The Cabinet Committee on Economic Affairs (CCEA) on Friday okayed Rs 350/tonne increase in the fixed cost for urea plants in accordance to the Group of Minister's recommendations. Fixed cost include salary and wage expenses, contract labour, repair and maintenance, and selling costs. Experts say, the fixed cost increase, which has been a long-pending demand of the industry, will not be sufficient to cover the incremental jump in actual costs.
As per the proposal, the fixed cost of urea produced by plants which are 30 years old or more by Rs 150 per tonne and for all other plants by Rs 350 a tonne. The minimum fixed cost would be Rs 2,300 per tonne.
The move is expected to lead to an increase in subsidy by about Rs 900 crore which will have a positive impact on urea players.
The CCEA is would also consider a proposal to modify New Investment policy for urea.
In an interview with CNBC-TV18’s Nayantara Rai and Rituparna Bhuyan, Shaktikanta Das, Secretary, Department of Fertiliser briefs about CCEA clearing a hike in fixed cost of urea by about Rs 350 per ton, a move that would increase the subsidy by about Rs 900 crore.
Q: Please explain us the rationale behind clearing the hike in the fixed cost of urea by CCEA.
A: For the urea sector, the fixed costs were fixed in 2002-03. After that, there has been no revision in the fixed cost. So, as a result, manufacture of urea was becoming unviable. So, therefore the government has decided that based on 2012-13 figures, considering the increase between 2002-03 and 2012-13, the fixed cost on four components of the fixed cost will be increased by Rs 350 per ton or actual increase whichever is lower.
Q: On the fixed cost component, by how much do you think will it lead to additional urea production? Do you think companies and factories will boost production of this critical component as far as agricultural sector is concerned?
A: It will ensure that the production continues because the profitability of the fertiliser companies. More than profitability the return on their net worth, the return on the investment was just about marginal; in fact, it was entering into negative zone. So, it was becoming unviable. Therefore, the continuation of urea production which is very important for the agricultural sector is ensured because of this decision.
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