Home / Politics / News /  Govt may raise capex limits for new, existing fertilizer plants

New Delhi: The government may make a key change in how a proposed policy to attract 40,000-45,000 crore of investments to the fertilizer sector is implemented.

The government is considering delinking proposals related to new and existing fertilizer projects in the policy to end a logjam over the investment limit, said two government officials in direct knowledge of the developments, including a fertilizer ministry official. Both declined to be identified.

The issue relates to the consideration on maximum capital expenditure to be offered to companies setting up new plants or developing excess capacities close to existing plants, the fertilizer ministry official said.

Reworking numbers: Under the urea policy, the investment limit for new projects?was? 4,700 ?crore and for expanding capacity it was 4,200?crore. Photo: Pradeep Gaur/Mint

On 24 February, a group of ministers (GoM) led by finance minister Pranab Mukherjee gave an in-principle clearance to the draft policy to attract investments to the urea sector. But it also directed the fertilizer ministry to rework the maximum capital expenditure to be allowed to a company willing to set up a new unit.

The policy seeks to give urea manufacturers?a minimum 12% post-tax return on capital.

The fertilizer ministry proposed that the government compensate the companies if the price of gas exceeded $14 per million British thermal units.

If approved by the cabinet, the policy could enhance urea production capacity by 7-8 million tonnes—enough to meet the country’s demand. As urea produced domestically is cheaper than the imported variety, it will result in significant savings in the fertilizer subsidy bill.

The government announced a urea investment policy in September 2008, but that failed to attract any investment as it was considered unviable. India’s last urea plant set up from scratch came on stream in 1995.

The proposal to de-link the two parts was discussed at a meeting on Thursday, but no final call on the matter was taken, the fertilizer ministry official said. “We have asked PDIL to rework the numbers," the official said, referring to Projects and Development India Ltd, a government consultancy firm.

In effect, the government could implement the part of the policy relating to expansion of existing projects first, and wait for PDIL to decide on the new part at a later date.

The investment limit for so-called greenfield, or new projects, was capped at 4,700 crore, and for brownfield, or existing projects, at 4,200 crore.

But Matix Fertilisers and Chemicals Ltd, which is setting up a new urea plant in West Bengal, submitted a proposal for a maximum investment limit of 5,200 crore, and the GoM asked the fertilizer ministry to rework the numbers on this project, the officials said.

Prithviraj Dhariwal, managing director at Matix, confirmed that his company submitted a proposal with a higher capital budget. “It is not possible to set up a plant at a cost lower than this," Dhariwal said. “However, at no stage did we seek to influence government decision making."

Matix has invested more than 2,500 crore in the project, he said.

Apart from Matix, several companies including Chambal Fertilisers and Chemicals Ltd, Indian Farmers Fertiliser Cooperative Ltd (Iffco), Rashtriya Chemicals and Fertilisers Ltd, Indo Gulf Fertilisers Ltd and Zuari Industries Ltd have submitted plans to set up urea factories.

State-owned Oil and Natural Gas Corp. Ltd (ONGC), too, wants to set up a urea manufacturing unit in Tripura in collaboration with a fertilizer company, and has called for expressions of interest for this.

Tata Chemicals Ltd and Krishak Bharati Cooperative Ltd, or Kribhco, have shown interest in the project, a second fertilizer ministry official said, also declining to be identified.

B.D. Sinha, managing director, Kribhco, and a Tata Chemicals spokesperson said their firms have expressed interest.

The ONGC official handling the proposed project could not be reached for comment despite repeated calls to his office.

The draft policy requires the approval of fertilizer minister M.K. Alagiri before it can be taken to the cabinet.

On 28 December, Mint reported on the contours of the proposed policy in which the government has worked out a fresh formula for providing incentives for investments under three categories—greenfield, brownfield and improving plant efficiency to boost output. Firms will be eligible for the incentives if they commence production within five years of the release of the new norms. Thereafter, they can continue to claim the incentives for eight years.


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