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Kathmandu,Wednesday March 22, 2000 Chaitra 09, 2056.
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Government splits AIC into two companies
By Bhaskar Sharma
KATHMANDU, March 21 - The cabinet on March 9
decided to restructure the state-owned Agriculture Input Corporation (AIC) into two
separate units.
"The time frame for transition of AIC into
separate units is tentatively fixed for the next one year, for which a Board of Directors
(BoD) was also constituted on Thursday," informed the newly appointed General Manager
of AIC Nitya Raj Koirala.
The two units will be called Agriculture Input
Company and Seeds Company. While the Agriculture Input Company will deal in the import and
distribution of fertilizers, pesticides and insecticides, the Seeds Company will engage
itself in the procurement and disbursement of agricultural seeds, he said.
He also informed that a 5-member new Board of
Directors under the Chairmanship of the Secretary at the Ministry of Agriculture has been
formed.
The latest decision to divide AIC comes as an
additional measure to enhance its efficiency, as required by the agreement of the
government with Asian Development Bank (ADB). The government had agreed, among others, to
restructure AIC before ADB releases the second trench of Agriculture Programme Loan (APL)
under the Agricultural Perspective Plan (APP).
It also seems that the decision will bring an end
to the long lasting controversy over the pricing policies of chemical fertilizers pursued
by the AIC. The subsidized pricing policy adopted by AIC prompted its employees to stage a
strike since January 15 demanding its review. The pricing strategy followed by the
corporation is the cause of an annual loss running over Rs 40 million, claim employees.
"By not reviewing the urea price, the former
BoD did not upheld the government decision to put private sector and AIC into equal
footing. This is the main cause of disparity," said General Secretary of the
Employees Union Sushil Dutta Mishra.
The policy of deregulating urea, taken by the
government since November 1997, committed to put the private sector and AIC under an equal
footing. The government then withdrew subsidies from all fertilizers, except urea,
immediately after which AIC increased the prices of all fertilizer by 10 percent.
Finding profitable to sell urea at the newly set
price fixed by AIC, with Rs 4,198 per metric ton in subsidy, private parties were
encouraged to import urea.
However, trouble cropped up when the government
minimized urea subsidy to Rs 2,728 per ton in May 1998 and then to Rs 1,500 per ton in
July 1999. The reduction in subsidy without an increase in the selling price of urea
resulted in a complete stoppage of import of urea by the private sector at one time.
The subsidy was then brought down to zero in
November 1999. AIC has not revised the price of urea since 1997, even though the subsidy
has been completely phased out. This is a matter of utmost concern to private parties
interested in the import and distribution of urea.
Although the imports figure of the private sector
for 1997/98 and 1998/99, after the announcement of urea trade liberalization, were
impressive, it dipped down to zero when subsidy was reduced to Rs 1,500 per ton. Imports
by the private sector resumed only after AIC assured to hike the urea price, which the
corporation has not fulfilled yet.
The failure of the board to revise the price till
now, as against the government objective of ensuring private participation in urea trade,
is the cause behind the private sector not importing urea in huge quantities.
In the meantime, the government has instructed AIC
to fix the price of its present stock of 30 thousand tons urea to cover costs and has also
directed it to sell the stock.
However, the government instruction to sell urea
created uproar among the employees, who declined to market the present stock of urea until
the price is hiked. They claim such an action will encourage private parties to buy
truckloads of urea each and manipulate its supply in the most profitable manner.
Experts view that the real concern of the newly set
up Agriculture Input Company should be to encourage private traders in operating within
the limits of sound commercial practices, to regulate supply of fertilizers and to
discourage unethical price hikes.
The decision of the newboard is expected to give a
new impetus to urea trade. However, until and unless the board increases the selling price
of urea, the spirit of including the private sector into urea trade hangs in a limbo.
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