Urea policy: Gas availability worry stays, says Zuari Inds

In the cabinet meeting yesterday, the government cleared the urea investment policy that is likely to incentivize fertilizer firms setting up new plants and expanding existing capacity. India imports upto 30 percent of urea and the policy aims at reducing the imports.

Suresh Krishnan, MD of Zuari Industries spoke to CNBC-TV18 regarding the move. Krishnan said, the move is welcomed by the fertilizer industry, but gas availability and pricing remains a concern. "I do not expect that government would be able to find gas for these projects. We will have to work with the possible supply chain partners on this to see how we can get a gas contract which works with this framework and makes sense both to the equity and debt investors," he adds. Below is the edited transcript of Suresh Krishnan's interview on CNBC-TV18. Q: What do you think of the government proposal because the pessimism seems to be coming from the issue of availability of gas? Can government assure urea companies of gas availability if they want to make fresh investments? A: We welcome this policy which gives a framework to the industry to take the projects forward or the capex plan forward. Gas availability and the pricing of the gas, continues to be a concern for the sector. The companies interested in doing this capex need to work on the issue of availability of gas themselves. I do not think government would be able to find gas to commit to these projects. We will have to work with the possible supply chain partners on the issue to see how we can get a gas contract which works within this framework and makes sense both to the equity and debt investors here. Q: Does it look like a lucrative option though they have put 12 to 20 percent post tax returns, the kind of production cost that they have put down for determining, setting up a new plant and the cost of it? A: The key aspect is going to be the capital cost for greenfield projects and that will be size specific. So we will have to look where the projects are going to be located. But, the brownfield projects should look attractive at this point of time, and all the projects would primarily depend upon the kind of gas contract and flexibility that an investor can finally negotiate and conclude.