Fertiliser sector wants cost input review

The fertiliser industry is seeking a higher cap on urea cost than the proposed $340 a tonne, to calculate subsidy to new plants.

With the fertiliser ministry in the process of finalising recommendations for a new investment policy in urea, the industry also wants the gas price cap, corresponding the urea price band, be increased to $20 a million British thermal unit.

Urea manufacturing companies, which enhanced their capacities through debottlenecking under the 2008 policy, at present have a minimum and maximum price of $250 and $425 a tonne, respectively. The new policy proposes floor and cap prices of $290 and $320 for expansions and revival of the existing plants and $310 and $340 for new projects linked with gas prices of $6.5 and $14 an mBtu.

The floor price is the minimum production cost the fertiliser ministry takes into account while reimbursing the subsidy on urea, while the cap is the highest cost it assumes.

The industry, under the banner of Fertiliser Associa-tion of India (FAI), is trying to bargain hard to maximise the benefit from the new policy. It has written to the Department of Fertilisers presenting its reservations and expectations.

It has also sought safeguarding investments that went into debottlenecking under the policy unveiled in 2008. Besides, they are looking for enhanced returns for the domestic production in relation with the import parity price of urea and a wider band of prices for gas, a key requirement for urea production.

The FAI is demanding the band of prices for gas be extended to, at least, $20 considering low domestic supply and an anticipated increase in prices by the time the new investment begins production. At present, fertiliser companies get domestic gas at a landed cost of $7, while the price of imported liquefied natural gas is $14 and $15.

A sector analyst, requesting anonymity, said the keenness to discuss the policy was because the government had formulated a policy that was closer to industry expectations.

On getting a price more reflective of international price, FAI has asked the government to increase the import parity price for brownfield production to 95 per cent from the existing 90 per cent, and that of new production to 100 per cent from 95 per cent.

The new policy is said to be applicable for eight years from the date of start of production. It might take four-five years, after the policy is notified, for the new investment plants to become operational.

Under the 2008 policy, no investments were made in greenfield projects, while a few manufacturers enhanced production through debottlenecking.