November 2: Domestic urea manufacturers which have been affected by the government's recent notification of trimming the subsidy level on the basis of the retention price and the plant capacities, have chalked out three options to dilute the impact.

According to industry sources, the companies are likely to advance the date of their annual shut down (which is generally taken in April) by a few weeks, as one of the options. This will insulate them from the impact as the new notification is effective for six months ending March 30, 1998.

As a second option, sources said, the companies could stock the surplus produce over a period of time without losing out on the subsidy which is paid on the bills. This will ensure that the capacities (which are largely based on the original plant design) are not forcibly curtailed while at the same time ensure that the subsidy outgo is pruned.

Besides, while operating their plants at full stream, the companies could negotiate with the government for a subsidy level which is the same for imported urea. This would not only ensure that the domestic capacities are fully utilised but also save the government from an extra subsidy outgo.The government has notified that in order to restrict the ballooning subsidy bill on urea, a decontrolled fertiliser, subsidy will be curtailed for those units having a retention price of Rs 7,000 per tonne and operating at a capacity of over 115 per cent.

The regulation, an imperative need to restrict the burgeoning deficit, came into effect on October 1, this year and has been heavily criticised for its partial nature towards imported urea which is currently available at a cheaper rate in the international market. The urea price is ruling at around $109 per tonne C&F as against last year's $ 230 per tonne.

Select urea manufacturers which have been affected by this move include Tata Chemicals and Nagarjuna Fertilisers. These companies have a retention price of over Rs 7,000 per tonne and operate at over 115 per cent capacities. These are among the few recent plants set up for manufacturing urea. India is a urea deficit country which bridges the gap by importing urea to the tune of over 2 million tonnes every year.

Analysts have estimated that with this new ruling the affected companies would have to scale down operations or incur a substantial loss of around Rs 50 crore. However, manufacturers feel the effect would be scaled down by embracing the three options.

While the Fertiliser Association of India (FAI) has already represented to the government that the above policy goes against the domestic manufacturers and favours imports, the manufacturers are currently lying low awaiting the Hanumantha Rao Committee recommendations to usher in a new policy. The report is expected to be tabled by the end of the year, sources said.

FAI has argued that instead of increasing the price of urea as an alternative to restrict the subsidy bill, which would also check the nutrient balance in the soil, the government was formulating such policies which goes against the interest of domestic manufacturers.

Copyright © 1997 Indian Express Newspapers (Bombay) Ltd.