New urea pricing formula soon

In line with Prime Minister Narendra Modi's 'Make in India' campaign, the government is putting in place a new pricing scheme (NPS) for urea manufacturing units to encourage investment in the sector.

Officials said the government will discuss an NPS for urea with all stakeholders, following which a formal Cabinet note will be framed.

"Next week onwards, we will hold discussion on the matter. The basic thrust is to reduce import dependence. It will also promote balanced use of fertiliser, which at present is heavily skewed in favour of urea," a senior official said.

The existing pricing scheme, also known as the modified New Pricing Scheme (NPS)-3, expired earlier this month. NPS-3 had enabled the government to reimburse fixed cost to 35-odd urea manufacturing units at Rs 350 a tonne for meeting their expenditure on salaries, contract labour, selling expenses and the like. A unit more than 30 years old and based on imported gas received an additional Rs 150 a tonne.

So far, there have been four NPS. The latest, NPS-3, was modified in April 2014 and had a duration of a year.

Officials said a move is also afoot to change a provision of the New Urea Investment Policy of 2008, which dis-incentivised those units which produced urea at more than 100 per cent of their reassessed capacity. The government wants to now give some incentive to units which do this, they said.

"The two issues could be merged as in the first case, the fixed cost earmarked for 2014-15 has not been paid to many urea making units till date; in the second, several units have been forced to stop production as the incentives have dried up after their production crossed 100 per cent of the reassessed capacity," an official said.

Rakesh Kapur, chairman of the Fertiliser Association of India, welcomed the move, saying any step to improve the financial health of existing urea units is bound to attract investments, is good for the industry and the sector as whole.

The New Urea Investment Policy was modified in October 2014, in which the government dropped the guaranteed buyback clause and replaced it with a provision that all private urea companies will necessarily have to give a bank guarantee of Rs 300 crore for each expansion project.

The amendments were approved after 13 existing urea units put in a proposal to enhance their capacities, totalling around 16 million tonnes, as against the domestic shortfall of more than eight mt. This is not being touched for the time being, officials said.

India imports a little under a quarter of its total urea requirement of 33 mt, most of it from China. An estimate by the erstwhile Planning Commission showed that in order to increase urea capacity by about 12 mt, India needed an investment of at least Rs 40,000 crore in the 12th Five-Year Plan (2012-13 to 2016-17). Total investment in the fertiliser sector, including urea, was Rs 27,247 crore by 2010-11.
IN THE OFFING

• Govt framing new pricing scheme for urea, earlier one having expired in the first week of April
• New scheme expected to incentivise domestic industry to increase investment and reduce import dependence
• India imports just under a fourth of its annual urea requirement of 33 mt
• India requires investment of Rs 40,000 crore to increase urea production capacity by 12 mt during the current Five-Year Plan
• India requires investment of Rs 40,000 crore to increase urea production
• However, total investment in entire fertiliser sector was less than Rs 28,000 crore by 2010-11