The Union government is considering reviewing the fixed cost for two state-run and one cooperative urea-manufacturing units to align it with their peers.
Sources in the know said that at present most urea units get a fixed cost reimbursement from the central government at a minimum rate of ₹2,300 per tonne, but three units — NFL-Vijaipur, the RCF unit in Thal (Maharashtra), and Kribhco’s Hazira plant in Gujarat — have a fixed cost even lower than the minimum that other plants are currently getting.
For example, the current fixed cost for some plants is in the range of ₹1,285-1,635 per tonne, which is much lower than the fixed cost other plants are getting from the Centre, sources said.
The government pays a fixed cost to urea-making units to cover their annual expenses, including salaries, repairs, maintenance, selling costs, and contract labour.
Industry sources said urea manufacturers have faced under-recoveries on fixed costs for years as concession rates under successive New Pricing Scheme (NPS) regimes were based on outdated cost data, with the government allowing only limited revisions to account for rising operating expenses.
The industry players said concession rates under NPS-I and -II were based on 1999-2000 cost data, while NPS-III used 2002-03 as the base year. The framework did not adequately recognise increases in conversion costs or investments made subsequently, leading to under-recoveries by urea units.
Industry representations flagged rising expenditure on salaries and wages, repairs and maintenance, selling expenses, and contract labour. However, fixed costs were not revised during the NPS periods.
On April 2, 2014, the government notified a modified NPS-III, providing an additional fixed cost of ₹350 per tonne to all urea units to compensate for higher operating expenses. It also provided for payment of a minimum fixed cost of ₹2,300 per tonne or the actual fixed cost prevailing in 2012-13, whichever was lower, after accounting for the additional amount.
Eleven units that had completed 30 years of operations were also granted special compensation of ₹150 per tonne.
In March 2020, the Cabinet Committee on Economic Affairs (CCEA) approved the removal of the minimum fixed-cost provision of ₹2,300 per tonne.
Recently, Member of Parliament (MP) Ajeet Madhavrao Gopchade has written multiple letters to government agencies, arguing that in many of the urea-making units, machines are very old, and the technology has also raised the chances of fatal accidents in them.
“Usually, a urea-manufacturing plant has a shelf-life of around 30 years, but in some units, the plants are running for more than 50 years now, needing urgent replacement,” Gopchade said.
