New Delhi: The Cabinet Committee on Economic Affairs (CCEA) Thursday approved a urea investment policy that is likely to incentivise fertiliser firms setting up new plants and expanding existing capacity.
India imports over 30 percent of urea requirement and the policy aims at reducing that. But, it is unlikely to have any impact on existing prices.
"The new urea investment policy has been cleared," sources said after the CCEA meeting here.
The policy, which aims to attract fresh investment of about Rs 35,000 crore to increase domestic production by 8 million tonne, has been cleared as the 2008 urea investment policy failed to attract the much needed funds.
Under the new policy, the government will give 12-20 percent post-tax return on fresh capital infused by manufacturers for setting up of new plants as well as for expansion and the revamp of the existing ones.
To ensure this return, the government would cover the entire cost of the natural gas, which is main feedstock of urea and accounts 80 percent of the cost.
The government controls the urea sector and has fixed the MRP at Rs 5,360 per tonne. The difference between the MRP and cost of production is given as subsidy to manufacturers.
For determining the cost of production of new plants to be set up after the policy comes into effect, the government has set a floor and ceiling price of urea based on the price of natural gas plus 12-20 percent equity returns.
The new investment policy was approved by the Group of Ministers (GoM) headed by the then Finance Minister Pranab Mukherjee on February 24.
However, sources said the ministry made some changes in the draft policy after inter-ministerial consultation. It proposed covering entire cost of natural gas, while the GoM had favoured providing subsidy on gas price within the range of USD 6.5-14 mmBtu.
The country produces 22 million tonnes of urea, against the requirement of 32 million tonnes.