8 August :The Cabinet Committee on Economic Affairs (CCEA) today approved a policy for New Investments in Urea sector. The Policy based on the recommendations of the Sen Committee aims at attracting investments in urea sector for addition of production capacities through revamp and expansion of existing units, revival of eight closed units of Fertilizer Corporation of India Ltd. (FCIL) and Hindustan Fertilizer Corporation Ltd. (HFCL), and the Greenfield projects.
The Policy provides for an Import Parity Price (IPP) benchmark with floor and ceiling price of USD 250 PMT and USD 425 PMT respectively, for pricing of urea from new investments in this sector. The production from revamp projects is proposed to be provided with 85% of IPP subject to floor and ceiling price mentioned above. Similarly, the production from expansion of these units will receive 90% of IPP subject to floor and ceiling price mentioned above. Further, revival of closed units in public sector will get urea price equivalent to 95% of IPP, with the floor and ceiling prices mentioned above. The pricing of Greenfield projects will be decided based on a bidding process which will be for a discount over IPP, after firming up of the locations (States) of the proposed new plants. The floor and ceiling price will be decided at the time of bidding.
Under the New Policy, only non-APM gas will be considered for the new investments in urea sector. Further, Gas transportation charges will be paid to units undertaking expansion and revival on the basis of actuals (upto 5.2 Gcal per MT of urea) as decided by the Regulator (Gas) subject to a maximum ceiling of USD 25 per MT of Urea. The cap will be subject to indexing as applied in case of inland transportation cost of urea.
The Coal gasification based urea projects will also be treated on par with a revival or a Greenfield project as the case may be. In addition, any other incentives or tax benefits as provided by Government for encouraging coal gasification technology will also be extended to these projects.
The Joint venture projects abroad in gas rich countries are also proposed to be encouraged through firm off take contracts with pricing decided on the basis of prevailing market conditions and in mutual consultation with the joint venture company. However, the principle for deciding upon the maximum price will be the price achieved under Greenfield projects or 95% of IPP as proposed for revival projects (in absence of any Greenfield project) with a cap of USD 405 CIF India per MT and a floor of USD 225 CIF India per Mt (inclusive of handling and bagging costs).
The New Investment Policy is a departure from the existing policies which are based on cost plus approach with a 12% post tax return to the manufacturers. It is expected that the pricing policy based on market parameters will encourage investments in the sector and also substantial improvement in efficiencies.
Nitrogen (Urea) is the only fertilizer where the country can not only become self-sufficient but also a net exporter, based on the available and projected hydrocarbon (natural gas) resources in the country. However, the Import dependence in this sector has increased in last 4 years. The demand- production gap is rising every year and may reach upto 19 million tonnes by 2011-12. In order to reduce this rising gap, there was a need to increase investments in Urea sector, as there has been no significant investment in last 10 years, in this sector.