the farmers,however, remained almost at the same levelbetween July, 1981 and July 1991. TheGovernment effected an increase of 30% inthe issue prices of fertilizers in August, 1991after a gap of a decade. The selling price ofurea, which was reduced by 10% in August1992, was revised upwards by 20% in June1994 followed by another increase by 10%with effect from 21.2.97. The prices of ureawere again revised in February 2002 by 5%and by Rs. 240 PMT of urea w.e.f. 28.2.2003.The price increase made effective from

28.2.2003 was, however, later withdrawnw.e.f 12.3.2003. The MRP of urea i.e. @Rs. 4830 per tonne exclusive of local leviescontinued upto 31-03-2010. With effect from1-04-2010, MRP or urea increased by 10%i.e. from Rs. 4830 per MT to Rs. 5310 perMT.

1.5 Fertilizer Pricing Policy1.5.1 Given the importance of fertilizer pricing and

subsidization in the overall policyenvironment, which has direct implicationswith reference to the growth and developmentof agriculture and sustainability of the fertilizerindustry, the need for streamlining thesubsidy scheme in respect of urea producingunits had been felt for a long time. A HighPowered Fertilizer Pricing Policy ReviewCommittee (HPC) was constituted, under the

chairmanship of Prof. C.H. Hanumantha Rao,to review the existing system of subsidizationof urea, suggest an alternative broad-based,scientific and transparent methodology, andrecommend measures for greatercohesiveness in the policies applicable todifferent segments of the industry. The HPC,in its report submitted to the Government on3rd April 1998, inter-alia, recommended that


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unit-wise RPS for urea may be discontinuedand, instead, a uniform Normative ReferralPrice be fixed for existing gas based ureaunits and also for DAP and a FeedstockDifferential Cost Reimbursement (FDCR) begiven for a period of five years for non-gas

based urea units.

1.5.2 The Expenditure Reforms Commission(ERC), headed by Shri K.P. Geethakrishnan,had also examined the issue of rationalizingfertilizer subsidies. In its report submitted on20 th September 2000, the ERCrecommended, inter-alia, dismantling ofexisting RPS and in its place the introductionof a Concession Scheme for urea units basedon feedstock used and the vintage of plants.

1.5.3 The recommendations of ERC wereexamined in consultation with the concernedMinistries/Departments. The views of thefertilizer industry and the State Governments/Union territories, and economists/researchinstitutes were also obtained. After dueexamination of all these views, a New PricingScheme (NPS) for urea units for replacingthe RPS was formulated and notified on30.1.2003. The new scheme took effect from1.4.2003. It aims at inducing the urea unitsto achieve internationally competitive levels

of efficiency, besides bringing in greatertransparency and simplification in subsidyadministration.

1.5.4 New Pricing Scheme (NPS) was introducedw.e.f. 1st April, 2003. The Stage-I of NPSwas of one year duration from 1st April, 2003to 31st March 2004 and State-II was of twoyear duration from 1st April 2004 to 31st

March, 2006. With the State-III of NPS beingimplemented w.e.f. 1st October 2006, theStage-II of NPS stands extended upto 31st

September, 2006.

1.5.5 Under NPS, the existing urea units have beendivided into six groups based on vintage andfeedstock for determining the group basedconcession. These groups are : Pre-1992gas based units, post-1992 gas based units,pre-1992 naphtha based units, post-1992naphtha based units, fuel oil/low sulphur

heavy stock (FO/LSHS) based units andmixed energy based units. The mixed energybased group shall include such gas basedunits that use alternative feedstock/fuel tothe extent of more than 25% as admissibleon 1.4.2002.

1.5.6 Under NPS, escalation/de-escalation is givenin respect of variable cost related to changesin the price of feedstock, fuel, purchasedpower and water. Under the scheme, noreimbursement is allowed in respect ofinvestment made by a unit for improvementin its operations nor are the gains as a resultof operational efficiencies to be mopped up.

1.5.7 It has also been provided under the schemethat the concession rates during State-II shall

be adjusted for reduction in capital relatedcharges and enforcement of efficient energynorms. Pre-set energy norms for urea unitsduring State-II of NPS have already beennotified and intimated to urea units.Reduction in rates of concession duringStage-II of NPS for urea units on account ofreduction in capital related charges have alsobeen notified and intimated to urea units.

1.6 Amendments to New Pricing Scheme

Stage - III for Urea Units.

Following amendments in NPS III have been made

1.6.1 It has been decided that the reduction in thefixed cost of each Urea units strictly due toGroup Averaging principle under the NewPricing Scheme III will be restricted to 10%of the Normated Fixed Cost computed underthe base concession rates. The limitation onreduction of fixed cost will be applicable w.e.f1st April, 2009.

1.6.2 Capacity utilization of Post 1992 Naptha

based Group Average will be considered as95% instead of 98% for calculating the baseconcession rates of urea units provided nocost towards conversion is recognized underNPS III. The approved amendments will helpthe indigenous urea units reduce their lossesdue to the group averaging under NewPricing Scheme Stage - III and help them to


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generate resources for reinvestment in theirplants towards modernization and increasedefficiency.

1.6.3 To maintain stocks of urea in case there iseither a shortfall in production due to

disruption in supplies of feedstocks or delay/disruption in imports and to tide over thesudden spurt in demand/shortages, abufferstocking scheme for urea is underimplementation in major States. Thecompanies are reimbursed buffer stockingexpenses on following parameters.

(i) The company operating the buffer stockwill be entitled to Inventory Carrying Cost(ICC) at a rate 1 percentage point less thanthe PLR of SBI as notified from time to time.

This rate would be applicable at Rs 4650per MT (MRP less than the dealers margini.e. Rs 4830- Rs 180) for the quantity andthe duration for which the stock is carried asbuffer. In case of cooperatives, it will be atRs 4630 per MT as dealers margin in thiscase is Rs 200 per MT.

(ii) The company will be paid warehousingand insurance charges at the rate of Rs 23per tonne per month on the quantity carriedas buffer.

(iii) Since the material will be moved in twostages i.e. from the plant to the bufferstocking point and then on to consumptionpoints, additional handling charges at the rateof Rs 30 per MT will be paid to the FertilizerCompany on the quantity sold from the bufferstock.

(iv) In addition, freight from the buffer stockingwarehouse to the block in case of movementoutside the district in which buffer stockinggodown is located, will also be paid to the

company, in accordance with the provisionsunder the Uniform policy for freight subsidyannounced by the Government with effectfrom 1st April, 2008

1.7 MRP of Decontrolled P & K Fertilizers

The MRP of the DAP/NPK/MOP has beenconstant from February 2003 to 17.6.2008.

Then Department of Fertilizers introducednutrient based subsidy in June 2008 andaccordingly, revised the MRP of NPKComplex Fertilizers downwards w.e.f.18.6.2008. However, the MRP of the otherfertilizers remained the same. The MRP of

fertilizers is shown in the table below:-

MAXIMUM RETAIL PRICE OF FERTILIZERS

(Rupees per MT)

Product From From

12.3.2003 18.06.08

to17.6.2008

Urea 4830 4830

Di Ammonium 9350 9350

Phosphate (DAP)Muriate of Potash (MOP) 4455 4455

Mono-Ammonium 9350 9350Phosphate (MAP)(w.e.f. 1.4.2007)

Triple Super Phosphate 7460 7460(TSP) (w.e.f. 1.4.2008)

Single Super Phosphate 3400 3400(SSP) (w.e.f. 1.5.2008 to30.6.2009) all India MRP

Ammonium Sulphate (AS) 10350(w.e.f. 1.7.2008)

Grades of ComplexFertilizers - N:P:K:S

16:20:00:13 7100 5875(earlier 16:20:00)

20:20:00:00 7280 5343

20:20:00:13 7280 6295

23:23:00:00 8000 6145

28:28:00:00 9080 7481

10:26:26:00 8360 719712:32:16:00 8480 7637

14:28:14:00 8300 7050

14:35:14:00 8660 8185

15:15:15:00 6980 5121

17:17:17:00 8100 5804

19:19:19:00 8300 6487


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1.8 Global Scenario

Prices of Major fertilizers, such as Urea, DAPand MOP and fertilizer inputs such asAmmonia, Sulphur, Rock Phosphate andPhosphoric acid increased manifold during

2008-09. This resulted in steep increase inprices of both finished fertilizers as well asintermediates and consequently led tosubstantial increase in subsidy outgo of theGovernment. Urea Price, which was US$280.75 fob per MT in January 2007 increasedto US$ 403.75 fob per MT in January 2008and US $ 815 fob per MT in August 2008.Price of DAP, which was US $ 320.5 cfr perMT in January 2007 increased to US$ 802cfr per MT in January 2008 and US $ 1331cfr pt in May 2008. MOP price, which

prevailed at US $ 170 fob per MT in January2007 went up to US $ 328 fob per MT inJanuary 2008 and US$ 945 fob per MT inOctober 2008.

