Cabinet to take up urea policy to revive private investment

Written by Sunny Verma | Prashant Mukherjee | New Delhi | Updated: Dec 5 2012, 09:03am hrs
The Union Cabinet is expected to take up the urea investment policy this week to kickstart capital spending in the fertiliser sector, where private investment has dried up for the past many years due to lack of adequate returns. The new policy seeks to augment urea output in the country by making it viable for companies to invest in the sector. Sources said the government expects companies to invest about R30,000-40,000 crore in the medium term after the policy comes into effect.

A key change in the new policy is that it would make it viable for private companies to import costlier imported liquefied natural gas (LNG) to run fertiliser plants. Imported LNG is nearly three times costlier than the scarce domestic gas. Under the proposed policy, the government would provide subsidy to meet the extra fuel cost on imported LNG or coal gas. This would make fertiliser units profitable, as companies would be insulated from any abrupt variation in the fuel prices, the sources said.

The new regime will apply to both greenfield and brownfield projects in the sector. The policy has been finalised based on inputs of a committee of secretaries led by Planning Commission member Saumitra Chaudhuri. While the urea price to the farmer will be fixed by the government uniformly for all producers irrespective of their cost of feedstock, the subsidy outgo to individual companies will vary depending on whether they are using naphtha, furnace oil, domestic natural gas or imported LNG. The subsidy entitlement, therefore, will vary depending upon the price of the imported LNG, which is highly volatile in the international market, the sources said. With the domestic gas availability falling sharply, fertiliser producers have to rely upon the imported gas. Compared to the domestic price of $4.2 per million metric British thermal unit (mmbtu), imported LNG is available at about $14-15 per mmbtu.

There has been no significant investment in urea capacity in a decade in India. The new policy aims to add about 7-8 million tonnes of fresh production capacity to the countrys existing capacity of 22 million tonnes, which would help in meeting the annual demand of 30 million tonnes. This would require an estimated investment of R45,000 crore over the years in the sector.