New urea policy will allay industry fears on gas price: Jena

The fertiliser ministry today said it will bring in an amendment to the existing urea policy to insulate manufacturers from unpredictability of gas prices, which is hindering fresh investment in the sector.

The Centre had brought in a 'new investment policy for urea' in 2008 to attract investments into the fertiliser sector, but failed to see much fund flow so far.

"The core area is gas pricing. On that basis the new policy will be finalised. The proposed amendment is aimed at insulating the unpredictability of gas prices through policy," minister of state for chemicals and fertilisers Srikant Jena told PTI.

Industry has been demanding either firm allocation of gas at pre-determined prices from domestic sources or insulate it from any additional liability arising due to increase in delivered price of gas.

"The problem is gas pricing. If gas comes at the right price, there will be investment and we can revive our sick units. Production will be more and cost will be less," Jena said, adding the amendment would be brought to the Cabinet "sooner than later".

Industry sources said at least half-a-dozen fertiliser firms have proposed to undertake expansion but expressed concern regarding pricing and firm availability of gas before taking final investment decision. There are 28 urea units currently operating with an installed capacity of 20 million tonne per annum.

Since the announcement of the new urea policy, the industry has committed to increase the capacity by 1.5 million tonne per annum. Out of the existing urea units, 20 are now gas-based and four each are based on naptha and FO/LSHS as feedstock. The total requirement for natural gas for the existing 20 units is 40.92 mmscmd.

The country's urea demand was 26.6 million tonne in 2008-09 and 28.19 million tonne in 2009-10. The government has allocated about 15mmscmd of gas from Reliance Industries KG basin to urea makers.

Last month, the government announced a nutrient-based subsidy policy as part of its move to decontrol prices for DAP, MOP and complex fertilisers, but left the urea sector untouched. The price of urea is still determined by the government.