Raw material prices also showed exponential jumps during the last one year. Ammoniaprice, which, on an average, was $ 301.5 cfr(India) per in January 2007, went upto US $389 cfr (India) per MT in January 2008 and

US $ 834 cfr (India) in September 2008. Priceof Phosphoric Acid witnessed a sharpincrease during the year. Price of Phosphoricacid which was US $ 566.25 cft pt (annualcontract price) for 2007-2008, went up to1985 cfr pt in April-June 2008 and to US $

2310 cft pt in July-September 2008. Sulphurprice increased from US $ 78.75 cfr per MTin January 2007 to US $ 561 cfr per MT inJanuary 2008 and to US $ 846 cfr pt in July2008. Price of Rock Phosphate which wasUS $ 79.5 cfr pt in January 2007 went up toUS $ 245 cfr pt in January 2008 and to US$ 460 cfr pt in June 2008.

The spurt in international prices haveimpacted prices of imported finished fertilizersas well as raw material in India. As a result,

subsidy outgo for 2008-09 was about onelakh crore

From July 2008 to January 2010, the pricesof the raw materials/intermediates/finishedfertilizers have shown a declining trend. Theprices in January 2010 in comparison to thatof and July 2008 and March 2009 are asfollows :

(US$ pmt)

Raw material/intermediate/Fertilizers July 2008 March 2009 January 2010

DAP 1291.90 414.00 499.13

MOP 725.00 767.50 381.25

Urea FOB 783.00 305.63 306.88

Phos Acid, India (C&F) 2200-2310 650.760 610-627.50

Ammonia (C&F) 571.10 261.00 327.88

Sulphur (C&F) 846.00 57.00 139.50

Rock (C&F) 384.00 301.00 (in Jan, 09) 142.50

Sulphuric Acid (C&F) Brazil 360.00 0.00-50.0 35.38


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Chapter-2

2.1 Organizational set up and functions

2.1.1 The main activit ies of Department ofFertilizers (DOF) include planning, promotionand development of the Fertilizer Industry,planning and monitoring of production, importand distribution of fertilizers and managementof financial assistance by way of subsidy/concession for indigenous and importedfertilizers. List of subjects allocated to theDepartment of Fertilizers as per Government

of India (Allocation of Business) Rules, 1961amended from time to time has been givenat Annexure-I.

2.1.2 The Department is broadly divided into 5Wings dealing with (i) Fertilizers Policy,Projects and Planning for Urea (ii) FertilizerPolicy, Projects and Planning for P&KFertilizers (iii) Fertilizer Imports, Movement,Distribution and General Administration &Vigilance (iv) Finance and Accounts and (v)Economics and Statistics. The work of theseWings are being handled by three JointSecretaries, one Additional Secretary cumFinancial Adviser and one Economic Adviserrespectively.

2.1.3 The Joint Secretary in-charge of (P&P) looksafter the work relating to Phosphatic FertilizerPolicy, P & K Subsidy payments and importon government account payments, JointVenture Projects of P & K Fertilizers(domestic and overseas), and WTO relatedissues.

2.1.4 Joint Secretary (F&P) & ED FICC (Ex officio)is entrusted with the work pertaining to UreaPolicy, PSUs matters, except vigilance,Special Purpose Vehicle for exploring JointVentures abroad, revival of closed Urea unitsincluding FCIL and HFCL, Urea FertilizersJoint Ventures Projects (domestic andoverseas), over all project coordination

including JVs and long-term off-take policy.

2.1.5 Joint Secretary (A&M) looks after the workrelating to overall Fertilizer PolicyCoordination, the movement of fertilizers andrelated policies and coordination with States,shipping and import of Urea on Governmentaccount, Parliamentary work andcoordination, branch administration andvigilance, FMS, OMIFCO related mattersincluding off-take of Urea, implementation of

finalized long term off take arrangements.2.1.6 The Economic Adviser, an officer of Joint

Secretary level advises the Department onvarious economic issues which haveeconomic implications, S&T projects, mattersrelating to Agriculture Ministry such as Biofertilizers, balanced fertilizers, soil healthcards, nutrient absorption issues, micro-nutrients, organic fertilizers based on urbansolid waste, subjects related to renewableand non-renewable energy, clean technologyand general environmental issues, supply,demand, availability and price movementforecasting of various fertilizers, intermediatesand raw materials and economic analysis ofspecific importance assisting in firming uppolicy issues.

2.1.7 The list containing the names of Minister-in-charge and the officers of the level of DeputySecretary and above, who have worked inthe Department during 2010-2011 is givenin Annexure-II.

2.2 Ferti lizer Industry Coordinat ionCommittee (FICC)

2.2.1 The office of Fertilizer Industry CoordinationCommittee is an attached office under theDepartment of Fertilizers headed byExecutive Director. The FICC, was initiallyconstituted w.e.f. 01.12.1977 to administer


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and operate the erstwhile Retention Pricecum Subsidy Scheme (RPS), The RetentionPrice Scheme stimulated indigenousproduction and consumption of fertilizers inthe country. However, for attaining greaterinternal efficiencies and global

competitiveness, unit specific approach ofRPS was replaced by a group basedconcession scheme called the New PricingScheme (NPS) from 01 April, 2003. TheFertilizers Industry Coordination Committee(FICC), continues under the New PricingScheme for administration of the scheme forurea.

2.2.2 FICC is responsible to evolve and reviewperiodically, the group concession ratesincluding freight rates for units manufacturing

nitrogenous fertilizers, maintain accounts,

make payments to and to recover amountsfrom fertilizer companies, undertake costingand other technical functions and collect andanalyze production data, costs and otherinformation.

2.2.3 The FICC comprises of the Secretaries tothe GOI in the Department of Fertilizers,Industrial Policy and Promotion, Agricultureand Cooperation, Expenditure, Ministry ofPetroleum & Natural Gas, Chairman, TariffCommission and two representatives of theurea industry.

2.2.4 The Department has under its administrativecontrol nine(9) Public Sector Undertakings(PSUs), one multi state cooperative society.The list is given at Annexure-III.


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Chapter-3

3.1 Development & Growth of Ferti lizer

Industry

3.1.1 Capacity Build-up

At present, there are 56 large size fertilizerunits in the country manufacturing a widerange of nitrogenous, phosphatic andcomplex fertilizers. Of these, 30 units (as ondate 28 units are functioning) produce urea,21 units produce DAP and complex fertilizers,5 units produce low analysis straightnitrogenous fertilizers and 9 manufacture

ammonium sulphate as by-product. Besides,there are about 72 small and medium scaleunits in operation producing single superphosphate (SSP). The total installed capacityof fertilizer production which was 119.60 lakhMT of nitrogen and 53.60 lakh MT ofphosphate as on 31.03.2004, has marginallyincreased to120.61 lakh MT of nitrogen and56.59 lakh MT of phosphate as on01.04.2010.

3.2 Production Capacity And Capaci tyUtilization

3.2.1 The production of fertilizers during 2009-10was 119.00 lakh MT of nitrogen and 43.21lakh MT of phosphate. The production targetfor 2010-11 was 125.16 Lakh MT of nitrogenand 48.70 Lakh MT of Phosphate,representing a growth rate of 5.2% in nitrogenand 12.7% in Phosphate as compared toproduction in 2009-10. Production target fornitrogenous fertilizer is more than the

installed capacity. The production target forphospahtic fertilizer is less than installedcapacity due to constraints in availability ofraw materials/ intermediates which aresubstantially imported. However, takentogether, the production of N and P duringthe year is higher than that in thecorresponding period of last year

3.2.2 The production performance of both

nitrogenous and phosphatic fertilizers duringthe year 2009-10 was satisfactory. Productionof nitrogenous fertilizers was less than targetby 1.84 Lakh MT, as there was no productionby SPIC. The production of phosphaticfertilizers was more then target by 1.90 LakhMT.

3.2.3 The installed capacity of urea units in thecountry as follows:-

UREA UNITS SET UP BETWEEN: 1967-2010 WITH

REASSESSED CAPACITY

Year of Unit Feedstock InstalledComm. and Sector Capacity

(lakh/MT)

1967 GSFC-Baroda Gas-Private 3.706

1969 SFC-Kota Naphtha-Private 3.790

1970 DIL-Kanpur Naphtha-Private 7.220

1971 MFL-Madras Naphtha-Public 4.868 @

1973 ZIL -Goa Naphtha-Private 3.993

1975 SPIC-Tuticorin Naphtha-Private 6.200

1976 MCFL-Mangalore Naphtha-Private 3.800

1978 NFL-Nangal FO/LSHS-Public 4.785

1978 IFFCO-Kalol Gas-Coop. 5.445 @

1979 NFL-Bhatinda FO/LSHS-Public 5.1151979 NFL-Panipat FO/LSHS-Public 5.115

1981 IFFCO-Phulpur GasCoop. 5.511

1982 RCF-Trombay-V Gas-Public 3.30

1982 GNFC-Bharuch FO/LSHS-Private 6.360

1985 RCF-Thal Gas-Public 17.068

1986 KRIBHCO-Hazira Gas-Coop. 17.292

1987 BVFCL-Namrup-III Gas-Public 3.150(Formerly HFC)

1988 NFL-Vijaipur Gas-Public 8.646

1988 IFFCO-Aonla Gas-Coop. 8.646

1988 Indogulf-Jagdishpur Gas-Private 8.646

1992 NFCL-Kakinada Gas-Private 5.970

1993 CFCL-Gadepan Gas-Private 8.646

1994 TCL-Babrala Gas-Private 8.646

1995 KRIBHCO SHYAM-Shahja- Gas-Private 8.646hanpur (Formerly OCFL)

1996 IFFCO-Aonla expansion Gas-Cooperat ive 8.646

1997 NFL-Vijaipur expansion Gas-Public 8.646

1997 IFFCO-Phulpur expansion GasCooperative 8.646

1998 NFCL-Kakinada expansion Naphtha-Private 5.970

1999 CFCL-Gadepan expansion Naphtha/Gas-Private 8.646

2005 BVFCL:Namrup-II Gas-Public 2.400 @

Note: @ After revamp


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3.2.4 The following 9 urea plants of the companiesare presently closed/under shutdown due tovarious reasons, inter-alia, on account oftechnological obsolescence, feedstocklimitation, non-viability of unit/company andheavy financial losses.

