The Government may insist on bank guarantee of ₹300 crore from fertiliser makers charting investments under the new urea policy. The Cabinet is likely to take up a proposal to amend the policy on Friday.

This comes after the Government decided to delete the ‘guaranteed buyback’ provision.

The proposed move to insist on bank guarantee is aimed at attracting serious players in investing in urea facilities. Sources said that bank guarantee will be linked to certain milestones such as completing the project on time.

The new investment policy had evoked good response triggering a rush from urea makers. Planning to take advantage of the new policy, about 13 urea makers, including IFFCO, RCF, Chambal Fertilisers and Tata Chemicals, have applied for expanding their capacities (brownfield), while two new players want to start production units (greenfield) of 1.3 million tonnes per annum.

This is expected to translate into total annual urea capacity of 41.5 million tonnes by 2017, higher than the projected demand of 34 million tonnes. The present domestic urea production is about 22 million tonnes, while consumption is pegged at 29 million tonnes. The Government intends to provide subsidy on the sales of urea produced from the brownfield expansion and greenfield units that come up under the new policy. “Units starting production from the date of notification of amended policy will get subsidy at certain per cent for a period of 8 years,” a source said. Interestingly, no new capacity has been added in the 13 years due to lack of an appropriate policy framework, which has resulted in the widening demand-supply gap. In order to bridge the gap and invite investment into both greenfield and brownfield, the Government notified the new investment policy on January 2, 2013.

Urea plants The Cabinet is also expected to consider a proposal to revise fixed cost for urea plants. This proposal is based on the recommendations given by a Group of Ministers last month that suggested increasing the fixed cost of urea produced by plants which are 30 years old or more by ₹150 per tonne, while for all other plants it would be raised by ₹350 per tonne. Consequently, the minimum fixed cost would be ₹2,300 per tonne.

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