CCEA nod for new urea investment policy likely tomorrow

The Cabinet Commitee on Economic Affairs (CCEA) is expected to approve a new urea investment policy tomorrow that is likely to incentivise fertiliser firms
setting up new plants and expanding existing capacity.

Also read: Expect nod for new investment policy; hike urea prices: RCF

In 2008, the government had announced a 'New Investment Policy' to boost urea production, but the scheme failed to attract fresh investment in the sector. India faces shortage of 10 million tonnes of urea, which is met through imports. According to sources, "The new urea investment policy is on CCEA agenda tomorrow."

The fertiliser ministry expects the new urea investment policy would attract a fresh investment of about Rs 35,000 crore to increase domestic production by 8 million tonnes. In the proposed new investment policy, the Ministry has
recommended giving 12-20 per cent post-tax return on fresh capital infused by the manufacturers for setting up of new plants, expansion and revamp of existing ones.

To ensure this return, the ministry has decided to cover the entire cost of the natural gas, which is main feedstock of urea and accounts 80 per cent of the cost. At present, the government controls the urea sector and has fixed maximum retail price (MRP) at Rs 5,360 per tonne. The difference between the MRP and cost of production is given as subsidy to manufacturers.
For determing the cost of production of new plants to be set up after the policy comes into effect, the ministry has set a floor and ceiling price of urea based on the price of natural gas plus 12-20 per cent equity returns.

The new investment policy was approved by the Group of Ministers (GoM) headed by the then Finance Minister Pranab Mukherjee on February 24. However, sources said the ministry has made some changes in the CCEA note after inter-ministerial consultation. The ministry has proposed covering entire cost of natural gas, while the GoM had favoured providing subsidy on gas price within the range of USD 6.5-14 mmBtu. The country produces 22 million tonnes of urea, against the requirement of 32 million tonnes.