Sl. Name of the Date of Annual Installed

No. Company/Unit closures Capacity

(In Lakh MT)

1. FCI: Gorakhpur 10.6.1990 2.85

2. FCI: Ramagundam 1.4.1999 4.95

3. FCI: Talcher 1.4.1999 4.95

4. FCI: Sindri 16.3.2002 3.30

5. HFC: Durgapur 1.7.1997 3.30

6. HFC: Barauni 1.1.1999 3.30

7. RCF: Trombay-I 1.5.1995 0.98

8. NLC: Neyveli 31.3.2002 1.539. FACT: Cochin-I 15.5.2001 3.30

Total 28.46

Note: Production by DIL-Kanpur (7.22 LMT) was suspended dueto financial constraints.

3.2.5 The domestic fertilizer industry has by andlarge attained the levels of capacity utilisationcomparable with others in the world. Thecapacity utilisation during 2009-10 was 98.8%for nitrogen and 76.8% for phosphate. The

estimated capacity utilisation during 2009-10 is 99.2% of nitrogen and 76.9% ofphosphate. Within this gross capacityutilization, the capacity utilisation in terms ofthe urea plants was 104.4% in 2009-10 and104.3% in 2010.11. As for phosphatefertilizers, apart from the constraintsmentioned earlier, the actual productioncapacity utilisation has also been influencedby the demand trends.

3.2.6 The capacity utilisation of the fertilizer

industry, particularly in respect of urea, isexpected to improve further throughrevamping/ modernisation of the existingplants.

3.2.7 The unit-wise details of installed capacity,production and capacity utilisation during2009-10 and 2010-11 are given in Annexure-IV.

3.3 Strategy for Growth

3.3.1 The following strategy has been adopted toincrease fertilizer production:

Expansion and capacity addition/efficiency enhancement throughretrofitting / revamping of existingfertilizer plants.

Setting up joint venture projects incountries having abundant and cheaperraw material resources.

Working out the possibility of usingalternative sources like liquefied naturalgas, coal gasification, etc., to overcomethe constraints in the domesticavailability of cheap and clean

feedstock, particularly for the productionof urea.

Looking at possibilities of revival ofsome of the closed units by setting upbrownfield units subject to available ofgas.

3.4 Feedstock Policy

3.4.1 At present, natural gas based plants accountfor more than 66% of urea capacity, naphthais used for less than 30% urea production

and the balance capacity is based on fuel oiland LSHS as feedstock. The two coal basedplants at Ramagundam and Talcher wereclosed down due to technologicalobsolescence and non-viability.

3.4.2 Natural gas has been the preferred feedstockfor the manufacture of urea over otherfeedstocks viz. naphtha and FO/LSHS, firstly,because it is clean and efficient source ofenergy and secondly, it is considerablycheaper and more cost effective in terms of

manufacturing cost of urea which also has adirect impact on the quantum of subsidy onurea.

3.4.3 Accordingly, the pricing policy, announcedin January 2004, provides that new ureaprojects, expansion of existing urea units andcapacity increase through debottlenecking/revamp/modernization will be also allowed/


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recognized if the production comes fromusing natural gas/LNG as feedstock. For thesame reasons, a policy for conversion of theexisting nephtha/FO/LSHS based urea unitsto natural gas/LNG as feedstock has alsobeen formulated in January 2004, which

encourages early conversion to natural gas/LNG. Pursuant to formulation of policy forconversion of non-gas urea units to gas,three naphtha based plants namely, ChambalFertilizers & Chemicals Limited (CFCL),Gadepan-II and IFFCO-Phulpur-I & II havealready converted to NG/LNG. ShriramFertilizers & Chemicals Limited (SFC-Kota)has also started using gas w.e.f. 22nd

September 2007.

3.5 Requirement and availability of Gas toFertilizer Sector

3.5.1 The projected yearwise/plantwise additionalrequirement of gas during the years 2011-12 to 2014-15 for fertilizer sector which hasbeen communicated to Ministry of Petroleum& Natural Gas (as on January 2011) forallocation by EGoM, is as below:

YEARWISE/PLANTWISE ADDITIONALREQUIREMENT OF NATURAL GAS

S.No. Name of the unit Additional Requirement(mmscmd)

2011-12 2012-13 2013-14 2014-15

A Naphtha based

1 ZIL-Goa 0.00 1.28 1.28 1.28

2. MCFL-Mangalore 0.00 1.00 1.00 1.00

3 SPIC-Tuticorin 0.00 1.66 1.66 1.66

4. MFL-Manali 1.54 1.54 1.54 1.54

5 FACT- 0.00 0.94 0.94 0.94Udyogmandal

6. DIL-Kanpur 0.00 1.70 1.70 1.70

I Sub-Total of 1.54 8.12 8.12 8.12Naphtha basedplants

B Fuel-Oil Based

7 NFL-Panipat 0.00 0.90 0.90 0.90

8 NFL-Nangal 0.00 1.00 1.00 1.00

9. NFL-Bathinda 0.00 0.90 0.90 0.90

10 GNVFC-Bharuch 0.00 0.95 0.95 0.95

II Sub-Total of 0.00 3.75 3.75 3.75Fuel-Oil Based

C Expansion Units

11 IFFCO-Kalol 0.00 0.00 2.90 2.90

12 Kribhco-Hazira 0.00 0.00 2.20 2.20

13 RCF-Thal 0.00 0.00 2.20 2.20

14 CFCL-Gadepan 0.00 0.00 2.40 2.40

15 TCL-Babrala 0.00 0.00 2.20 2.20

16 IGFL-Jadgishpur 0.00 0.00 2.20 2.20

17 KSFL- 0.00 0.00 2.22 2.22Shahjahanpur

18 NFCL-Kakinda 0.00 0.00 2.4 2.4(AP)

III Sub-total of 0.00 0.00 18.72 18.72Expansion Units

Total of I+II+III 1.54 11.87 30.59 30.59

D Closed Units

18 HFCL-Durgapur 0.00 0.00 2.20 2.20

19 HFCL-Barauni 0.00 0.00 2.20 2.20

20 HFCL-Haldia 0.00 0.00 2.20 2.20

21 FCI-Ramagundam 0.00 0.00 2.20 2.20

22 FCI-Talcher 0.00 0.00 2.20 2.20

23 FCI-Sindri 0.00 0.00 2.20 2.20

24 FCI-Korba 0.00 0.00 2.20 2.2025 FCI-Gorakhpur 0.00 0.00 2.20 2.20

IV Sub-Total of 0.00 0.00 17.60 17.60closed units

E REVAMPPROJECTS

26 KRIBHCO-Hazira 0.80 0.80 0.80 0.80

27 NFL-Vijaipur 0.60 0.60 0.60 0.60

28 NFCL-Kakinada 0.04 0.60 0.70 0.70

29 RCF-Thal 0.45 0.45 0.45 0.45

V Sub total of 1.89 2.45 2.55 2.55

Revamp Projects

F GREEN FIELDSPROJECTS

30 MATIX Fert. & 0.55 3.20+1 4.75 4.75Chem, Burdwan (as fall

backallocation)

31 ZIL-Greenfield 0.00 0.00 2.46 2.46project-Belgaun


2011-12 2012-13 2013-14 2014-15


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32 DIL-Kanpur 0.00 3.85 4.60 4.60(for feed-stock) 1.0(for steam

generation)

33 GSFC-Dahej 0.00 0.00 3.50 3.50

34 GNVFC 1.00 1.00 1.00 1.00(CPSU)

35 Oswal Chem & 0.00 2.4 2.4 2.4Fertilizers Ltd

VI Subtotal of 1.55 12.45 18.71 18.71Greenfield Projects

G. TOTAL 4.98 26.77 69.45 69.45

3.5.2 It is expected that with the above availabilityof gas, the production capacities in existing

units will increase, closed fertilizer units willbe revived new Greenfield/Brown fieldprojects will be set up and non gas basedfertilizer plants will be converted to gas,taking the overall production capacity of ureain the country to more than 31 million tonnes.Likewise, the projected requirement of ureaby the end of 11th Plan is expected to bearound 31 million tones including the requiredquantities for maintaining the supply chainand buffer stocks. It is expected that withabove availability of gas at reasonable prices,the country will become self-sufficient in urearequirement by the end of 11th Plan. Theabove availability of gas will also help ourcountry to become an export surplus nationin urea sector.

