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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.
A. Urea Pricing Policy:
a) New Pricing Scheme (NPS)
i) NPS-I
New Pricing Scheme (NPS)- I 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. The primary consideration and goal of the
abovementioned policy was to encourage efficiency parameters of international standards based on the usage of
the most efficient feedstock, state-of-art technology and also ensure viable rate of return to the units.
ii) NPS-II
The Stage-II was of two year duration from 1st April 2004 to 31st March, 2006, which was extended upto
30th September 2006. The pre-set energy norms for the urea units during Stage-II of NPS were given. As per the
said policy, escalation/de-escalation was to be carried out on a quarterly/annual basis. However, if the actual
energy consumption of a unit is lower than the pre-set energy norms, the resultant excess would be valued for
escalation/de-escalation at the basic rate of the cheapest input.
iii) NPS-III
The Stage III of NPS was notified on 8th March, 2007 and was made effective from 1 st October
st
2006 till 31 March 2010. The Policy for incentivizing additional production of urea during Stage-III of NPS was
made applicable from the date of notification and till then additional production of urea by units beyond 100% of
their capacity will be governed by the existing policy of sharing of the net gain between the Government and the
unit in the ratio of 65:35.
Following amendments have been made effective in NPS III after its Notifications:
Vide Notification No. 12012/19/2007-FPP dated 10th July, 2009 for adoption of capacity utilization as 95% for
post-92 naphtha based group, restricting reduction in fixed cost strictly due to group averaging principle to 10%
of the normated fixed cost and detailing parameters for buffer stocking scheme.
Vide Notification No. 12014/1/2008-FPP dated 6th March 2009 regarding amendment of NPS-III Policy for
restart of existing urea units. The above scheme was applicable to the shutdown of the urea units, viz., RCF
Trombay, DIL/KFCL- Kanpur and FACT-Cochin resuming production on the existing feedstock/fuel and
subsequently getting converted into gas based.
Vide Notification No. 12014/1/2008-FPP dated 6th March 2009 Amendment of NPS-III Policy for resumption
of urea production by RCF-Trombay unit. This Notification pertains to facilitating restart of RCF Trombay by
allowing minimum fixed cost equivalent to weighted average fixed cost of gas based urea units under NPS-III
with the preset energy as available to the unit under NPS I & II.
Vide Notification No. 12014/1/2008-FPP dated 6th March 2009 regarding policy for Conversion of FO/LSHS
urea units to Natural gas. Provisions under notifications dated 8 th February 2010 for Conversion of Fuel Oil/Low
Sulphur Heavy Stock (FO/LSHS) based Urea unit at Bathinda, Nangal & Panipat of NFL to Natural Gas (NG);
Provisions under notifications dated 14th December 2009 for Conversion of Fuel Oil/ Low Sulphur Heavy Stock
(FO/LSHS) based Urea unit at Gujarat Narmada Valley Fertilizer Corporation (GNVFC) to Natural Gas (NG).
Above notifications pertain to recognizing cost of conversion of FO/LSHS units through a special fixed cost for
five years after conversion as per certain parameters. This scheme is applicable for FO/LSHS units, viz., NFL
(Nangal, Bathinda and Panipat) and GNVFC-Bharuch.
Formulation of policy for existing urea beyond Stage-III of New Pricing Scheme
A Group of Minister (GoM) constituted to review the fertilizer policy has decided in the meeting held on
5th January 2011 to set up a Committee under the Chairmanship of Shri Saumitra Chaudhuri, Member, Planning
Commission to examine the proposal for introduction of Nutrient Based Subsidy (NBS) in urea and to make
suitable recommendations.
Recently, the Government has notified the Modified NPS-III for existing urea units on 2nd April, 2014 in
order to address the issue of under recoveries of the existing urea units due to freezing Fixed Cost at the level
of costed year 2002-03. The policy will be implemented for a period of one year from the date of issue of
notification. The policy envisages the continuation of calculation of concession rates of urea units as per
NPS-III with certain amendments. As per the said policy, the existing urea units will be paid the
maximum
additional fixed cost (towards increase in the four components, viz., salaries & wages, contract labour, selling
expensed and repair & maintenance) of Rs. 350/MT to existing urea units or actual increase in above four
components of fixed cost during the year 2012-13 as compared to the year 2002-03, whichever is lower.
