Private firms may be allowed to import urea

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SummaryIn a major reform initiative, the government has proposed to lift the ban on private firms to import urea directly from international markets.

In a major reform initiative, the government has proposed to lift the ban on private firms to import urea directly from international markets.

The move would benefit companies such as Tata Chemicals, Zuari Industries, Coramandel Fertilisers, some of whom have acquired stakes in cost-efficient production facilities abroad and near ports.

At present, three state-run canalising agencies —MMTC, Indian Potash (IPL) and State Trading Corporation (STC) – are designated by the government to import urea on behalf of various distributors. The private companies used to source urea from imports made by government canalising agents.

“...by allowing everyone to import urea, companies can directly negotiate with the players in the international market. It will also make them less dependent on the canalising agencies for their requirements,” a ministry official said.

India produces about 22 million tonnes (mt) of urea in a year and consumes a little more than 30 million tonnes.

The remaining is met through imports. The price of urea, which is highly subsidised, is fixed by the government at R5,310 per tonne.

In 2012-13, under the government direction 5 naptha-based plants were converted into gas-based with a combined investment of R5,000 crore requiring 5 mmscmd of gas. These plants have been commissioned using imported LNG. Recently, an empowered group of ministers decided to put a cap of 31 million standard cubic metres a day (mscmd)on domestic gas supply to the fertiliser sector.

Since the availability of domestic gas is declining, companies will be forced to use expensive imported LNG for their operations. This increases their cost of production significantly.

However, experts believe that setting up production facilities, where natural gas is abundantly available such as North America or Africa, would lower India's urea import cost as shipping the fertiliser is more cost-effective than producing it locally using imported liquefied natural gas. The government has budgeted R66,000 crore as fertiliser subsidy for 2013-14.

This is likely to breach as most the payments have been exhausted to pay for the last year dues.

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