3.5.3 The above requirement of gas is based onthe desired need to make the country self-sufficient in urea production. This isnecessary in light of the fact that ouragricultural sector needs to be insulated fromthe volatile international prices of fertilizersand at the same time the fertilizer subsidybill need to be reduced. Urea is the onlyfertilizer, in which the country can becomeself-sufficient with the projected availabilityof gas in future. In phosphatic and potassicsector, we are largely import dependent andare subject to large-scale volatility in worldprices of these fertilizers.

3.5.4 The indigenous production capacities cancome up in future with the above gasavailability provided the gas is available atreasonable price. World over the price ofgas is showing an upward trend but thecountries rich in gas resources are having

special assured price for fertilizer sector. Thefertilizer sector in Middle East and North EastAfrica is based on gas prices ofapproximately 50 cents per MMBTU to $ 1.5 2 per MMBTU. This has led to a lowercost of production in these countries, whichare also the major exporters of urea in theworld.

3.5.5 By producing in India, the country not onlybecomes self-sufficient in urea productionand immune from demand driven escalation

in international prices, but it also leads toincrease in economic activity within thecountry, increase in employment, industrialdevelopment, etc. At the same level of gasprices, the country will save approximatelyUSD 60 per MT of urea by producing withinthe country as compared to importing fromMiddle East countries on price equivalent tocost of production. The savings will be onaccount of lower capital cost (USD 20 perMT approx), shipping freight (USD 20 per

MT) and port handling charges (USD 20 perMT). In addition, there will be savings onaccount of internal transportation of ureadepending upon the location of the plant.

3.5.6 In addition to the issue of availability in pricingof gas, the other major important issue inthis sector is provision of gas pipelineconnectivity to the existing urea units in thecountry and proposed urea units in future.At present 8 operational units are not on thegas grid and their connectivity with the gas

grid is critical for their conversion to gas.Further 8 closed units of FCIL and HFCLare presently away from the gas grid andtheir connectivity with gas pipeline isprerequisite for revival of these closed units.Ministry of Petroleum and Natural Gas hasprojected the following pipeline connectivityof gas to existing and closed units in thecountry will be provided by 2012:-


2011-12 2012-13 2013-14 2014-15


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3.6. Joint Ventures abroad

3.6.1 Due to constraints in the availability of gasin the country, which is the preferred feedstock for production of nitrogenous fertilizers,a near total dependence of the country onimported raw materials for production ofPhosphatic fertilizers and full importdependence for MOP, the Government hasbeen encouraging Indian companies to

establish Joint ventures production facilitieswith buy back arrangement in other countries,which are rich in fertilizer resources.

3.6.2 Existing joint ventures, namely Oman IndiaFertilizer Company (OMIFCO), Oman in Ureaand Industries Chimiques du Senegal (ICS),Senegal and Indo-Maroc Phosphor (IMACID),Morocco in Phosphate have given the

Country assured sources of supplies of Ureaand Phos acid, a critical input for productionof Phosphatic fertilizers. Further two moreprojects JIFCO Jordan and TIFERT Tunisiaare about to be commissioned in the year2010. The details of the existing joint venturein the fertilizer sector are:

3.6.2.1 OMIFCO Oman:

Krishak Bharati Cooperative Ltd. (KRIBHCO),Indian Farmers Fertilizers Cooperatives Ltd.(IFFCO) and Oman Oil Company withrespective share holding of 25%, 25% and50% have collaborated and set up a worldclass urea-ammonia fertilizer plant OmanIndia Fertilizer Company (OMIFCO), in Omanat a cost of US $ 892 million. It consists of

PIPELINE CONNECTIVITY PLAN ( As provided MoPNG)

S.No. Proposed pipeline Agency for Fertilizer unit Expectedconnecting proposed to be year ofplants connected connectivity

Naphtha based plants1 Dhabol.-Gogak-Bangalore GAIL ZIL, Goa 2012

2 Chennai-Bangalore-Mangalore RGTIL MCFL, Mangalore Dec-12

3 Kochi-Kanjrrikod-Bangalore-Mangalore GAIL FACT,Cochin 2012

4 Chennai-Tuticorin RGTIL SPIC, Tuticorin Dec-12

5 Kakinada- Chennai RGTIL MFL, Chennai Dec-12

Fuel Oil/LSHS based plants

5 Dadri-Bawana-Nangal GAIL NFL- Nangal, 2009-10

Panipat, Bhatinda

Closed units

6 Spur on Kakinda to Uran via RGTIL FCI, RamagundamHyderabad

7 Spur from the following pipeline : GAIL FCI, SindriJagdishpur-Haldia FCI, Gorakhpur

HFC, BarauniHFC, DurgapurHFC, Haldia

8 Spur from Kakinada-Haldia Pipeline RGTIL FCI,Talcher


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5060 MTPD granular urea and 3500 MTPDAmmonia plants along with utilities in thecoastal town of Sur in Oman. The annualcapacity of the fertilizer complex is 16.52lakh MT of granular Urea. The entire quantityof Urea is off taken by the Government of

India as per Urea Off-Take Agreement(UOTA) at pre determined prices.Government of India also off takes surplusquantity of Urea, if any, as per price agreedfor the additional quantity. In addition, 2.5lakh MT of surplus Ammonia per year is alsoproduced by the Plant for which IFFCO hasAmmonia Off-Take Agreement (AOTA).OMIFCO is examining possibility ofexpansion and increase in production of Ureaand Ammonia.

3.6.2.2 ICS Senegal

The Government of India (GoI), IndianFarmers Fertilizer Cooperative Ltd. (IFFCO)and Southern Petrochemicals IndustriesCorporation Ltd. (SPIC) formed a jointventure company in Senegal namedIndustries Chimiques du Senegal (ICS). Lateron SPIC withdrew from the project. In recentpast, the company suffered financial losses.However, ICS Senegal has been restructured

in 2008 with Government of India, IFFCOand other Indian consortium partners having85% and Government of Senegal having15% share. The restructuring plan afterhaving been approved by the Regional HighCourt of Dakar (Senegal) on 27.3.2008 hascome into effect and ICS Senegal, asrestructured is in operation.

ICS Senegal has a capacity to produce 6.60lakh tones of phosphoric acid per annumand also finished phosphate fertilizer such

as DAP and Complex fertilizers. A majorportion of the phosphoric acid, about 5.5 LMTproduced in the ICS plant is off-taken byIFFCO as per a long term buy backarrangement and utilized for production ofphosphate fertilizers in India. The finishedfertilizers, DAP and complex fertilizers,produced by ICS Senegal is for domesticconsumption in Senegal.

3.6.2.3 IJC Jordan

SPIC, Jordan Phosphates Mines CompanyLtd. (JPMC) and Arab Investment Company(AIC) set up a joint venture project, Indo-Jordan Chemicals Company Limited (IJC) in

Jordan in May 1997 with a capacity of 2.24lakh tonnes of phosphoric acid productionper annum. 52.17% of the equity of the jointventure is held by SPIC, 34.86% by JPMCand 12.97% by AIC. Phosphoric Acidproduced by IJC is off-taken by SPIC andother fertilizer units in India.

3.6.2.4 IMACID Morocco

IMACID, a joint venture between OfficeCherifien des Phosphates (OCP), Morocco,and Chambal Fertilizers & Chemicals Ltd.

(CFCL), India to produce 3.60 lakh MT ofphosphoric acid per annum wascommissioned in Morocco in October 1999.After subsequent joining of Tata ChemicalsLimited (TCL), capacity of the plant has beenincreased to 4.30 LMT per annum. Initially,equity of US$ 65 million in the venture washeld by OCP & CFCL equally. Subsequently,in May 2005, both OCP & CFCL have soldone-third of their equity stake in IMACID toTATA Chemicals Limited.

3.7 Overseas Joint Ventures UnderImplementation / Consideration:

3.7.1 JIFCO Jordan

Indian farmers Fertilizers Cooperative Ltd(IFFCO) and Jordan Phosphate MiningCompany (JPMC) have agreed for settingup of a joint-venture Phosphoric Acidproduction plant, Jordan India FertilizerCompany (JIFCO) in Jordan with an installedcapacity of 1500 MT of phosphoric acid per

day (MTPD). Equity hodling in the project is52:48 between IFFCO and JPMC,respectively. The plant is expected to becommissioned in 2010.

3.7.2 TIFERT Tunisia

Gujarat State Fertilizers & Chemicals Ltd(GSFC) and Coromandel International Ltd


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(CIL), formerly Coromandel FertilizersLtd.(CFL) both Indian entities alongwithGroupe Chimique Tunisien (GCT) &Compagnie Des Phosphates De Gafsa(CPG), both Tunisian entities are setting upa joint venture project, Tunisian Indian

Fertilisers S.A. (TIFERT) at Skhira in Tunisianfor production of 3.6 lakh MT of PhosphoricAcid per annum. The entire production ofphosphoric acid would be for off take byGSFC and CIL. An MOU to this effect wassigned in October, 2005 between parties.Estimated cost of the project is approx. US$ 165 million + 5% with equity of US$66million and borrowings of US $99 million.The project is expected to be commissionedin 2010.

