The actual unviability percentage may be much higher than the figure arrived at by a study conducted by the department of fertilisers. The department has assumed the international price of urea to be $200 a tonne, which is much higher than the prevailing prices.

The study says that if the international price was $163 per tonne then a tariff wall as high as 30 per cent will also result in 37 per cent unviable capacity. Speaking to The Financial Express fertiliser secretary AV Gokak said that the situation would lead to the closure of nearly seven million tonnes (mt) of capacity out of the present capacity of 20 mt to 21 mt.

"The question that we now have to consider is whether the country can afford such a situation?" he asked. The fertiliser department has set up a WTO taskforce to look into how best the industry could be protected when it is opened to competition next year. Gokak said that the Government was working hard at the difficult task of fixing an appropriate tariff level which not only has to ensure that the domestic industry is not stifled but has to be WTO compliant as well. Indigenous urea manufacturing units suffer from high feedstock prices especially those running on naphtha and fuel oil which makes them internationally uncompetitive.

Experts say that units running on natural gas will also gradually be affected because of the continuous decline in the quantity and quality of gas available in the country. The taskforce, which includes WTO experts like Anwar Hoda and representatives of ministries including commerce, fertiliser and agriculture, is working out an appropriate import tariff level.

It is also examining whether the subsidy being given to the industry would prove prohibitive or actionable in the open regime. Under WTO regulations, a subsidy becomes prohibitive if it is used for promoting exports or substituting imports. A subsidy becomes `actionable' if it prejudices the interest of another member country or it leads to a loss of a member country's market. According to Gokak, if the entire subsidy gets to be treated as subsidy related to agricultural inputs, then the fertiliser subsidy given by the Centre will fall well within the aggregate measure of support allowed under the WTO provisions and will not be actionable.

However, as subsidies will have to be ultimately phased out, the fertiliser department has already set up a time-frame for dismantling the Retention Price Scheme and has `identified the milestones', Gokak said. The fertiliser secretary added that the ministry would not hurry fertiliser manufacturers. The ministry intends to provide the industry a substantial period for transition. The taskforce will study and recommend the options available for maintaining the minimum required level of self-sufficiency of fertilisers in the interest of food security of the country. Apart from giving suggestions regarding the bound tariff rates on urea, the taskforce will also suggest revisions in the bound rate of DAP which is presently at a low level of 5 per cent.