GoM To Review New Investment Policy For Urea Sector On Feb 16 (03-Feb-2012)
In an effort to make the country self-sufficient in the key soil nutrient, a Group of Ministers (GoM) is scheduled to meet on February 16, 2012 to review and finalize a new investment policy for the urea sector. The policy which was designed by the government's apex economic planning body, the planning commission and approved by the Committee of Secretaries (CoS), headed by Planning Commission member Soumitra Choudhary, is aimed at stepping up the domestic production of urea, the most widely used soil nutrient in the country.
Currently, India imports about 6.5-7 million tonnes of urea. It is believed that this dependence can be brought down and India can produce an additional 6 million tonnes of urea domestically. The new urea policy aims at providing the right framework to achieve this target. As per the drafted policy, the CoS has suggested that incentives be given for setting up new plants (green-field) and expansion of the existing plants (brown-field).
The draft policy stipulates for using gas of up to $14 per million British thermal unit price (mBtu) for production of urea for being eligible for government subsidy/support. The draft policy has suggested that the government should bear the entire cost of gas till $14 per mBtu, with gas being the main feedstock of urea and accounting 80% of the cost of manufacturing. Moreover, if gas of a higher price is used, then urea price will go up by $20 per tonnes for every dollar increase in the fuel cost.
Further, under the new urea policy, the minimum (floor price) and maximum (ceiling price) cost of production, is fixed at $290 a tonne and $320 a tonne respectively for green-fields and $310 a tonne and $340 a tonne for brown-fields. For revival of old or closed plants, the floor price is fixed between $250 and $280 a tonne and ceiling price at $410 a tonne. However, the gas price in this case will be fully subsidised between $7.5-14 per mBtu.
The idea behind fixing prices is that the floor price protects investors and the ceiling price protects the government from paying out excessively large subsidies while making the project financially a viable proposition. The floor and ceiling price is determined based on the cost of imported urea, which is known as import parity price (IPP).
At present the domestic urea production is estimated at 22 million tonnes, while the consumption is pegged at 29 million tonnes. The country faces a shortfall of 7 million tonnes, which is met through imports. This is the second attempt at devising a new policy. The first attempt was made in 2008 by a committee chaired by Abhijeet Sen however; it had failed to attract investors because of unavailability of domestic supply of gas.
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