3.7.3 Cooperation in Syria

The India-Syrian Joint Commission in itsmeeting held in January 2008 took note ofthe mutual interest of both countries in thefield of Phosphatic raw-materials andproducts. It was agreed that both countrieswould work for cooperation in the fertilizersector in Syria. Accordingly, a consortium ofIndian entities including MECON, RITES andPDIL (All central Government PSUs), having

expertise in the fields of mining, beneficiation,processing, setting-up and running thephosphatic plants and logistic aspects areundertaking capacity enhancementconsultancy study with GECOPHAM in Syria.Government of India is funding the study. Asper the MOU signed between thisDepartment and GECOPHAM in May 2009,the Indian consortium undertook thefeasibility studies, which have now beencompleted and the Pre-Feasibility Report hasbeen submitted to the Syrian Authorities. A

Government level MOU spelling out broadframe work of cooperation in Phosphatesector between the Countries has also beensigned in Oct2010. A delegation from DOFand the consortium is visiting Syria inFebruary2011 to discuss the Draft FeasibilityReport and other modalities to proceedfurther, with the Syrian Authorities.

3.7.4 Cooperation with Russia

On 12.03.2010 an MOU has been signedbetween the Government of India and theGovernment of Russia, during the visit ofPrime Minister of Russia to India, envisaging

inter-alia encouraging collaboration in theareas of trade, production, possibleestablishment of Joint Ventures, investmentand R&D activities, exchange of informationand holding of consultations on the issuesof production and consumption of mineralfertilizers, exchange experience encouragecontacts between the specialists,organization of Joint Conferences, symposiaand business events on the issues of Co-operations in the sector of mineral fertilizers.

3.7.5 Cooperation in Indonesia

A team led by the Secretary (F) VISITEDIndonesia during 30.10.2010 to 02.11.2010to hold preliminary discussions with theIndonesian Authority to ascertain thetechnical feasibility of putting up of anAmmonia Urea plant based on CoalGasification Technology. During the visit ofthe President of Indonesia Chief Guest onoccasion of the Republic Day is Jan2011following two documents have been signed:

(i) MOU for setting up an Ammonia UreaPlant in Indonesia and agreement for off-take of surplus urea produced in the plant.

(ii) Agreement for supply of 3 lakh MT ofUrea and 2.5 LMT of NPK Complex fertilizerin designated grades.

3.7.6 Cooperation in Australia

Indian Farmers Fertilizer Cooperative Ltd(IFFCO) has entered into a Principles of Off-

take Agreement with Legend InternationalHoldings of Australia to undertake jointmining of rock phosphate in Lady Anniemines (Georgina Basins in Queens land)along with an assured three million MTannual off-take. A total of US $800 millioninvestment has been envisaged forundertaking rock phosphate mining in


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Australia. IFFCO will receive 30 millionoptions in Legend International Holdings.IFFCO would provide both technical andfinancial facilitation to Legend InternationalHoldings in the development of its phosphatemining and shipment of its product to India.

In Ammonia-Urea sector, KRIBHCO andNWCF, a private company in Australia arein the process of setting up of a coal basesammonia-urea plant in Australia. The projectcost is approx. US $ 2.6 billion andKRIBHCOs equity will be approx. US $ 165million. The Australian company proposedto enter into a 20 year agreement for supplyof urea. Agreement on mutual Terms &Conditions including the price on which theurea will be made, are yet to be finalized.

3.7.7 Cooperation in Ghana

Given its gas reserves, Ghana is considereda rich source of nitrogenous feedstock.Chairman of Ghana National PetroleumCorporation (GNPC), Ghana during his visitto India, in Sep2009 and discussed with theSecretary (F) the possibility of cooperationin Fertilizer sector was discussed. It wasproposed to set-up a Ammonia-Urea plant(Gas based) in Ghana. To give proper shape

to the project proposal, an MOU has beensigned in July2010 at the Government levelbetween the Countries. As per MOU, toproceed further a technical team comprisingof Officers from RCF & PDIL visited Ghana.Site selection Report and the Pre-feasibilityreports were prepared by RCF and PDIL,which were provided to Ghanian Authorities.In January2011 a team led by Secretary (F)visited Ghana to discuss further modalitiesin the matter. Ghanian Authorities have been

requested for a quick decision on pricing ofGas.

3.7.8 Discussions for cooperation in fertilizersector

3.7.8.1 Discussion are on with the fertilizer andmining entities in following resource rich

countries for long term cooperation for settingup of projects for production and off take offertilizers:

(i) Discussion at Government level isunderway with the Government of Senegal

for development of Matam phosphate mines.(ii) Two separate consortia of Indian entitiescomprising IPL & IFFCO and MMTC & RCFare in discussion with M/s Potash One andM/s Athabasca Inc respectively ofSaskatchewan province for setting up JointVenture projects in mining of Potash and offtake to India. Consortium of RCF and MMTCwhich is pursuing with Athabasca, havesigned an MOU for JV project with Athabascafor evaluation and assessment in technical,

marketing and financial aspect. They havealso signed a confidentiality Agreement forsharing related information. Consortium ofIFFCO and IPL have requested PotashOnefor providing detailed costing and othereconomic parameters involved in the project.

(iii) RCF and IDC/FOSKOR of South Africaare exploring the possibilities to set up aPhosphoric Acid and Ammonia-Urea fertilizerproject near Maputo Port, the capital city ofMozambique. The project proposes to source

Rock from the new mines of Foskor inPhalaborwa, South Africa. An MOU has beensigned between RCF and IDC/FOSKOR.Department of Fertilizers has been pursuingwith M/s SASOL, for allocation of gas inMozambique for setting up a JV ammonia-urea project.

3.7.8.2 M/s SPIC and Chambal Fertilizers are in theprocess of setting-up a gas basednitrogenous fertilizer plant at Dubai in UAEto produce 4.00 LMT of urea per annum.

3.7.8.3 Discussion are also going on for exploringpossibilities for a Ammonia-Urea projectQatar with buy back by India. IFFCO andQUAFCO (Public sector entity of Qatar) havesigned Agreement of Intention on 24.2.2009for the same.


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4.1 Availability of Major Fertilizers During2010-11

Controlled Fertilizer Urea

4.1.1 The availability of urea, which is the onlyfertilizer under price and partial movementcontrol of Government, remained satisfactorythroughout the Kharif 2010 season as wellas during the current Rabi 2010-11(Up toDecember, 2010).

Kharif 2010

4.1.2 The field opening stock of 2.21 LMT as on1.4.2010 coupled with indigenous productionof 104.12 LMT and imports of 25.83 LMThelped in progressively ensuring adequateavailability to the States throughout theseason. The cumulative availability of ureaat the end of the season was nearly 132.16LMT against the assessed requirement of136.65 LMT. The sales of 126.02 LMT ureaduring Kharif 2010.

Rabi 2010-11

4.1.3 The requirement of urea for Rabi 2010-11has been assessed at 154.14 LMTenvisaging a growth of about 8.79% overthe sales of 141.69 LMT in Rabi 2010-11.The requirement is being met from theopening stocks taken together with estimatedproduction of 108.55 LMT and imports ofabout 54.90 LMT during the season. Thusthe cumulative availability of urea for Rabi2010-11 has been estimated to be about168.55 LMT by the end of 31st March, 2011.

4.1.4 Allocation of urea was restricted to 50% ofproduction of installed capacity of eachmanufacturer during Kharif 2010 and Rabi2010-11. The manufacturers are free to sellthe remaining quantity of urea to the farmers

Chapter-4

anywhere in the country at notified maximumretail price.

4.2 Decontrolled Fertilizers DAP & MOP

Kharif 2010

4.2.1 In case of fertilizers other than the urea,which are decontrolled, no allocation is madeunder Essential Commodities Act (ECA) bythe Central Government. Assessment ofrequirement of Urea, DAP and MOP is being

made by the Department of Agriculture &Cooperation to enable better monitoring ofavailability at the national level.

4.2.2 DAP and MOP are the two majordecontrolled and decanalised fertilizers,which may be imported freely.

DAP

4.2.3 The imports of 57.85 LMT of DAP coupledwith indigenous production of -19.14 LMTand the opening stock of 2.02 LMT of DAP

as on 1st April, 2010 resulted in satisfactoryavailability of about 79.01 LMT DAP duringKharif 2010 season against the assessedrequirement of 68.75 LMT. The sales of DAPin Kharif 2010 were about 65.05 LMT.

MOP

4.2.4 The imports of 26.54 LMT of MOP takentogether with opening stock of 0.97 LMT ason 1st April, 2010 resulted in availability ofabout 27.51 LMT during Kharif 2010 season

against the assessed requirement of 22.98LMT. The sales of MOP were reported asabout 19.63 LMT.

