Making urea that is not needed: New Talcher urea project will further worsen the unsustainable fertiliser subsidy burden

The RP in flip, is calculated considering effectivity norms resembling capability utilisation, power consumption, capital associated expenses (CRC), different mounted price, delivered price of gasoline and different inputs, and so on.

The Cupboard Committee on Financial Affairs (CCEA) has just lately accepted subsidy for urea to be produced by Talcher Fertilizers (TFL) —a three way partnership of 4 PSUs: Coal India Restricted (CIl), GAIL, Rashtriya Chemical substances and Fertilizers (RCF), and Fertilizer Company of India (FCI). TFL is organising the capability of 1.27 million tonne every year at Talcher, Odisha, at an estimated funding of Rs 13,277 crore. The undertaking relies on coal gasification: use of coal to synthesise gasoline—a combination of hydrogen and carbon monoxide—which is then processed to make urea.

The Centre controls the MRP of urea at a low degree, one that’s unrelated to the price of manufacturing and distribution. Producers get reimbursed for the shortfall in realisation from gross sales through the subsidy on a ‘unit-specific’ foundation. There are over 30 urea crops, all based mostly on gasoline. The subsidy to every plant is its retention value (RP) minus the MRP. The RP in flip, is calculated considering effectivity norms resembling capability utilisation, power consumption, capital associated expenses (CRC), different mounted price, delivered price of gasoline and different inputs, and so on.

Whilst the present MRP is ridiculously low, at Rs 5,360 per tonne or $71 per tonne (at present alternate fee), the RP varies from a low of about $ 200 per tonne to a excessive of $350 per tonne. Up to now, when crops had been based mostly on totally different feedstock resembling naphtha, gas oil/LSHS—and when even inside the similar feedstock class, there have been variations in delivered price—such extensive variation was comprehensible. Now, when all crops are on gasoline, and gasoline value is uniform (underneath the coverage launched in 2015), that is inexplicable.

This has led to a number of maladies, resembling safety of high-cost and inefficient crops, extreme use of urea, imbalance in fertiliser use, diversion of urea, and unsustainable enhance in subsidy. Whilst no credible effort has been made to deal with coverage flaws, approval of a particular value for urea to be produced by TFL (given the funding of near $2 billion, its value shall be considerably increased than even the prevailing highest of $350 per tonne) offers a transparent sign that this can proceed.

The particular remedy is being justified on three grounds: (i) in India, coal is obtainable in abundance, (ii) it can enhance home provide of urea and scale back import, and (iii) scale back dependence on imported LNG. All three grounds are untenable.

As for (i), this reality is understood for ages, as two coal-based crops had been arrange at Ramagundum (erstwhile AP) and Talcher in late Seventies/early Nineteen Eighties. However, these had been infants born sick. A revival plan for Talcher accepted by the UPA regime in April 2007, and languished for six years. In September 2013, it was resurrected, and two joint ventures (JVs) had been shaped involving GAIL/CIL/RCF/FCI to implement it. That plan too languished. Now, the Modi authorities is at it.

As regards (ii), within the “Mann ki Baat” of November 26, 2017, Modi known as for lowering urea use by 50% by 2022. In sync with this, the consumption of urea ought to decline from about 30 million tonne

in 2016-17 to fifteen million tonne by 2021-22. This implies, even with present home manufacturing of about 24 million ton, there could be a surplus of 9 million tonne. So, India received’t really want any enhance in provide, be it from TFL or any new/revival undertaking.

As for (iii), this can also’t be seen in isolation from ‘how we wish to see the demand-supply unfolding’? If, the federal government is admittedly severe about lowering urea use, it may well afford a major discount even within the present home manufacturing and but, absolutely meet the requirement. This can robotically scale back gasoline import.

The federal government pledges to right coverage flaws, but maintains established order. That is exactly what it has performed whereas sanctioning urea plant at Talcher and granting it a particular value underneath the subsidy scheme. That is pushed by sheer populism, whilst pending reforms resembling urea deregulate, fertiliser DBT, and so on, stay on paper, and will achieve this eternally.

The writer is Delhi-based coverage analyst