CCEA hikes fixed cost of urea, modifies investment policy

Provision of bank guarantee of Rs 300 crore from companies has been included to encourage new investment in the urea sector

The Cabinet Committee on Economic Affairs today cleared the hike in fixed cost of urea by up to Rs 350 per tonne, a move that would lead to increase in subsidy by about Rs 900 crore.

It also approved changes to the policy that aims at encouraging new investment in the urea sector by removing 'guaranteed buyback' clause and including a provision of bank guarantee of Rs 300 crore from companies.

For urea plants, the fixed cost mainly includes salary & wages, contract labour, repair & maintenance and selling expenses.

"CCEA has approved raising fixed cost of urea by up to Rs 350 per tonne. It has also approved amendments to the New Investment Policy for urea sector," sources said.

In line with the recommendation of the the Group of Ministers (GoM), the fixed cost of urea has been increased by up to Rs 350 per tonnes. The minimum fixed cost, including the hike, should be Rs 2,300 per tonnes under the New Pricing Scheme (NPS) III.

In the case of plants which are more than 30 years older, they will be given additional Rs 150 per tonne.

To boost investment in the urea sector, CCEA also cleared amendments to the New Investment Policy for urea sector by dropping the 'guaranteed buyback' provision, that assured buyback of urea for eight years from start of production.

Other changes in the policy include insertion of a provision of bank guarantee of Rs 300 crore from companies keen to set urea plants under this policy. Government will provide subsidy on sale of urea produced from the new plants.

The NIP policy was notified in January last year to incentivise firms to invest in the urea sector and reduce dependence on imports.

Sources said the 'guaranteed buyback' provision had to be amended in the policy as government had received 13 investment proposals entailing capacity addition of 16 million tonne mainly due to this clause.

The proposed capacity addition by the applicants was more than double the actual requirement, forcing the Fertiliser Ministry to have a second thought on this clause.

Urea production in the country is stagnant at 22 million tonnes and the gap of 8 million tonnes is met through imports. So far, about 4 million tonnes of urea has been imported.