Rabi 2010-11

DAP

4.2.5 The production of DAP during Rabi 2010-11is estimated to be about 18.53 LMT. Stocks


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as on 1.10.2010 coupled with estimatedimports will be adequate in meeting thecountrys requirement of DAP assessed at52.17 LMT during Rabi 2010-11, consideringthat about 5.88 LMT of DAP will be surplustowards the requirement of Rabi 2010-11.

MOP

4.2.6 Stocks of MOP as on 1.10.2010 coupled withadequate imports till March 2011 will ensurethat the countrys requirement of MOP duringRabi 2010-11 is fully met.

4.2.7 Following table summarizes the season-wiseposition in respect of the availability and salesof the major fertilizer i.e. Urea, DAP & MOPduring the last three seasons:

Crop season Demand Cumulative Cumulative %age ofAssessment Availabi li ty Sales availabi li ty

to assesseddemand

Kharif 2009Urea 136.36 130.83 122.78 95.94DAP 49.21 65.19 61.34 132.47MOP 21.61 22.51 18.52 104.16

Rabi 2009-10Urea 145.53 142.83 141.69 98.14DAP 57.77 42.71 42.57 73.93MOP 22.24 29.07 28.21 130.71

Kharif 2010Urea 136.65 132.16 126.02 96.71

DAP 68.75 79.01 65.05 114.92MOP 22.98 27.51 19.63 119.71

4.3 Movement of Fertilizers

4.3.1 Under the Allocation of Business Rules, theDepartment of Fertilizers has been entrustedthe responsibility of ensuring movement,distribution and allocation of controlled

fertilizer, i.e. urea, from various fertilizerplants and ports in accordance with the State-wise requirement assessed by theDepartment of Agriculture & Co-operation(DAC). The distribution of imported urea ismade keeping in view the requirements ofeach of the States.

4.3.2 The major share in transportation of fertilizersis of the Railways. During 2009-10, Railwayshad moved about 75% of the fertilizersproduced and/or imported in the country.

4.3.3 Judicious management of the demand-supplybalance has helped in maintaining theaverage lead of fertilizer movement by rail.During 2009-10 the average lead was 827KMs. During the current year the averagelead for the period April-November, 2010would also be almost same.


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Chapter-5

5.1 Plan Performance

5.1.1 The installed capacity and production offertilizers in the country at the end of eighthfive year plan, in the terminal year of theninth plan and at the beginning of 5 th year oftenth plan (2006-07) are indicated below:

5.1.3 Year-wise consumption, production andimports of fertilizers in nutrients terms aregiven in Annexure-V

5.1.4 The production of fertilizers in nutrient termsduring 2009-10 was 119.00 lakh MT ofnitrogen and 43.21 lakh MT of phosphate.

INSTALLED CAPACITY AND PRODUCTON OF NITROGENOUS AND PHOSPHATIC FERTILIZERS

IN EIGHT, NINTH AND TENTH FIVE YEAR PLANS.(In lakh MT)

Sr. Particulars At the end of At the end of At the beginningNo Eighth Five Year Ninth Plan of 5th year of Tenth

Plan (1996-97) (2001-02) Plan (2006-07)

1 Capacityi) Nitrogen 97.77 120.58 120.61ii) Phosphates 29.05 52.31 56.59

2 Productioni) Nitrogen 85.99 107.68 115.78}ii) Phosphates 25.56 38.60 45.17}

5.1.2 The installed capacity of nitrogen andphosphate in the terminal year (1996-97) ofthe eighth plan was 97.77 lakh MT and 29.05lakh MT, respectively. Three majorphosphatic fertilizer plants werecommissioned during the ninth five year planperiod, namely, Oswal Chemicals &Fertilizers Ltd.-Paradeep, (since taken overby IFFCO), Indo-Gulf Corporation-Dahej andGujarat State Fertilizers Company Ltd.-Sikka-II. Consequent upon reassessment of ureacapacity on the basis of Dr. Y.K. AlaghCommittee and DAP capacity by TariffCommission, despite phasing out of 10 ureaunits due to closure, the installed capacity ofnitrogen and phosphate has increased from97.77 lakh MT at the end of eighth plan to120.61 lakh MT and 29.05 LMT to 56.59LMT respectively during the same period.

The estimated production for 2010-11 is121.75 lakh MT of nitrogen and 45.32 lakhMT of phosphate. Sector-wise targets andachievements in respect of production andcapacity utilization from 2001-02 onwards aregiven in Annexures-VI & VII.

5.2 Plan Outlays

5.2.1 For the Eleventh Five Year Plan (2007-12),Planning Commission has approved an

outlay of Rs. 20627.87 crore consisting ofRs. 1492.00 crore as Domestic BudgetarySupport and Rs. 19135.87 as Internal & ExtraBudgetary Resources (IEBR).

5.2.2 For the year 2010-11, a plan outlay of Rs.2914.99 crore was approved by the PlanningCommission, with Rs. 2699.99 crore to bemet out of IEBR and balance amount of Rs.


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215 crore as budgetary support. The detailsof Plan outlays are given Annexure-VIII.

5.2.3 The outlays for 2011-12 is Rs. 3550.22 crore,of which an amount of Rs. 3325.22 crorewill be met from the internal and extra

budgetary resources and the balance amountof Rs. 225.00 crore will be provided by wayof budgetary support. The gross outlay ofRs. 3550.00 crore is for FCI-FAGTMIL (Rs.4.15 crore), Fertilizers ad ChemicalsTravancore Ltd (Rs. 60.74 crore),Bramhaputra Valley Fertilizer Corppration Ltd(Rs. 67.80 crore), Madras Fertilizers Ltd. (Rs.88.95 crore), National Fertilizes Ltd (Rs.2363.08 crore), Project and Development ofIndia Ltd. (Rs. 9.73 crore), RashtriyaChemicals & Fertilizers Ltd (Rs. 293.30

crore). Krishak Bharati Cooperative Ltd(Rs.654.96 crore) and other Mis.Departmental Schemes such as (MIS/IT andR&D) 7.50 crore. Department of Fertilizersis exploring possibilities of Joint Venturesabroad. Since there is no firm proposal inhand right now only a token provision of Rs.

0.10 crore has been provided.

5.2.4. Of the total outlay, the budgetary support ofRs. 225.00 crore is for Fertilizers &Chemicals Travancore Ltd. (Rs. 60.74 crore),Madras Fertilizers Limited,(Rs. 88.95 crore),

Bramhaputra Valley Fertilizer Corporation Ltd(Rs. 67.80 crore) and other DepartmentalSchemes (Rs. 7.50 crore). Under the otherDepartmental Schemes, there is a provisionof Rs. 2.00 crore for S&T Programme: Rs.5.50 crore for Information Technology, Rs.0.001 crore has been for investment for JointVentures abroad.

5.2.5. For the year 2010-11, there was netbudgetary provision of Rs. 50,215.00 crore.Rs. 215.00 Crore under Plan and Rs.

50,000.00 crore under Non-Plan. In theRevised Estimates (RE) for 2010-11, the netprovision is Rs. 55,215.00 crore, Rs. 215.00crore under Plan and Rs. 55.000.00 croreunder Non-Plan. The details of Non-Plan andPlan Provision in 2010-11 (BE) and (RE) aregiven in Annexure-IX.


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6.1 Measures of support for fertilizers

6.1.1 For sustained agricultural growth and topromote balanced nutrient application, it isimperative that fertilizers are made availableto farmers at affordable prices. With thisobjective, urea being the only controlledfertilizer, is sold at statutorily notified uniformsale price, and decontrolled phosphatic andpotassic fertilizers are sold at indicativemaximum retail prices (MRPs). The problemsfaced by the manufacturers in earning a

reasonable return on their investment withreference to controlled prices, are mitigatedby providing support under the New PricingScheme for urea units and the ConcessionScheme for decontrolled phosphatic andpotassic fertilizers. The statutorily notifiedsale price and indicative MRP is generallyless than the cost of production of therespective manufacturing unit. The differencebetween the cost of production and theselling price/ MRP is paid as subsidy/

concession to manufacturers. As theconsumer prices of both indigenous andimported fertilizers are fixed uniformly,financial support is also given on importedurea and decontrolled phosphatic andpotassic fertilizers.

6.2 Measures of Support for Urea

6.2.1 Unti l 31.3.2003, the subsidy to ureamanufacturers was being regulated in termsof the provisions of the erstwhile RetentionPrice Scheme (RPS). Under RPS, thedifference between retention price (cost ofproduction as assessed by the Governmentplus 12% post tax return on networth) andthe statutorily notified sale price was paid assubsidy to each urea unit. Retention priceused to be determined unit wise, whichdiffered from unit to unit, depending uponthe technology, feedstock used, the level of

Chapter-6

capacity utilization, energy consumption,distance from the source of feedstock/rawmaterials, etc. Though the RPS did achieveits objective of increasing investment in thefertilizer industry, and thereby creating newcapacities and enhanced fertilizer productionalong with increasing use of chemicalfertilizers, the scheme had been criticizedfor being cost plus in nature and not providingincentives for encouraging efficiency.

