New Delhi, Jan 30 (PTI) The government has allowed a profit margin of up to 12 per cent for manufacturers of potassium and potassic fertilisers as part of guidelines issued to evaluate the reasonableness of maximum retail prices for these fertilisers.
In efforts to curb possible instances of companies making unreasonable profits from the sale of the fertilisers, the Ministry of Chemicals and Fertilisers came out with the guidelines with retrospective effect.
The guidelines for evaluation of the reasonableness of maximum retail prices (MRPs) of P&K fertilisers under the Nutrient Based Subsidy (NBS) Policy was issued on January 18, 2024 but will be effective from April 1, 2023, according to sources in the know.
GST will be excluded from the evaluation of the reasonableness of MRPs.
For importers of P&K fertilisers, including di-ammonium phosphate (DAP) and Muriate of Potash (MoP), the profit margin allowed is 8 per cent. It has permitted 10 per cent profit for manufacturers and 12 per cent for integrated manufacturers.
Unreasonable profit earned by the company will have to be refunded, or else it will be recovered by the ministry or adjusted with the future subsidy payment, as per the guidelines.
In case of urea, the government fixes MRP and pays the difference between the cost of production and retail prices as a subsidy to companies.
However, under the NBS scheme, which was introduced in April 2010, the MRPs of P&K fertilisers are fixed by manufacturers while the government announces fixed subsidy rates on nitrogen (N), phosphorous (P), potassium (K) and sulphur (S) every year.
In its guidelines regarding the reasonableness of MRPs of P&K fertilisers under the NBS scheme, the ministry said, "Differential profit percentage will be allowed for P&K fertilizer companies based on the category to which they belong i.e. 8 per cent for importers, 10 per cent for manufacturers and 12 per cent for integrated manufacturers," the guideline said.
The basis of the evaluation of the reasonableness of MRPs will be the total cost of sales, which is the cost of production/import (except profit on self-manufactured intermediates for manufacturing finished fertilizers), administrative overheads, selling and distribution overheads (except promotional expenses) and net interest and financing charges.
The reasonability will be evaluated for all fertilizer grades for which subsidy is received by P&K fertilizer companies under the NBS scheme on a segment basis.
The guidelines stated that the companies will self-assess "unreasonable profit" earned by them based on the cost auditor report and refund it to the ministry by October 10 for the previous financial year.
In case, the companies do not refund unreasonable profit then "an interest at the rate of 12 per cent per annum on pro-rata basis would be charged on the refund amount from the next day of the end of financial year (i.e. in case of FY 2023-24, the interest would be charged from April 1, 2024)". PTI MJH SHW