The Hindu Business Line : Fertiliser industry not upbeat about investment policy

The policy also does not outline the return on investment that the company would get, which is very important to get loans from banks, this could also hamper a company intending to put up a greenfield project.

Phalguna Jandhyala

New Delhi, Sept. 4 The new fertiliser investment policy that the Government is upbeat about has got very lukewarm response from the industry. The main issue, they say, is that while the Government is looking at fresh investments they are not looking into the concerns of the existing industry.

“The investment, needed to set up a new one-million-tonne urea plant under the existing projections, may cost anywhere between Rs 3,500 crore and Rs 4,000 crore and would take at least 36 months to begin operations.

“Then there is no assurance from the Government on what portion of the produce will be purchased from the plants. So why would one make such a large investment when there is no guarantee that his product will be sold in the market,” a senior official in the Fertiliser Association of India (FAI), said.

Returns on investment

He added that the policy also does not outline the return on investment that the company would get, which is very important to get loans from banks, this could also hamper a company intending to put up a greenfield project.

In the new fertiliser investment policy, the Government proposes to allow setting up of privately owned plants that will not be bound by current price controls. They will be free to produce in whichever manner they want without any interference from the Government.

The policy also proposes to allow the producer to fix the price for the new units at which they want to sell the product. However, the domestic fertiliser prices for the farmers will continue to be regulated and determined by the Government. According the current estimates, the urea production in the country is expected to touch 28 million tonnes from the current 20 mt by the end of the 11th Plan.

Currently, India imports around six mt to meet the domestic requirement.

“The industry would welcome investments coming in through a better pricing policy rather than have it come through by giving tax incentives. This will also be more remunerative for manufacturers,” the official pointed out.

The policy also proposes to allow up to 90 per cent of the import price, which is exclusive of the customs duty but includes ocean freight and port handling charges.

“This may not be very conducive in the long term looking at the volatility in the raw material costs,” an industry source pointed out.

Another FAI official said that 90 per cent of the variable cost is from energy consumption and there is no proposal to look into this aspect in the proposed policy. “The industry also wants to be compensated for the value added tax and duty, which is another issue that the policy must look into,” the official said.