6.2.2 Given the importance of fertilizer pricing and

subsidization in the overall policyenvironment, which has direct implicationswith reference to the growth and developmentof agriculture and sustainability of the fertilizerindustry, the need for streamlining thesubsidy scheme in respect of urea producingunits had been felt for a long time. A HighPowered Fertilizer Pricing Policy ReviewCommittee (HPC) was constituted, under thechairmanship of Prof. C.H. Hanumantha Rao,to review the existing system of subsidization

of urea, suggest an alternative broad-based,scientific and transparent methodology, andrecommend measures for greatercohesiveness in the policies applicable todifferent segments of the industry. The HPC,in its report submitted to the Government on3rd April 1998, inter-alia, recommended thatunit-wise RPS for urea may be discontinuedand, instead, a uniform Normative ReferralPrice be fixed for existing gas based ureaunits and also for DAP and a FeedstockDifferential Cost Reimbursement (FDCR) be

given for a period of five years for non-gasbased urea units.

6.2.3 The Expenditure Reforms Commission(ERC), headed by Shri K.P. Geethakrishnan,had also examined the issue of rationalizingfertilizer subsidies. In its report submitted on20 th September 2000, the ERCrecommended, inter-alia, dismantling of


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existing RPS and in its place the introductionof a Concession Scheme for urea units basedon feedstock used and the vintage of plants.

6.2.4. The recommendations of ERC wereexamined in consultation with the concerned

Ministries/Departments. The views of thefertilizer industry and the State Governments/Union territories, and economists/researchinstitutes were also obtained. After dueexamination of all these views, a New PricingScheme (NPS) for urea units for replacingthe RPS was formulated and notified on30.1.2003. The new scheme took effect from1.4.2003. It aims at inducing the urea unitsto achieve internationally competitive levelsof efficiency, besides bringing in greatertransparency and simplification in subsidy

administration.

6.2.5. New Pricing Scheme (NPS) for urea wasintroduced w.e.f. 1st April, 2003. The Stage-I of NPS was of one year duration from 1st

April, 2003 to 31st March, 2004 and Stage-II was of two year duration from 1st April to31st March, 2006. With the Stage-III of NPSbeing implemented w.e.f. 1st October, 2006,the Stage-II of NPS stands extended upto31st September, 2006.

6.2.6 Under NPS, the existing urea units have beendivided into six groups based on vintage andfeedstock for determining the group basedconcession. These groups are : Pre-1992gas based units, post-1992 gas based units,pre-1992 naphtha based units, post-1992naphtha based units, fuel oil/low sulphurheavy stock (FO/LSHS) based units andmixed energy based units. The mixed energybased group shall include such gas basedunits that use alternative feedstock/fuel tothe extent of more than 25% as admissible

on 1.4.2002.

6.2.7 Under NPS, escalation/de-escalation is givenin respect of variable cost related to changesin the price of feedstock, fuel, purchasedpower and water. Under the scheme, noreimbursement is allowed in respectofinvestment made by a unit for improvementin its operations nor are the gains as a result

of operational efficiencies to be mopped up.

6.2.8 It has also been provided under the schemethat the concession rates during Stage-II shallbe adjusted for reduction in capital relatedcharges and enforcement of efficient energy

norms. Pre-set energy norms for urea unitsduring Stage-II of NPS have already beennotified and intimated to urea units.Reduction in rates of concession duringStage-II of NPS for urea units on account ofreduction in capital related charges have alsobeen notified and intimated to urea units.

6.3 Amendments to New Pricing SchemeStage - III for Urea Units.

Following amendments in NPS III have been

made6.3.1 It has been decided that the reduction in the

fixed cost of each Urea units strictly due toGroup Averaging principle under the NewPricing Scheme III will be restricted to 10%of the Normated Fixed Cost computed underthe base concession rates. The limitation onreduction of fixed cost will be applicable w.e.f1st April, 2009.

6.3.2 Capacity utilization of Post 1992 Napthabased Group Average will be considered as

95% instead of 98% for calculating the baseconcession rates of urea units provided nocost towards conversion is recognized underNPS III. The approved amendments will helpthe indigenous urea units reduce their lossesdue to the group averaging under NewPricing Scheme Stage - III and help them togenerate resources for reinvestment in theirplants towards modernization and increasedefficiency.

6.3.3 To maintain stocks of urea in case there is

either a shortfall in production due todisruption in supplies of feedstocks or delay/disruption in imports and to tide over thesudden spurt in demand/shortages, a bufferstocking scheme for urea is underimplementation in major States. Thecompanies are reimbursed buffer stockingexpenses on following parameters.


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The company operating the buffer stock willbe entitled to Inventory Carrying Cost (ICC)at a rate 1 percentage point less than thePLR of SBI as notified from time to time.This rate would be applicable at Rs 4650per MT (MRP less than the dealers margin

i.e. Rs 4830- Rs 180) for the quantity andthe duration for which the stock is carried asbuffer. In case of cooperatives, it will be atRs 4630 per MT as dealers margin in thiscase is Rs 200 per MT.

I. The company will be paid warehousingand insurance charges at the rate ofRs 23 per tonne per month on thequantity carried as buffer.

II. Since the material will be moved in two

stages i.e. from the plant to the bufferstocking point and then on toconsumption points, additional handlingcharges at the rate of Rs 30 per MT willbe paid to the Fertilizer Company onthe quantity sold from the buffer stock.

III. In addition, freight from the bufferstocking warehouse to the block in caseof movement outside the district in whichbuffer stocking godown is located, willalso be paid to the company, in

accordance with the provisions underthe Uniform policy for freight subsidyannounced by the Government witheffect from 1st April, 2008.

6.4 Phased Decontrol of Urea Distribution

6.4.1 As per the New Pricing Scheme for ureaunits, it was also envisaged that decontrol ofurea distribution/movement will be carried outin a phased manner. During Stage-I, i.e. from1.4.2003 to 31.3.2004, the allocation of urea

under the Essential Commodities Act 1955(ECA) was restricted up to 75% and 50% ofinstalled capacity (as reassessed) of eachunit in Kharif 2003 and Rabi 2003-04,respectively. It was further envisaged thatduring Stage-II commencing from 1.4.2004,urea distribution will be totally decontrolledafter evaluation of Stage-I and with theconcurrence of the Ministry of Agriculture.

6.4.2 The total decontrol of urea distribution wasdeferred initially for a period of six monthsw.e.f. 1.4.2004 i.e., up to Kharif 2004, whichhas been subsequently deferred up to Rabi2005-06 i.e., up to 31.3.2006. The existingsystem of 50% ECA allocation and 50%

outside ECA allocation has been extendedupto 31-3-2010.

6.4.3 The pricing policy for urea units for Stage-IIIof New Pricing Schemes (NPS) which iseffective from 1.10.2006 to 31.3.2010 hasbeen formulated keeping in view therecommendations of the Working Group setup under the Chairmanship of Dr. Y.K. Alagh.The salient features of the proposed Stage-III Policy which is aimed at promoting furtherinvestment in the urea sector, are to

maximize urea production from the Urea unitsincluding through conversion of non-gasbased Units to gas, incentivising additionalurea production and encourage investmentin Joint Venture (JV) projects abroad. It isalso aimed at establishing a more efficienturea distribution and movement system inorder to ensure availability of urea in theremotest corners of the country.

6.4.4 The Stage-III policy seeks to promote usageof most efficient and comparatively cheaper

feed stock natural gas/LNG for production ofurea in the country. The policy lays down adefinite plan for conversion of all non-gasbased urea units to gas. At present, thereare 8 urea units (MFL,SPIC, ZIL, MCFL,GNFC, NFL-Nangal, NFL-Bhatinda, NFL-Panipat) in the country which are based onnaphtha or FO/LSHS as feed stock. All these8 units are required to switch over to naturalgas/LNG within a period of next three years.Beyond this time limit, the high cost urea

produced by these non-gas based units willnot be entitled to subsidy at the existing levelsand it will be restricted to import parity priceof urea. The units, which are unable to tieup gas will have to explore alternativefeedstocks like Coal Bed Methane (CBM)and coal gas. SFC has started using gasw.e.f. 22.9.2007.


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6.4.5 The availability of gas is critical to the growthof urea industry in the country. Presently,the indigenous availability is not sufficient tomeet the demand of existing gas based ureaunits in the country. To this end, theDepartment of Fertilizers constituted a

Committee under the chairmanship ofSecretary(P&NG) with Secretary(Fertilizers),Secretary(Expenditure), Secretary(PlanningCommission) as its members to deliberateupon various issues relating to connectivityand assured supply of gas to the fertilizersector. The Committee will also develop anappropriate mechanism for fixing the priceof the gas in a transparent manner. It isexpected that the availability of gas in thecountry will improve from 2008-09 onwards

and the new policy, taking into account theabove fact, has laid down specific timelinesfor conversion of all non-gas based units inthe country to gas.

6.4.6 In order to incentivise conversion of non gasbased units to gas, the policy provides for aregime where there will be no mopping up ofenergy efficiency for a fixed period of fiveyears for naphtha based as well as FO/LSHSbased units. The policy also recognizes thecomparative higher cost of conversion of FO/

LSHS based units to gas and provides forone time capital investment assistance tothese units for conversion to gas during thenext three years. A specific policy to thiseffect has been announced by theGovernment on 6th March 2009.

