After the Cabinet Committee on Economic Affairs (CCEA) deferred a decision on New Investment Policy for urea, the fertiliser Industry has said the new policy will be crucial in meeting the gap of domestic urea production and demand.
Addressing a press conference to announce the annual conference of the Fertiliser Association of India (FAI) last night, association chairman and CMD of Rashtriya Chemicals and Fertlisers (RCF) RG Rajan said the urea policy is expected to be in place soon and investments to set up close to 8 million tonne capacity are lined up.
The policy was earlier approved by the Group of Ministers in February this year. However, the industry gave a cold response that time saying that the cap on gas price of $14 per mmbtu for urea plants was not making capacity expansion more attractive.
Rajan said that appropriate changes have been incorporated in the policy now.
The Fertiliser ministry also expects the new urea investment policy to attract a fresh investment of about Rs 35,000 crore to increase domestic production by 8 million tonnes.
In 2008 also, the government had announced a 'New Investment Policy' to boost urea production, but the scheme failed to attract fresh investment in the sector.
India faces shortage of close to 10 million tonne of urea, which is met through imports. Of the total urea consumption of over 30 million tonne in the country, about 22 million tonne is domestically produced, while the rest is imported.
In the proposed new investment policy, the Ministry has recommended giving 12-20% post-tax return on fresh capital infused by the manufacturers for setting up of new plants, expansion and revamp of existing ones.
To ensure this return, the ministry has decided to cover the entire cost of the natural gas, which is main feedstock of urea and accounts 80% of the cost.
At present, the government controls the urea sector and has fixed maximum retail price (MRP) at Rs 5,360 per tonne.
For determining the cost of production of new plants to be set up after the policy comes into effect, the ministry has set a floor and ceiling price of urea based on the price of natural gas plus 12-20% return on equity.
At present, the urea producers are given a 12% post tax return above the cost of production to sell the major crop nutrient at subsidised rates to farmers.
The Cabinet on Thursday had deferred a decision on the New Investment Policy on urea.
