Transcript RPS - NIRC

Indian Economy and
Agriculture
•Agriculture remains to be the
livelihood of more that 60% of
Population
•Contributes about 16% of GDP
•Main source of foodgrains
•Provider of raw materials for
many industries
Agriculture needs
support
• Agriculture is less remunerative
• Farm produces meet the basic needs
• Hence their prices need to be kept
low
• All countries including Developed
countries provide support to farm
producers to remain in agriculture
Agriculture Subsidy
worldwide
• in the OECD(Orgn for Econ Co-op & Devtt.) gives
agricultural support to farm producers
• OECD members (Australia, Austria, Belgium,
Canada, Chile, the Czech Republic,
• Denmark, Finland, France, Germany, Greece,
Hungary, Iceland, Ireland, Italy, Japan, Korea,
• Luxembourg, Mexico, the Netherlands, New
Zealand, Norway, Poland, Portugal, the Slovak
Republic, Spain, Sweden, Switzerland, Turkey, the
United Kingdom and the United States.
• China, Russia and other communist country
provides huge subsidy to the farmers
Extent of Farm subsidy
in OECD
• In 2009, support to producers in OECD countries
was estimated at USD 253 billion or 22% of
aggregate gross farm receipts ,
• The level of
• producer support (expressed as % of producer
revenues) in OECD countries in 2007-09
• ranged widely: 1% in New Zealand, 4% in Australia,
9% in the United States, 12% in Mexico, 17% in
Canada, 23% in the European Union, 34% in Turkey,
47% in Japan, 52% in Korea, 53% in Iceland, 58% in
Switzerland and 61% in Norway.
• Queen Elizabeth received more than £500,000 in
2010
Farm Subsidy in India
• Farmers do not get subsidy directly
• Farmers are not kept waiting till sale
of their produce
• Indirect subsidy is given in the form
of low priced inputs like seeds,
fertilizers, irrigation-water, low cost
power etc.
• Free Agricultural information
• Fertilizer -the major element of cost
Agriculture and
Fertilizers
•Needed for increased farm production
to feed the fast growing population
• Plants need nutrients to grow
Carbon, hydrogen and oxygen plentiful supply in- air and water
Nitrogen, phosphorus, potassium macronutrients- chem.fertilizers
Secondary nutrients - Sulphur,
calcium, and magnesium
Micronutrients -Boron, cobalt,
copper, iron, manganese, molybdenum
and zinc -
Types of
Fertilizers/Manufacturer
s
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•
•
•
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Urea- major source of Nitrogen
DAP- Nitrogen and Phosphorus
SSP- Phosphorus and Sulphur
Complex of N, P and K
Mixtures
Scarcity of raw material
• Nitrogen(Urea)- Hydro carbonNG, Naphtha, FO, LSHS ( mostly
import dependent)
• Phosphorus – Rock Phosphate (
mostly import dependent)
• Potash- Totally import
dependent
Subsidized Fertilizers
• India remained to be dependent on
imported fertilizers
• Government considered fertilizer as
a core sector and started PSUs in
this sector
• To ensure supplies at affordable
prices, directed the fertilizer
manufacturers/importes to sell them
at uniform notified low price
• The excess of cost over selling price
is given to the sellers as subsidy
Regulatory Mechanism
• To ensure availability of fertilizers
at affordable prices
• Declared fertilizer as an essential
commodity under EC Act, 1955
• First Fertilizers Control Order-e.f.
1957
• To Fix uniform selling price of
Fertilizers
• Manufacturers/importers to sell
them at govt notified uniform price
Pooled Pricing
• Central Pool was to fix uniform
price of a fertilizer for consumers
• Uniform price was fixed based on
pooled cost of both domestic and
imports
• Central pool operated on a noprofit- no-loss basis
• This pool system continued till
1966
• From 1972, ECA allocation started
Retention Pricing
Scheme
• Set up of Sh S S Marathe
Committee,1976
• To recommend a pricing policy
• That wound ensure a fair return
on invstt.
