New urea investment policy gets Cabinet Committee’s clearance

December 20, 2012

The Cabinet Committee on Economic Affairs (CCEA) cleared new urea investment policy, which is likely to incentivize fertilizer companies to establish new plants and enhance existing capacity.

Around 30% of India’s urea requirement if fulfilled through imports and the policy aims at curtailing that. But the existing prices are unlikely to be affected.

As per the new urea policy:

It aims to entice fresh investment of about Rs.35,000 crore to boost domestic production by 8 million tonnes.
12-20 % post-tax return will be given by the government on fresh capital infused by the manufacturers for establishing new plants as well as for expansion and refurbishment of the existing ones.
To ensure this return, the government would cover the entire cost of natural gas, which is the main feedstock of urea, and accounts for 80 % of the cost.
Urea sector is controlled by the government and it has fixed the maximum retail price (MRP) at Rs.5,360 a tonne.
The difference between the MRP and the cost of production is given as subsidy to manufacturers.
The government has set a floor and ceiling price of urea, based on the price of natural gas plus 12-20 per cent equity returns in order to determine the cost of production of new plants to be established after the policy comes into effect.

India produces 22 million tonnes of urea, against the requirement of 32 million tonnes.

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