Ministry moves to get proposal on buyback of urea dropped

Policy has been held as the fertiliser ministry wants to permit only 4-5 players for creating additional urea capacity

The Fertiliser Ministry has moved a proposal to the Cabinet to remove guaranteed buyback clause in the urea investment policy and adopt a bidding process to shortlist companies after the lucrative incentive led to a flood of applications for expanding capacities.

In January, the ministry notified the New Investment Policy (NIP) 2012 — approved by the Cabinet Committee on Economic Affairs in December last year to incentivise manufacturers for raising domestic urea output.

Policy guaranteed buy-back of urea for eight years from start of production. Encouraged by this clause, 13 fertiliser firms applied for setting up new plant or expanding capacity of existing plant by about 16 million tonne.

However, India needs an additional capacity of only 8 million tonne of urea to become self-sufficient. The domestic production stands at about 22 million tonne.

According to sources, the ministry has moved a proposal before CCEA to remove the buy-back clause and introduce bidding process for shortlising 4-5 applicants from the 13 that applied. In the inter-ministerial consultation, Finance Ministry has suggested a bidding process, they added.

The policy has been held as the fertiliser ministry wants to permit only 4-5 players for creating the urea capacity.

Although the parameters of bidding have not been finalised, sources said the cost of production could be a basis for shortlisting the applicants.

The government could reduce subsidy bill, projected at Rs 66,000 crore for this fiscal, by shortlisting manufacturers that quote lower cost of production. Government controls urea sector by fixing MRP at Rs 5,360 per tonne. Difference between MRP and production cost is reimbursed as subsidy to fertiliser companies.

The Ministry wants to provide transparent and objective criteria for giving approval to the proposals received so that only as much capacity is added as is required to meet the demand and supply gap.

Among the major players who have approached the DoF for greenfield or brownfield expansion under the NIP are: IFFCO, Tata Chemicals, Indo Global Fertilisers, Chambfal Fertilisers and Chemicals, Rashtriya Chemicals and Fertilisers, National Fertilisers Ltd.

The NIP 2012 passed by the CCEA had proposed a $2 per tonne increase in floor and ceiling prices of urea for every $0.1 per million metric British thermal unit (MMBTU) increase in delivered gas prices up to $14 per mmbtu.