• Retention Pricing Policy
introduced by Resolution dated
1.11.1977
• Covered Urea, AS and CAN
SUBSIDY ON
FERTILISERS

From 1 Nov.1977 to 31 March 2003
Retention Price Scheme (RPS) based on unitwise cost plus approach

From 1 April 2003
New Pricing Scheme
Concession Rates
(NPS)
based
on
•Subsidy disbursed through Fertiliser manufacturers
Group
Retention Price Scheme
(RPS)
Retention Price Scheme (RPS) for fertilizer Industry
remained in force till 31.3.2003.
Under RPS, retention prices for all urea producing units
worked on three year pricing period basis, covering cost of
production and 12% post tax return on capital employed.
The difference between the RPS and the maximum selling
price of urea paid as subsidy
Under RPS, consumption norms were revised, capacities were
re-assessed from 1.4.2000,vintage allowances on capacity and
consumption norms was withdrawn and capacity utilization
norm was revised to 95%/90% for gas based and Naphtha/FO
based units respectively w.e.f. 1.4.2002.
PRICING PERIODS
Schem
e
Pricing
Period
From
To
Costed
Year
RPS
I
1.11.1977
31.3.1979
RPS
II
1.4.1979
31.3.1982
1977-78
RPS
III
1.4.1982
31.3.1985
1980-81
RPS
IV
1.4.1985
31.3.1988
1982-83
RPS
V
1.4.1988
31.3.1991
1986-87
RPS
VI
1.4.1991
31.3.1994
1989-90
RPS
VI A
1.4.1994
30.6.1997
1992-93
RPS
VII
1.7.1997
31.3.2000
1997-98
RPS
VIII
1.4.2000
31.3.2003
1999-00
NPS
I
1.4.2003
31.3.2004
1999-00
NPS
II
1.4.2004
30.6.2006
1999-00
NPS
III
1.10.2006
31.3.2010
2002-03
Components of
Retention Price
•
•
•
•
•
Variable Cost
Conversion Cost
Depreciation
Capital Related Charges
Selling Expenses
Details of Elements of
Cost - 1
• Variable Cost – Direct input
materials based on the preset
consumption norms
•
•
•
•
•
•
•
Gas
Naphtha
FO/LSHS
Coal
Purchased Power
Water
Bags
Details of Elements of
Cost - 2
• Conversion Cost – (Fixed cost for a
pricing period)
•
•
•
•
•
•
•
•
Salaries & Wages
Catalyst
Chemical & Consumables
Repairs & Maintenance
Non-plant Power & Water
Overheads (Factory, Admn., Social)
Insurance
Miscellaneous Income
Details of elements of
Cost
• Depreciation & Capital Related Charges
• Depreciation (15 years life – 6.33%
depreciation)
• Interest on long term & short term loan
• 12% post tax return on net worth ( Equity
capital & Reserves)
CRC is provided on the normative capital
employed i.e. Net fixed Assets plus Normative
Working Capital
Details of elements of
Cost
• Selling Expenses
• Actual selling expenses subject to
a ceiling of Rs.138/MT
Retention Price Components
Retention Price Rs/MT={(CRC+Conversion Cost)/Assessed Production}+Variable Cost+Selling Expenses
Variable Cost
(Quarterly/Annual)
Conversion Cost
(Annually)
• Cost of Feedstock
•Salaries and Wages - Actual
Consumption - Normative
•Contract Labours- Actual
Rate
•Repairs and Maintenance -
Capital Related Charges (Beginning of Pricing
Period)
•Depreciation - @ 6.33% on
Straight Line Method
•Cost of Utilities
Moderated Actual
•Interest - Actual weighted
Average Rate
Consumption - Normative
•Catalyst - Normative Life with actual
rates
•Return - 12% post tax
grossed up to pretax
Rate
- Actual
- Actual
•Packing Cost
Consumption - Normative
Rate
• Water
- Actual
•Chemicals and Consumables Normative
•Overheads - Actuals in the costed
year
•Selling Expenses - Combination of
Actual and Normative with ceiling
Subsidy
=
Retention price
minus
Maximum Retail Price
RPS TO NPS
During 1991, a Joint Parliamentary Committee (JPC) was appointed to
review the existing RPS and suggest scope for reducing fertilizer prices.
