The Cabinet Committee on Economic Affairs (CCEA) may take up the new investment policy for urea soon. This policy is likely to ensure at least 12 per cent return on equity.
The proposed policy aims to reduce the subsidy on urea. The Finance Minister in his Budget speech said, “To reduce India's import dependence in urea, the Government has taken steps to finalise pricing and investment policies for urea. It is expected that with the implementation of the investment policy, the country will become self sufficient in manufacturing urea in the next five years.”
A highly placed source said, “Since this Budget has given some concessions on machinery, that is why the draft note for the CCEA is being redrafted. Once it is ready, it will be sent for inter-ministerial consultation and finally to the Cabinet committee for final decision.”
A Group of Ministers (GoM) discussed the draft policy before the Budget. It is believed to have endorsed the Saumitra Chaudhuri Committee's views on the investment policy, but with some changes. This committee favoured minimum return of equity at 12 per cent.
“The Government's endeavour will be to maintain that return on equity,” the source said.
However, a senior Government official said that going by the current rate of delivered gas (not from KG D6), it would be difficult to provide 12 per cent minimum return on equity, unless the Government ensures adequate quantity of domestic gas or gives greater protection on account of gas cost.
Even the Chaudhuri Committee opined that the delivered gas price be maintained within the band of $6.5-$14/mmbtu. There is no problem in maintaining this with gas (supplied at administrative price) from KG D6 block.
However, the real problem is with the price of regassified liquefied natural gas (RLNG) which is hovering around $16-17/mmbtu, while gas is supplied at $4.88/mmbtu (administered prices plus taxes) from KG D6, the official said.
The committee had also recommended that in terms of the gas utilisation policy, any additional gas from domestic sources will necessarily have to be considered to meet the demand of fertiliser sector.
While allocating any quantity of RLNG to these units, the Petroleum Ministry would ensure gas swapping from RLNG to any future discovery of domestic gas, it added.