Compared to 1988–89, advertising costs for fertilizers in 1989–90 have
Directions: Read the passage below and answer the question that follows:
Natural gas is the most efficient feedstock for production of urea. Energy consumption as well as the total cost of production of fertilizers is the least in gas–based plants as compared to the plants of comparable vintage based on naphtha, fuel oil and coal. At present, only 43.4 per cent of the capacity for producing nitrogen is based on natural gas.
It is, therefore, imperative that sufficient allocation of natural gas should be ensured for production of nitrogenous fertilizers. It has been reported that a lot of difficulties are being experienced by the fertilizer industry in getting allocation of gas for new projects which are about ten in number and even for expansion of existing projects.
The committee notes that the demand for gas by sectors other than fertilizer is mainly for energy, whereas fertilizer uses gas for both chemical and energy. In order to produce fertilizer at the least cost and to make the most productive use of gas, the Committee recommends that timely and sufficient allocation of gas on top priority basis be made to fertilizer projects.
One item of expenditure which can be considerably reduced by fertilizer units is advertisement through various media. Expenditure incurred by 22 units on advertisements amounted to as much as Rs. 2731 crores in 1988–89 and Rs. 2251 crores in 1989–90. As against this the expenditure incurred by those units for encouraging farmers to use fertilizers by distributing free samples, carrying out soil testing, etc. was a meagre amount of Rs. 298 crores and Rs. 417 crores in 1988–89 and 1989–90, respectively.
In the committee's view, the huge expenditure on advertisements through TV, etc., for promoting an individual company's products is largely avoidable as that amount correspondingly adds to fertilizer subsidy. The committee would recommend that fertilizer units should instead spend more on 'demonstration and sample' which is an effective and productive way of promoting fertilizer consumption.
Natural gas is the main feedstock for fertilizer industry, the price of natural gas supplied to fertilizer industry does not seem to reflect its true cost. The committee notes that about 22 percent of the total gas produced is flared by ONGC for want of facilities and the cost of gas so flared during the two years 1989–90 and 1990–91 alone amounted to as much as nearly Rs. 1800 crores. The committee notes that for determining the consumer prices of natural gas the cost of imported furnace oil is taken as the basis which has no relation to the actual cost of production. Similarly the producer price of gas is reportedly based on the cost of production of gas from South Bassein field. This does not take into account the weighted average of the cost of gas from other sources including the cost of gas flared. In view of these facts, the committee recommends that the price should be fixed on a rational calculation of production cost based on total production.
The royalty paid by fertilizer industry on natural gas during 1990–91 amounted to nearly Rs. 100 crores out of which the share of the Central government was about Rs. 89 crore. The committee desires that with a view to bringing down the subsidy burden on nitrogenous fertilizer the Central royalty on natural gas may be done away with. The transportation charges for gas sold along the HBJ pipeline appears to be on the higher side. As per the information furnished by the ministry of petroleum and natural gas, the cost of transportation of 1000 cu. mt gas for 1000 kms works out to Rs. 440. Against this, the rate charged is Rs. 875 per 1000 cu. mt, irrespective of distance.
The committee desires the government to examine this aspect and the transportation charges for gas sold to fertilizer units along the HBJ pipeline should be reviewed and re-fixed on reasonable and realistic bases. The committee also desires that in order to bring down the cost of transportation of gas along the HBJ pipelines, depreciation for HBJ pipelines may be raised to 25 years instead of ten years.