6.4.7 The policy also lays down a formulation todis-incentivise high cost production from thenon-gas based units and to facilitate theirearly conversion to gas. It is proposed thatthese units may be allowed to produce 100%

of capacity should they adhere to an agreedtimetable for conversion to Gas and tie uprequisite Gas/CBM/Coal gas. If they do not,they will be given only 75% of the fixed costsbeyond 93% of capacity utilization in the 1st

year (1.4.2007) and 50% of the fixed costbeyond 93% capacity utilization from 2nd year(1.4.2008) onwards.

6.4.8 Considering the likely growth in consumptionof urea in the years to come, the policy seeksto encourage the existing urea units toproduce beyond 100% of their installedcapacities by introducing a system ofincentives for additional urea production

subject to merit order procurement. Thepolicy of requiring prior Governmentpermission for additional urea production hasbeen dispensed with. All production between100% and 110% of the existing reassessedcapacity will be incentivised on the existingnet gain sharing formula between theGovernment and the unit in the ratio of 65:35respectively with the proviso that the totalamount paid to the units after including thecomponent of variable cost will be capped

at the units own concession rate. The unitsincreasing production beyond 110% will becompensated at their concession rate subjectto the over all cap of Import Parity Price(IPP). To the extent Government does notrequire any quantities of additionalproduction, the urea companies would befree to dispose of the remaining quantitiesby way of export or sale to complexmanufacturers without any permission. Thepolicy also encourages setting up of JointVenture projects abroad where gas is readily

available at reasonable prices. It recognizesour heavy dependence on imported rawmaterials/intermediates and feedstock in thefertilizer sector and to properly leverage thisposition, the policy seeks to createspecialized agency to coordinate investmentsabroad in fertilizer sector.

6.4.9 The policy seeks to rationalize distributionand movement of urea and the system offreight reimbursement with the objective ofensuring availability of urea in all parts of

the country. The Government will continueto regulate movement of urea up to 50% ofproduction depending upon the exigency ofthe situation. The State Governments will berequired to allocate the entire quantity ofplanned urea arrivals including both regulatedand de-regulated urea in districtwise,monthwise and supplierwise format. The


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units will be required to maintain a districtlevel stock point and the subsidy will be paidonly when the urea reaches the district. Themonitoring of movement and distribution ofurea throughout the country up to the districtlevel will be done by an On line Web based

monitoring system. To facilitate movementof fertilizers to far flung area, thereimbursement of freight will be based onactual leads for rail and road movement. Therail freight will be reimbursed as per theactual expenditure and the road freight willbe escalated as per composite road transportindex every year. One time enhancement of33% will be granted on the road componentof primary freight to offset the impact ofSupreme Court directive regarding maximum

truck load limit of 9 MT on road vehicles.The existing special freight subsidy schemewill continue for supply of urea to the NorthEastern States except Assam and Jammu &Kashmir. In addition, the Department willoperate a buffer stock through the stateinstitutional agencies/fertilizer companies inmajor urea consuming States up to a limit of5% of the seasonal requirement.

6.4.10 Further to ensure availability of fertilizer inall parts of the country, the freight regime on

all subsidized fertilizers including urea hasbeen revised with effective from 1st April,2008 through Uniform Pricing Policy forfreight subsidy. Under the new policy the railfreight will be paid at actuals whereas theroad freight will be based on normated districtlead worked out from the nearest rail rakepoint for each district in the country andnormative per Km rate recommended byTariff Commission.

6.4.11 The Stage-III of NPS seeks to carry on the

existing 6 group classification of ureamanufacturing units in the country withupdation of all costs upto 31st March, 2003.The respective pre-set energy consumptionnorm of each urea units during Stage-II ofNPS or the actual energy consumptionachieved during the year 2003, whichever islower, will be recognized as the norm for

Stage-III of NPS. The policy also providesfor updation of costs on account of cost ofbags through 3 year moving weightedaverage cost of bags to compensate for therise in prices for the last three years. It alsoprovides for payment of sales tax on input

and other taxes recognized under erstwhileRetention Price Scheme, on actual basis.

6.4.12 NPS Stage-III seeks to take forward theprinciples of uniformity and efficiency in ureaproduction as enunciated during Stage I andII of NPS and also aims at bringing in moretransparency in distribution of fertilizersacross the country. The policy will encourageincrease in indigenous production from theexisting urea units in the country and facilitateearly conversion of non-gas based units togas leading to substantial savings in subsidy.The launch of Fertilizer Monitoring System(FMS) to monitor movement of fertilizers uptodistrict level and the freight rationalizationproposed in the new policy, the distributionof fertilizers in remote corners of the countrywill improve considerably without anycomplaints of shortages in future. TheDepartment of Fertilizers will continue itsendeavour to promote the growth of fertilizerindustry in the country and ensure adequate

availability of fertilizers to the farmers.

6.4.13 The tenure of New Pricing Scheme (Stage-III) policy was upto 31-03-2010. Theprovisions of Policy for Stage-III of NPS hasbeen extended till further orders onprovisional basis. The formulation of NewPricing policy commencing from 1.4.2010 isunder consideration of the Government.

6.5 Formulation of policy for existing ureabeyond Stage-III of New Pricing Scheme

A Group of Minister (GoM) constituted toreview the fertilizer policy has decided in themeeting held on 5th January 2011 to set upa Committee under the Chairmanship of ShriSaumitra Chaudhuri, Member, PlanningCommission to examine the proposal forintroduction of Nutrient Based Subsidy


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(NBS) in urea and to make suitablerecommendations.

6.6 Pricing Policy for Investment in Fertilizersector

6.6.1 A pricing policy was announced on 29.1.2004for setting up new urea projects andexpansion of existing urea projects foraugmenting the domestic production capacityof urea to meet the growing demand forenhancing the agricultural production in thecountry. The new policy aimed at enablingthe entrepreneurs to decide about theirinvestment plans in the fertilizer sector. Thenew policy was expected to encouragesetting up of plants with internationalefficiency standards for fresh investment innew projects and expansion of existing units.The policy was based on the principle ofLong Run Average Cost (LRAC).

6.6.2 The above policy was not successful inattracting investment in this sector. The non-availability of natural gas, which is the criticalfeedstock for production of urea, has alsobeen one of the major constraints in furtheraddition of indigenous capacity for productionof urea. However with the projected improvedavailability of gas from 2009 onwards, it isexpected that investment in fertilizer sectorwill also take place. The Government hasrecently announced on 4th September 2008,a new investment policy for urea sector toattract the much required investment in thissector. The policy is based on IPPbenchmark and has been finalized inconsultation with the industry.

6.6.3 The policy is expected to lead to savings tothe Government in the form of availability of

Urea at a price below IPP and will also leadto indirect savings by bringing down theimport price due to reduction in imports. TheNew Investment Policy aims at revamp,expansion, revival of existing urea units andsetting up of Greenfield/ Brownfield projects.The policy is likely to substantially bridgethe gap in next five years between theconsumption and domestic production

subject to confirmed and adequate availabilityof gas at reasonable prices. The salientfeatures of the new investment policy are asunder :-

1. The policy is based on Import Parity

Price (IPP) benchmarked with suitablefloor and ceiling prices of USD 250/MTand USD 425/MT respectively.

2. Revamp project: Any improvement incapacity of existing plants throughinvestment upto Rs. 1000 crore, in theexisting train of ammonia-ureaproduction will be treated as revamp ofexisting units. The additional urea fromthe revamp of existing units will berecognized at 85% of IPP with the floor

and ceiling price as indicated above.

3. Expansion projects: Setting up of a newammonia-urea plant (a separate newammonia-urea train) in the premises ofthe existing fertilizer plants, utilizingsome of the common utilities will qualifyfor being treated as expansion project.The investment should exceed aminimum limit of Rs.3000 crore. Theurea from the expansion of existing unitswill be recognized at 90% of IPP, with

the floor and ceiling price as indicatedabove.

4. Revival/Brownfield projects: The ureafrom the revived units of HindustanFertilizer Corporation Limited(HFCL)and Fertilizer Corporation of IndiaLimited (FCIL) will be recognized at 95%of IPP with prescribed floor & ceilingprice, if the revival of closed units takesplaced in public sector.

5. Greenf ield projects: The pricing ofGreenfield projects will be decidedbased on a bidding process which willbe for a discount over IPP, after firmingup of the location (States) of theproposed new plants.

6. Gas t ransportat ion charges: Anadditional gas transportation cost will be


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paid to units undertaking expansion andrevival on the basis of actuals (upto 5.2Gcal per MT of urea) as decided by theRegulator(Gas) subject to a maximumceiling of USD 25 per MT of urea.

7. Allocation of Gas: Only non-APM gaswill be considered for the newinvestment in urea sector.

8. Coal gasification based Urea Projects:The Coal gasification based ureaprojects will also be treated on par witha revival or a Greenfield project as thecase may be. In addition, any otherincentives or tax benefits as providedby Government for encouraging coalgasification technology will also be

extended to these projects.

9. Joint Ventures abroad: The JointVenture projects abroad in gas richcountrie

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