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Fertilizer ministry approves new urea investment policy

Fertilizer ministry approves new urea investment policy

New Delhi: The government has approved a draft policy aimed at attracting investments worth as much as Rs40,000 crore to boost production of urea, the country’s most widely used fertilizer.

Fertilizer minister M.K. Alagiri gave his consent to the draft document on Tuesday, according to two ministry officials, who declined to be identified.

The new policy seeks to give urea manufacturers a minimum 12% post-tax return on capital. The fertilizer ministry also proposed that the government compensate companies if the price of gas exceeded $14 per million British thermal units (mmBtu).

If approved, the policy could add as much as 7-8 million tonnes (mt) to India’s domestic urea production capacity and offset the current shortfall.

As locally produced urea is cheaper, it will result in significant savings in the fertilizer subsidy bill. India produces 21-22 mt of urea a year, while it requires an annual 28-30 mt.

Mint first reported on the proposed policy on 29 December. A group of ministers (GoM) had cleared it on 24 February.

The government wants to bring a new policy, as a similar policy announced in 2008 failed to attract any investment. The government has linked the floor and ceiling prices of urea to the landed price of gas, subject to a maximum of $14 per mmBtu, Mint reported in December.

“If, however, the landed cost of gas goes above the $14 per mmBtu mark, the floor price will be scaled upwards but not the ceiling," said one of the two officials cited above. This, he said, is the only significant departure from what the GoM had cleared.

The floor price is the minimum cost of production of urea that the government will consider while calculating the minimum rate of return on investment promised by the government. The ceiling price is the maximum the government will consider for various gas price points up to a maximum limit of $14 per mmBtu.

Most of the new investments are likely to come through as capacity expansions.

Several companies including Iffco Ltd, Chambal Fertilisers and Chemicals Ltd, Rashtriya Chemicals and Fertilizers Ltd, Indo Gulf Fertilisers Ltd and Zuari Industries Ltd plan to set up or expand urea manufacturing units. The government is also looking at reviving as many as eight closed urea manufacturing units.

On 6 October, Mint reported that a proposed 3 million tonnes per annum (mtpa) urea manufacturing plant in West Bengal by Matix Fertilisers and Chemicals Ltd was stuck because the investment policy had not been finalized. The last so-called greenfield urea plant was set up in India in 1995.

Officials say that a final decision on allowing Matix’s proposal could take a while as the 24 February GoM had referred its plans to Projects and Development India Ltd, a state-owned consultant, as there was a disagreement over the consideration on the maximum capital expenditure a company should be allowed.

The present policy stipulates a maximum consideration of Rs4,200 crore on expansion projects and Rs4,700 crore on new projects. Mint reported this on 30 April.

The approval of the draft policy comes even as the fertilizer ministry’s plan to raise the market price of urea by 10% has been stalled, at least for now.

At a 14 June meeting of the cabinet committee on economic affairs (CCEA), junior minister for fertilizers and chemicals, Shrikant Kumar Jena opposed the proposed 10% hike in the price of urea and an extra consideration of Rs350 per tonne towards fixed costs, three officials, including the two cited above, independently confirmed. One of the three was present in the CCEA meeting.

A call and a text message left on Jena’s mobile phone remained unanswered. The CCEA has since referred the issue back to the GoM.

aman.m@livemint.com

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