However, in respect of KFCL and BVFCL-II units, for which cost data of four components is not available either
for the year 2002-03 or 2012-13, the actual increase in these four components as per the certified cost data for
the latest year over and above Rs. 521/MT (weighted industry average during 2002-03) subject to maximum
of Rs. 350/MT will be allowed.
The policy also provides for the grant of the minimum fixed cost of Rs. 2300/MT or actual fixed cost
prevailing during 2012-13, whichever is lower, after taking into account the aforesaid additional fixed cost. This
will be based on certified fixed cost data for the year 2012-13, to be provided by all urea units. Further, in order
to protect the efficient units which have converted to gas and are more than 30 years old, the policy has the
provision of compensating these units by way of grant of the special compensation of Rs. 150/MT.
The provision for continuation of the production of high cost naphtha based urea units namely SPIC Tuticorin,
MFL Manali and MCFL Mangalore is also made under modified NPS-III till the gas availability and connectivity is
provided to these units or June, 2014 whichever is earlier.
The capacity utilization of two units in post 92 Naphtha based groups namely IFFCO-Phulpur-II and CFCL-II, has
been increased from 95% to 98% on par with gas based units. FICC may re-work the group average of fixed cost
for these units.
A pricing policy was announced on 29.1.2004 for setting up new urea projects and expansion of existing urea
projects for augmenting the domestic production capacity of urea to meet the growing demand for enhancing the
agricultural production in the country. The policy aimed at enabling the entrepreneurs to decide about their
investment plans in the fertilizer sector. The policy was expected to encourage setting up of plants with
international efficiency standards for fresh investment in new projects and expansion of existing units.
This policy which was based on the principle of Long Run Average Cost (LRAC) was not
successful in attracting investment in this sector. The non-availability of natural gas, which is the critical
feedstock for production of urea, has also been one of the major constraints in further addition of indigenous
capacity for production of urea. However with the projected improved availability of gas from 2009 onwards, it is
expected that investment in fertilizer sector will also take place. Further, vide notification dated 4 th September
2008, Government had notified the New Investment Policy for urea sector to attract the much required investment
in this sector. The policy was based on IPP benchmark.
The policy was expected to lead to savings to the Government in the form of availability of Urea at a price
below IPP and will also lead to indirect savings by bringing down the import price due to reduction in imports. The
New Investment Policy aimed at revamp, expansion, revival of existing urea units and setting up of Greenfield/
Brownfield projects. The policy was likely to substantially bridge the gap in next five years between the
consumption and domestic production subject to confirmed and adequate availability of gas at reasonable
prices. The salient features of the New Investment Policy-2008 are as under:-
1. The policy is based on Import Parity Price (IPP) benchmarked with suitable floor and ceiling prices of USD
250/MT and USD 425/MT respectively.
1. Revamp project: Any improvement in capacity of existing plants through investment upto Rs. 1000 crore, in
the existing train of ammonia-urea production may be treated as revamp of existing units. The additional urea
from the revamp of existing units may be recognized at 85% of IPP with the floor and ceiling price as indicated
above.
1. Expansion projects: Setting up of a new ammonia-urea plant (a separate new ammonia-urea train) in the
premises of the existing fertilizer plants, utilizing some of the common utilities may qualify for being treated as
expansion project. The investment should exceed a minimum limit of Rs. 3000 crore. The urea from the
expansion of existing units may be recognized at 90% of IPP, with the floor and ceiling price as indicated above.
4 Revival/Brownfield projects: The urea from the revived units of Hindustan Fertilizer
Corporation Limited(HFCL) and Fertilizer Corporation of India Limited (FCIL) may be recognized at 95% of IPP
with prescribed floor & ceiling price, if the revival of closed units takes placed in public sector.
1. Greenfield projects: The pricing of Greenfield projects may be decided based on a bidding process which will
be for a discount over IPP, after firming up of the location (States) of the proposed new plants.
1. Gas transportation charges: An additional gas transportation cost may be paid to units undertaking
expansion and revival on the basis of actuals (upto 5.2 Gcal per MT of urea) as decided by the Regulator(Gas)
subject to a maximum ceiling of USD 25 per MT of urea.
