Agri Business

New urea plants have to provide ₹300-cr bank guarantee

Our Bureau New Delhi | Updated on October 08, 2014 Published on October 08, 2014


Govt tightens policy for private sector project to purge non-serious players

The Government has tightened the policy for new urea projects undertaken by the private sector to keep out non-serious players.

For timely execution of the projects, it has now proposed that companies will have to furnish a ₹300-crore bank guarantee for each undertaking.

Mode of release

The Department of Fertilisers has notified an amendment to the New Investment Policy.

The amendment stipulates that “all project proponents” will now have to provide ₹300-crore bank guarantee for each project which will be linked to different stages of execution.

“Out of the ₹300 crore, ₹100 crore will be released after finalisation of LSTK/EPCA contractors and release of advance to the contractor’s account,” it said.

Another ₹100 crore will be released when ordering of requirements and its supply is completed or in the middle of the project, “whichever is earlier”.

The balance amount will be liquidated once the project is completed.

New policy

Notably, the amendment does away with the “dispensation of guaranteed buy-back” outlined earlier, ostensibly to support only those companies who are serious about setting up new urea projects. Earlier this year, a number of companies had proposed to set up new plants to augment production capacity by 16 million tonnes.


“This is the New Investment Policy for the new plants. That clause is just to make sure only those players who are serious about urea production get involved. This way, there is clarity provided to the Government on how many plants are coming up,” said Satish Chander, Director-General, Fertiliser Association of India.

The notice also states that urea companies will receive subsidy on domestic sale for eight years from the date from when the production begins. India currently produces some 22 million tonnes of urea while domestic consumption is to the tune of 30 million tonnes.

The shortfall is met through imports.

The retail price for urea has been capped at ₹5,360/tonne, the difference between it and the cost of production is paid out as subsidy to manufacturers.

The country’s fertiliser subsidy bill costs the Government more than ₹70,000 crore and Minister for Fertilisers and Chemicals, Ananth Kumar, announced in August that the Ministry was working on a new holistic fertiliser policy.

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Published on October 08, 2014
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