The Finance Ministry has rejected a policy drafted by the Planning Commission to attract new investment in the urea sector, saying the proposals are unrealistic, unviable and will lead to high subsidy outgo, sources said.
The government had come out with a fertiliser investment policy in 2008, but it failed to attract fresh investment in the sector. Last year, the government said it will come with a new policy structure to overcome the shortfall in domestic urea production.
Accordingly, the Planning Commission -- the government's apex economic planning body -- had prepared a draft policy framework and has already circulated it among the concerned ministries, including Fertilisers and Finance, for comment.
According to sources privy to the development, the Department of Expenditure has strongly opposed the suggestions and asked the Planning Commission to give a realistic policy to attract investment in the urea sector.
"The regime proposed by the draft report under consideration is unrealistic. It would not address the core issues of a viable gas price," the Department of Expenditure noted.
The Planning Commission has suggested a domestic gas price at $ 7-8 per million metric British thermal units (mmbtu) for new fertiliser units as against the existing price of $ 4.2 per mmbtu.
Gas is the main feedstock for urea and accounts for more than 70% of the cost of manufacturing.
Sources also mentioned that the government's subsidy would rise sharply if it were to go by Plan panel's suggestion of fixing a high floor price of $ 370 per tonne for urea and a ceiling price of $ 470 per tonne.
Under the investment policy implemented in September, 2008, the floor has been fixed at $ 250 per tonne and the ceiling price at $ 424 per tonne.
Last year, urea accounted for Rs 23,900 crore of the government's total fertiliser subsidy bill.
"The floor and ceiling prices prescribed are proposed to be constant, irrespective of the gas price actually paid by the unit. In the event of the Empowered Group of Ministers (EGoM) allocating natural gas to the units, the policy would lead to unnecessary, excess subsidy outgo," sources said.