1. Allocation of Gas: Only non-APM gas may be considered for the new investment in urea sector.
1. Coal gasification based Urea Projects: The Coal gasification based urea projects may also be treated on par
with a revival or a Greenfield project as the case may be. In addition, any other incentives or tax benefits as
provided by Government for encouraging coal gasification technology will also be extended to these projects.
1. Joint Ventures abroad: The Joint Venture projects abroad in gas rich countries are also proposed to be
encouraged through firm offtake contracts with pricing decided on the basis of prevailing market conditions and
in mutual consultation with the joint venture company. However, the principle for deciding upon the maximum
price will be the price achieved under Greenfield projects or 95% of IPP as proposed for revival projects (in
absence of any Greenfield projects) with a cap of USD 405 CIF India per MT and a floor of USD 225 CIF India
per MT (inclusive of handling and bagging costs).
10. Time period for proposed investment policy: Only those revamp projects which start production of
additional capacities within four years of notification of the new policy would qualify for the dispensation
recommended above. Similarly production from expansion and revival (brownfield) units that come about within
five years of notification of the new policy would qualify for dispensation provided in the policy. If the production
does not come through within the stipulated time period, such brownfield projects will be treated similar to a
Greenfield projects wherein price will be decided through limited bidding options. The time period for setting up
of new Joint Ventures would also be five years under the new investment policy.
Amendment in NIP-2012
As per deliberation and discussion held in the meeting on 01.07.2013 under Chairmanship of PS to Honble
Prime Minister, it was decided to move an amendment in New Investment Policy-2012 through CCEA for
substituting the phrase guaranteed buyback with expression that subsidies will be given only upon domestic
sale as at present with proper safeguards.
This Department has issued Amendment to New Investment Policy (NIP) - 2012 on 07th October, 2014.
In this regard, this department has received twelve proposals from the project proponents. Further, this
Department is examining these proposals in the light of the provisions of the NIP-2012 and amendments thereof.
The amendment to NIP-2012 also includes that all the project proponents are required to furnish BG of Rs. 300
crores for each project. The BG has been linked milestones in the project cycle. Out of Rs. 300 crores, Rs. 100
crores of BG will be released finalization of LSTK/EPCA contractors and release of advance to the contractors
account; Rs. 100 crores of BG will be released on completion of requirements ordering and supply to the site or
midpoint of the project cycle, whichever is earlier, and the balance of Rs. 100 crores of BG on completion of the
project. PSUs are, however, exempted from furnishing the BG.
Vide Notification No 12012/10/2013-FP dated 21st April, 2015, the companies/ societies who had shown interest
to set up Greenfield/Brownfield/Revamp projects, are advised to furnish the required Bank Guarantee (BG) after
securing the financial closure for the project but well before finalization of LSTK/EPCA contractor.
1 Historical Background:
1.1 Since independence, Government of India has been regulating sale, price and quality of fertilizers. For
this purpose, Government of India has passed Fertilizer Control Order (FCO) under Essential commodity Act (EC
Act) in the year 1957. In order to regulate the distribution of fertilizer, Movement Control Order was passed in
1973. No subsidy was paid on Fertilizers till 1977 except Potash for which subsidy was paid only for a year in
1977.
1.2 On the recommendation of the Maratha Committee, the Government had introduced Retention Price
Scheme (RPS) for nitrogenous fertilizers in November 1977. Subsequently, RPS was extended to phosphatic
and other complex fertilizers from February 1979 and to Single Super Phosphate from May 1982, which
continued up to 1991. Later on, subsidy was also extended to imported phosphatic and potassic (P&K) fertilizers.
In early 1990s, the country was facing mounting fiscal deficit and there was an impending danger of
foreign exchange crisis. In order to contain the subsidy burden, Government announced an increase of 40% in
the price of fertilizers in July, 1991. Some of the fertilizers which were under the subsidy scheme were
decontrolled. Subsequently, apprehending low consumption of fertilizer due to increase in prices and
consequently, low agriculture productivity, Government rolled back 10% of increase in Urea price.
1.3 In December 1991, Government set up a Joint Parliamentary Committee (JPC) on Fertilizer Pricing to
review the existing methods of computation of retention prices for different manufactures of fertilizers and to
suggest measures for reducing fertilizers prices without straining the exchequer. JPC submitted its report on 20th
August 1992. The main conclusions and recommendations of the Committee were that the rise in subsidy was
mainly due to increase in the cost of imported fertilizers, de-valuation of rupee in July 1991 and the stagnant farm
gate prices from 1980 to 1991. The Committee did not favour total decontrolled of fertilizers but recommended
decontrol of import based phosphatic and Potassic fertilizers along with a marginal 10% reduction in the
consumer price of Urea.
