Group Of Ministers Give Nod To New Urea Policy

The proposed policy is now expected to be tabled for consideration and approval by the Union Cabinet. If approved, the new urea policy would help enhance the dwindling production of urea in the country by up to 6-7 MT, which would be sufficient enough to meet India’s need for urea as a fertiliser. However, one must not forget that this is the second time that the government has tried to introduce a urea policy after it failed miserably to attract any interest for investments in the sector in the year 2008.

Keeping this dilemma in mind, the panel which was set up by the government to review the health of the fertiliser sector and recommend changes have suggested a few changes in the eligibility criteria for plants to qualify for greenfield, brownfield and revamped plant categories.

As per the draft document, in case of greenfield expansion the floor and ceiling prices of USD 250 and USD 425 a tonne have been narrowed down to USD 310 and USD 340 a tonne, with a view to help the government save on the subsidy bill. In case of brownfield expansions the price will be USD 290 a tonne and USD 320 a tonne.

Moreover, as gas is the main feedstock for urea manufacturing and accounts for a major portion of the cost of production, it has been proposed that the government would bear the entire cost of gas till USD 14 per mmbtu. The policy also recommends an assured post-tax return of minimum 12 per cent and maximum 18 per cent to the private investors.

Though the scrips of major urea manufacturers rallied in the early market hours with the likes of Chambal Fertilizers, RCF and National Fertilizers leading the gains, it’s too soon to draw any positive conclusions based on the proposed new investment policy in urea. Though in principle the change in floor and ceiling prices for allocating urea subsidy is intended to reduce subsidy burden, the real impact of it will only be visible when the policy gets implemented. Also, the move to bear entire cost of gas till USD 14 per mmbtu will not be widely accepted as in the recent past the industry has been strongly advocating for the price to be at USD 20 mmbtu in order to make the investments viable.

In conclusion, with the budget date coming closer, the finance ministry will be challenged with the pressure to efficiently address the woes faced in the fertiliser industry and also reduce its very own subsidy burden.