The government expects to attract investments worth Rs 35,000 crore to the domestic urea sector after announcing this new urea investment policy. There are at least six new urea plants are lined up and will become operational in 2015-16. This will fill up the demand-supply gap up to 6 million tonnes. The country will be self-reliant in urea once the proposed revival, revamp, expansion and greenfield projects are commissioned.
This new urea investment policy was approved by the Group of Ministers (GoM) in February 2012. However, at that time the industry responded coldly saying that the cap on gas price of $14 per mmBtu for urea plants was not making capacity expansion more attractive.
In the new policy, the fertilizer ministry has recommended 12-20 per cent post-tax return on fresh capital infused by manufacturers for setting up of new plants, expansion and revamping existing ones. To ensure this return, the ministry has decided to cover the entire cost of the natural gas, which is main feed stock of urea accounting for 80 per cent of the total cost.
The government currently controls the urea sector and has fixed a 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.
The ministry made some changes in the draft policy after inter-ministerial consultation. It proposed covering entire cost of natural gas, while the GoM had favored providing subsidy on gas price within the range of USD 6.5-14 mmBtu.
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