Maximum Retail Price (MRP) of P&K fertilizers (in Rs. per Metric Tonne)
Grades of 1.4.97 29.2.00 28.2.02 28.2.03 12.3.03 18.6.08
# Fertilizers 28.2.00 27.2.02 27.2.03 11.3.03 17.6.08 31.3.10
1 DAP : 18-46-0-0 8300 8900 9350 9550 9350 9350
2 MAP : 11-52-0-0 NA NA NA NA NA 9350
3 TSP : 0-46-0-0 NA NA NA NA NA 7460
4 MOP : 0-0-60-0 3700 4255 4455 4455 4455 4455
5 16-20-0-13 6400 6740 7100 7300 7100 5875
6 20200-13 NA NA NA NA NA 6295
7 23230-0 NA NA NA NA NA 6145
8 102626-0 7300 7880 8360 8560 8360 7197
9 123216-0 7400 7960 8480 8680 8480 7637
10 142814-0 7300 7820 8300 8500 8300 7050
11 143514-0 7500 8100 8660 8860 8660 8185
12 151515-0 6000 6620 6980 7180 6980 0
13 AS: 20.3-0-0-23 NA NA NA NA NA 10350
14 20-20-0-0 6500 6880 7280 7480 7280 5343
15 28280-0 8000 8520 9080 9280 9080 7481
16 171717-0 7200 7680 8100 8300 8100 5804
17 191919-0 7300 7840 8300 8500 8300 6487
MRP was fixed by respective State Governments upto April
2008.
18 SSP(0-16-0-11) W.e.f. 1.5.2008 to 30.9.09 all India MRP of Rs. 3400 PMT
fixed by Govt. W.e.f 1.10.2009 to April 2010, MRP was open
fixed by SSP units.
Per MT subsidy on different grade of P&K fertilizers during the year 2010-11 to 2014-15
(in Rs. PMT)
2010-11
Sl. Fertilizer Grades(FG) 1.4.2010 2011- 2012- 2013- 2014-15
No. (N P K S nutrient) 1.1.2011 to 12 13
to 14
31.3.2011
31.12.2010
1. DAP (18-46-0-0) 16268 15968 19763 14350 12350 12350
A Statement showing MRP of P&K fertilizers during the year 2010-11 to 2013-14 is at Annexure-I.
6.5.1 In order to ensure reasonableness of prices fixed by fertilizer companies, while announcing the NBS
Policy and rates for the year 2013-14, the following clauses have been incorporated in NBS Policy applicable with
effect from 1.4.2012:
(i) It shall be mandatory for all the fertilizer companies to submit, along with their claims of subsidy,
certified cost data in the prescribed format and as per the requirement for the purpose of monitoring of MRPs of
P&K fertilizers fixed by the fertilizer companies.
(ii) In cases, where after scrutiny, unreasonableness of MRP is established or where there is no correlation
between the cost of production or acquisition and the MRP printed on the bags, the subsidy may be restricted or
denied even if the product is otherwise eligible for subsidy under NBS. In proven case of abuse of subsidy
mechanism, DOF, on the recommendation of IMC may exclude any grade/grades of fertilizers of a particular
company or the fertilizer company itself from the NBS scheme.
(iii) The reasonableness of MRP will be determined with reference to the MRP printed on the bags.
(iv) The companies shall continue to submit the certified cost data as per the requirement and direction of
DOF from time to time. The companies shall also report MRPs of P&K fertilizers regularly to DOF.
(v) The P&K companies should have the same MRP printed on the bags as applicable for each State in
FMS. In other words, there should not be any difference in MRP printed on the fertilizer bags and that reported in
the FMS for a particular state.
(vi) The fertilizer companies henceforth will certify the correctness of MRPs of their products entered in FMS
while claiming On Account claims for a particular month and also ensure that the MRPs are updated in the FMS
upto the date of submission of bill.