High Powered Committee headed by Dr Hanumantha Rao was appointed
in the year 1997 to recommend an alternative pricing mechanism. No
decision was taken on the report.
Modified RPS was proposed for consideration
Expenditure Reforms Commission recommended Group based concession
scheme for urea manufacturers
Government decided to implement Group based New Pricing Scheme with
effect from 1.4.2003
New Pricing Scheme (NPS)
Group concession scheme under NPS introduced from 1.4.2003. All units have
been classified into six groups based on vintage and the feedstock.
Stage-I for one year period from 1.4.2003 to 31.3.2004.
Stage-II for two years period from 1.4.2004 to 31.3.2006 extended upto
30.09.2006
Stage-III from 1.10.2006.
For each group, weighted average group price was worked out excluding the
outliers (RPS more than +/- 20% of group average).
 Concession rate is determined as lower of Unit’s own RP or Group Weighted
Average.
Under NPS I and II, outliers above Group Weighted Average were given 50%
as outlier benefit. Only MFL was given this benefit upto 30.09.2006.
Variable cost component is escalated on quarterly/yearly basis.
NPS II to NPS III
 Costed Year 2002-03
Tightening of Energy Norms resulting into reduction in norms of 11 Units.
Tightening of Consumption norms of Water, Non Plant Water/Power.
Reimbursement of Taxes at actuals. Under NPS I and II, taxes like sales
tax, service tax, cess on excise etc. on inputs were restricted at the level of
1.4.2002.
 Saving has been allowed at weighted average of basic rates of actual
inputs used while in NPS I and II, saving was allowed at basic rate of
cheapest input used.
No outlier benefit even if Unit’s retention price is 20% above the Group
Weighted Average.
Benefits of Introducing NPS
NPS I/II
 Increase in efficiency by tightening of norms .
 Reduction in subsidy by application of Group Weighted Average.
 Road map for decontrol. 50% of production was under Non-ECA.
 Units were induced to increase energy efficiency further by allowing
them to retain the reduction in energy norms to fund the related expenditure.
 Units were allowed to retain sales proceeds of all the by products
including surplus ammonia.
 Units were given variable cost plus 35% of gain (IPP – Variable Cost) for
production beyond 100% without any ceiling to encourage production from
least cost units.
NPS III
 Increase in efficiency by further tightening of norms (10 Units).
 Reduction in subsidy by application of Group Weighted Average.
 50% of production was under Non-ECA.
 Road map drawn for conversion of non-gas based Units to gas.
Incentivizing Production Beyond
100%
To encourage Units to produce up to maximum of their abilities, following
provisions have been made in NPS III,
Production beyond 100% but up to 110%
Units are given Variable cost plus 35% of gain ( IPP – VC) subject to
concession rate for production beyond 100% but up to 110% of their reassessed capacity.
Production beyond 110%
Units are given Concession Rate subject to IPP for production beyond 110%
of their re-assessed capacity.
Surplus Ammonia
As per original provision of NPS III, energy for surplus ammonia was to be
deducted at costliest feed/fuel. However, keeping in view the genuine
difficulties faced by few Units, recently the provision has been modified by
allowing actual mix of feed/fuel for surplus ammonia if the production of
surplus ammonia is due to technical reasons. It has also been proposed to
deduct 35% of difference between IPP of Ammonia and Variable Cost as
share of Government of India.
In case of production of Surplus Ammonia due to other reasons, non-APM mix
has to be applied.
NBS for Complex
Fertilizers
• Subsidy will be fixed for each nutrient (N,P&K)
which is decided to be subsidised.
• Subsidy on subsidised fertilizers will be
determined on the basis of nutrient subsidy
fixed by the Government for each nutrient and
the nutrients contained within the fertilizer.
• Since subsidy is fixed, there will be no MRPs.
