The Hindu Business Line : Govt weighs policy on urea to promote brownfield expansions

Urea units planning brownfield capacity expansions may be entitled to payment of 90 per cent of import parity price (IPP) subject to a floor of $250 and ceiling of $452 a tonne.

The new investment policy for the industry — which seeks to enhance domestic urea availability to meet the estimated 350 lakh tonnes (lt) annual demand by 2011-12 — is expected to be placed before the Cabinet later this month.

Brownfield focus

The policy aims at bridging the gap between the current domestic production capacity of 200 lt and future demand, mainly through brownfield expansions and de-bottlenecking/revamp of existing units. Greenfield projects will receive lower priority, as the Centre believes that this would be more time-consuming and costly.

For brownfield expansions, investment of Rs 3,000 crore and above will be considered eligible for the proposed IPP-linked subsidy scheme.

The additional urea produced from such expansions would receive 90 per cent of the IPP while computing the subsidy, which is meant to compensate manufacturers for selling at controlled rates to farmers. The incremental production achieved through de-bottlenecking/revamping would likewise be entitled to 85 per cent of the IPP.

The Centre expects an additional 30 lt to be created just through the ongoing expansions of Kribhco (Hazira), Rashtriya Chemicals and Fertilisers (Thal) and Indo Gulf Fertilisers (Jagdishpur). These three plants would add 10 lt each. Another 25-30 lt are expected through the revamp and de-bottlenecking route.

The IPP-linked formula will not be applicable for greenfield projects.

“The Government will decide the location and prospective investors will be invited through competitive bidding. Investors offering lowest price below the IPP would be allowed to set up the plant,” officials said.

Rising imports

Domestic urea production has been stagnant at 190-200 lt since 1997-98 even as imports have surged from hardly 1.5 lt in 2003-04 to over 50 lt last fiscal.

The rising imports and the extra fertiliser subsidy liabilities resulting from these have prompted the Centre to consider a new policy for attracting investments in the sector.

A draft policy prepared by the Department of Fertilisers was referred to a Group of Ministers, which then appointed an expert committee under Planning Commission member Prof Abhijit Sen to make further proposals.

Abhijit Sen panel report

“The Sen Committee submitted its report last week and it will now be taken up by the Cabinet before the month end,” the officials added.

At current costs, the investment required for setting up a 10-lakh-tonne urea plant is Rs 4,000-4,500 crore.

“With the new policy in place, the Government expects new investment in the range of Rs 40,000 crore to Rs 45,000 crore over the next three years,” the officials said.