6.7 Freight subsidy Policy in respect of P&K fertilizers under NBS regime:
(a) The freight subsidy for distribution/movement of subsidized P&K fertilizers (except SSP) under the NBS
Policy w.e.f. 1.4.2010 to 31.12.2010 was restricted to the rail freight, whereas the secondary freight (from rake
point to districts) was assumed to be part of the fixed subsidy. Freight reimbursement on account of direct road
movement was made payable as per the actual claim subject to the equivalent rail freight upto a maximum of 500
Kms.
(b) W.e.f. 1.1.2011 to 31.3.2012, freight on account of Primary Movement (by rail from the plant or the port to
various rake points) and Secondary Movement (by road from nearest rake points to the block headquarters in the
Districts) of all P&K fertilizers (except SSP) was reimbursed as per the Uniform Freight Subsidy policy applicable
to urea during the period. Freight subsidy for Direct Road Movement (by road from plant or port to blocks) of all
P&K fertilizers (except SSP) was reimbursed as per actual claim subject to the equivalent rail freight upto a
maximum of 500 Kms. The rates for reimbursement of freight for direct road movement from 1.4.2010 to
31.3.2012 were as under:
Movement(K.M.) Rates Rs. per MT
Upto 100 108
101-200 183
201-300 256
301-400 327
401-500 400
The rate of subsidy and MRP of SSP during the year 1993-94 to 2014-15 is as under:
Period Rate of Subsidy MRP (in Rs. PMT
Under Concession Scheme
1993-94 to 2007-08 Different amount of Upto 30.4.2008, MRP was fixed by respective
subsidy State Governments for sale of SSP within
their State
2008-09 Month-wise subsidy W.e.f. 1.5.2008 to 30.9.2009, All India MRP
(1.5.2008 to 30.9.2009) announced by GOI as of Rs. 3400 PMT
mentioned below Table-
A
8. Quality of Fertilizers
The Government of India has declared fertilizer as an essential commodity under the Essential Commodities Act,
1955 (ECA) and has notified Fertilizer Control Order, 1985 (FCO) under this Act. Accordingly, it is the
responsibility of the State Governments to ensure the supply of quality of fertilizers by the
manufacturers/importers of fertilizers as prescribed under the FCO under the ECA. As per the provision of the
FCO, the fertilizers, which meet the standard of quality laid down in the order can only be sold to the farmers.
There are 71 fertilizer testing laboratories including four laboratories of the Government of India at Faridabad,
Kalyani, Mumbai and Chennai with an annual analyzing capacity of 1.34 lakh samples. The quality of the
fertilizers imported in the Country is invariably checked by the fertilizer quality control laboratories of the
Government of India.
The State Governments are adequately empowered to draw samples of the fertilizers anywhere in the Country
and take appropriate action against the sellers of Non- Standard fertilizers. The penal provision includes
prosecution of offenders and sentence if convicted up to seven years imprisonment under the ECA, 1955 besides
cancellation of authorization certificate and other administrative action. The Department of Fertilizers make
deductions along with penal interest on the quantity of the fertilizers for which the State Governments have
reported to be Non- Standard.
Payment of concession for P&K fertilizers and for Single Super Phosphate (SSP) is made by the Department
taking into account the certificate of quality given by the respective State Governments in Proforma 'B' for the
fertilizers received and sold in the State. Further, SSP units are required to produce month-wise 'Quality
Certificates' issued by the State Governments of the State in which the units are located. The units are required
to have well equipped laboratory to test the sample of its SSP.
The SSP units are also required to print 'Quality Certified' on each bag released in the market. DOF also deputes
PDIL to conduct first time technical inspection of the new SSP units. PDIL conducts six monthly inspections of the
SSP units to check the quantity and quality of the fertilizers for which the units are claiming payment of subsidy.
The units are also required to use only those grades of Rock Phosphate as inputs for manufacturing SSP under
the NBS, which are notified by DOF from time to time. A statement showing the notified grades is at Annexure-
XIII. DOF has also asked the State Government to constitute teams with that of PDIL to test samples of Single
Super Phosphate (SSP) at the retailer level. The marketers of the SSP are also responsible for the quality of the
fertilizer marketed by them. Department of Fertilizers has also constituted vigilance teams of the Officers of the
Department to check the availability and quality of the fertilizers in the States.
9. Subsidy outgo on P&K fertilizers and Urea during the last 10 years:
Highest Maximum Ratail Price (MRP) in Rs/MT of P&K fertilizers fixed by the fertilizer com
Nutrient Based Subsidy regime