• Made Effecitive from 01.04.2010
Advantages envisaged
• promote balanced fertilization
• promote availability of better fertilizer products
• unleash competitive forces leading to efficiency of
production
• promote farm extension services with farmer as
the central focus of the fertilizer companies
• better nutrient uptake efficiency through better
application techniques
• overall increase in agriculture productivity leading
to better returns to the farmers and long term food
security for the country
• Increased investments in the fertilizer sector
NBS- Fixation of per nutrient
• Per nutrient subsidy will be notified by the Government
before start of the each financial year
• Per nutrient subsidy will be fixed on the basis of
estimated
consumption
of
nutrients,
prevailing
international prices of major fertilizers, total allocation of
subsidy and the targeted farmgate price of major
fertilizers
• Per nutrient subsidy is proposed for N, P & K only. A
separate subsidy per tonne of fertilisers will be provided
for fertilizers carrying secondary and micro-nutrients, in
addition to the primary nutrients
• Since there will be no MRPs notified by the Government,
no freight equalisation is proposed to be provided.
Operational need of NBS
• Transition from current product based subsidy
regime to NBS will involve huge logistics
requirements.
• Implementation of NBS is proposed in three
phases:
• Phase – 1
: NBS at retail points
• Phase – 2 : NBS directly to the farmers without
quantitative restrictions
• Phase – 3 : Direct cash transfers to farmers with
quantitative restrictions based on land details and
subsidy/ consumption norms
Phase – 1 : NBS at retail
points
• Fertilizers move at market prices till the last
purchase point
• Retailers to sell fertilizers net of subsidy to the
farmers.
• Subsidy to be claimed by Retailers in their bank
accounts through the designated banks at the
block level
• Sale receipts and reconciliation of sales with
total receipts of fertilizers to be submitted to
bank for collateral.
• Fertilizer movement and distribution to be
monitored through FMS from plant / port to the
last sale point
Tentative Flow Chart
Tentative Flow Chart
Issue of
Unique
Num. IDs
(UNIds)
Fertilizer
Compani
es
Lead
Bank of
District
Credits
From
Central
Bank
FM
S
Fertilizers to
Dealers at MP
Release
FS
Sale receipts &
reconciliation of
sales
Raising
Bill
Of Subsidy
Based on Sale
Central
Bank
Dealer
s
Fertilizers
MP-FS
Farme
rs
Market prices
– MP
Fertilizer Subsidy – FS
Subsidized Price – SP = (MP – FS)
Allocates funds
towards FS
GO
I
Note:
•
UNIds can be used with the bags for authentication of sale
of fertilizers
NBS - Disbursement
Mechanism
•
Phase – 2 : NBS directly to the farmers
•
•
•
•
•
•
Farmers will get credit for purchase of fertilizers under the Kisan
Credit Card (KCC). [ Cooperative members from PACS]
Farmer will use the credit for purchase of fertilizers at market
price from the retailer.
Retailer will provide a receipt of the sale of fertilizers along with
Unique Identification Code (UIC) of the retailer and Unique bag
IDs to the farmers.
Farmers can get the subsidy equivalent to purchased quantities
credited to their account from the banks.
Bank will be able to receive the subsidy claim from the nodal
bank in the district based on the details of KCC, purchase
receipts and UIC.
Till 100% coverage of farmers through KCC, farmers not having
KCC can directly claim the applicable subsidy from the
designated banks through deposit of bonafide purchase receipts
in the banks
Phase – 3 : NBS directly to the
farmers with quantitative
restrictions
• Based on data collected in Phase – 2 and
consumption norms fixed by DAC, quantum
eligibility for subsidized fertilizers will be fixed in
each KCC
• NBS will be directly credited to the KCC account
of the farmers based on purchase receipts for
eligible quantities of fertilizers
• Farmers free to purchase fertilizers beyond
eligible quantities from the open market.
However, subsidy remains fixed based on eligible
quantum
Problems encountered
• Prices of fertilizers under NBS
increased manifold along with fixed
subsidies
• Fertilizers went beyond purchsing
power of farmers
• Increase in unsold stock
• Govt. resorted to monitor prices with
ref to related cost.
• Cost Accountants role increased
Direct subsidy to
farmers
• Subsidy disbursement through fertilizer
industry is in effect subsidy to the farmers
the benefit of which is enjoyed by the
country as a whole
• Fertilizer units are just a medium for
proper execution
• Higher fertilizer subsidy is basically a
transfer of Govt revenue to Oil and gas
sector companies /monopolies/cartels
• Gas pricing in USD is a damaging
proposition resulting in higher subsidy
Thank you