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from BUSINESS LINE, May 31, 2010 New Delhi, May 30 - With international prices easing, there is growing pressure on the Centre to de-canalise urea imports as part of the eventual move towards full decontrol of the fertiliser sector.

Imported urea is now quoting at around $265 a tonne (cost & freight, Indian ports) or Rs 12,455 at Rs 47-to-the-dollar. Even after adding 5 per cent customs duty, stevedoring (Rs 300), bagging (Rs 400) and other expenses, the cost would be within Rs 14,000 a tonne.

As against this, the manufacturing cost of domestic urea comes to Rs 9,000-11,000 for gas-based plants, while being Rs 15,000-20,000 for fuel oil-operated units and Rs 20,000-25,000 for those on naphtha. Of the 21 million tonnes (mt) indigenous production, nearly 3.5 mt is from fuel oil and naphtha-based plants.

"At current landed prices, a make-or-buy option exists at least vis- a-vis this high cost domestic urea. This is probably the right time for de-canalisation and that is why the Finance Ministry particularly is pushing for it", sources told Business Line. During 2009-10, India imported 5.21 mt of urea, compared to 5.67 mt and 6.93 mt in the preceding two fiscals. Unlike other fertilisers, urea imports are exclusively reserved for the state-owned MMTC, STC and Indian Potash Ltd.

De-canalisation was not an issue till recently, given high world prices that made commercial imports unviable. After scaling $825-850 a tonne in August 2008 at the height of the global commodity boom, landed prices of urea settled to $270 levels by October 2009, before rising again to $340 towards February. Since then, they have shed some $80 a tonne, partly reflecting the overall bearish outlook for commodities such as wheat, corn, rice, soybean and sugar. "The Finance Ministry wants de-canalisation because allowing end-users to import directly rather than through state agencies would facilitate contracts at more competitive rates, thereby lowering the fertiliser subsidy bill," the sources noted.

The domestic industry, too, is not opposed to de-canalisation. "The country anyway has to import 5-6 mt annually, which we may as well do on our own. After all, unlike STC or MMTC, we have a distribution network that can be used to sell the imported urea apart from our own production. The threat of excessive imports, if any, can be addressed by imposing actual-user condition," opined a domestic manufacturer.

De-canalisation may also benefit complex fertiliser makers who use imported urea (rather than ammonia) as the source of nitrogen for their products. Coromandel International sells '28:28:0' - a complex manufactured by coating prilled urea with phosphoric acid and ammonia - for which it imports roughly 0.2 mt of urea annually through the designated agencies.

Likewise, Zuari Industries and Madras Fertilizers produce '19:19:19' and '17:17:17' complexes, for which their yearly urea requirement is about 0.1 mt and 0.25 mt. This cannot be met from their own production, since the latter is covered under the subsidy scheme and can only be sold to domestic farmers.

"Anyone wanting imported urea, therefore, has to intimate one of the three agencies, who would float tenders and negotiate prices. If the prices are acceptable, they will then process the papers, arrange for vessels, etc. That leaves very little flexibility for quick decision-making," the sources added.