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A core group, comprising the member of the Planning Commission and Secretaries of concerned ministries, is believed to have given its go ahead to the new investment policy for the fertiliser sector, especially urea. This policy aims to create a 1.5 million-tonne capacity for the production of urea over a five year-period.
“The new policy is expected to be announced in the Budget for 2012-13,” a person familiar with the development told Business Line . After the core group's recommendation, a Group of Ministers will first examine the policy. The matter will then be placed before the Cabinet for a final decision.
Shortfall
No new capacity addition in urea has happened in the past 13 years due to the absence of an appropriate policy framework. This has widened the demand supply-gap over the past decade. At present, the country faces a shortfall of 7 million tonnes, which is bridged through imports.
Domestic urea production is estimated at 22 million tonnes, while the consumption is pegged at 29 million tonnes. But with limited availability of gas and higher price of imported gas, the focus would be on creating capacity to bridge at least a part of gap initially, the person added.
The policy may provide gas linkage for up to 75 per cent of new capacity created from domestic gas resources, while the rest has to be met through imports. The Government may provide a subsidy for the price differential between domestic and imported gas.
The proposed policy is for both greenfield and brownfield plants. Greenfield means new plants, while brownfield is referred to capacity addition to existing plants or revival of old or closed plants.
The proposed policy, which envisages a capacity creation of 1.5 million tonnes, is based on the current availability of gas within the country and rising trend in global gas prices.
Previously, the Government had notified a policy in September 2008, for new investments in urea and long-term offtake through joint ventures abroad. This helped the industry revamp its existing capacities by removing bottlenecks and increase the output by 2 mtpa. However, it did not bring in any new investments either through greenfield or brownfield units.
This was mainly because the companies kept regularly requesting the Government for either firm allocation of gas at predetermined fixed prices from domestic gas sources, or to insulate the industry from any additional liability arising due to increase in delivered price of gas by correspondingly increasing the floor prices of fertiliser.
Therefore, the Department of Fertiliser, decided to amend the existing Investment Policy.
The Group of Ministers has directed the Committee of Secretaries under Dr. Soumitra Choudhary, Member of Planning Commission, to formulate the New Investment Policy which would be conducive to fresh investments in Urea Sector.
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