GoM report to hit SPIC, Zuari

According to sources, under this scheme units with lowest retention prices would be given a chance to produce the highest quantities as against the earlier system of total procurement from all units.

Thus, the low cost units would be producing more quantities at more cost effective levels than the high cost units. However, production from high cost units would not be below their normative levels of production thereby ensuring that there is no under-recovery of their fixed costs. The retention price covers the variable cost, conversion cost and 12 per cent of capital related charges of the units. The top five high cost units are MFL Manali (retention price Rs 16,454 per metric tonne), FACT Kochi (Rs 15,162 per MT), MCFL Mangalore (Rs 12,706), ZIL Goa (Rs 12,586) and SPIC Tuticurin (Rs 12,243). The top five low cost units are HFC Namrup III (Rs 4,356), Kribhco Hazira (Rs 4,942), IFFCO Aonla (Rs 5,192), NFL Vijaypur (Rs 5,338) and Indogulf Jagdishpur (Rs 5,536).

If the merit based procurement scheme sees the light of the day the high cost firms would be affected the most. The move should help in reducing the level of subsidy on fertilisers by around Rs 649 crore annually. However, there a lot of preparatory steps which need to be taken before implementing the merit based procurement scheme. Such steps include move to minimise the damage to the health of low cost and efficient farms.

The existing normative levels of production and method of calculating the net fixed assets should be continued. The re-assessment of capacities as proposed by the Department of Fertiliser should be implemented. The prepapartory steps would also include increased gas supply to the fertiliser sector which would require discussions with the ministry of petroleum and natural gas.