New Delhi, Dec. 13: The government today cleared the urea investment policy that proposes higher subsidies on natural gas, which accounts for 80 per cent of costs.
“The urea policy to boost investment in the fertiliser sector has been cleared,” official sources said.
The policy is expected to result in a fresh investment of about Rs 35,000 crore and increase domestic production by 8 million tonnes.
A group of ministers headed by the then finance minister Pranab Mukherjee had approved the new investment policy in February.
However, the industry did not respond favourably to the proposal on subsidy on gas price in the range of $6.5-$14 per million metric British thermal unit (mmBtu) as this did not make capacity expansion more attractive.
After further discussions among ministries, it has been decided that the government would bear the entire cost of natural gas.
The new subsidy proposal will make fertiliser units profitable as companies will be insulated from any abrupt variation in the fuel prices. The new norm will apply to both greenfield and brownfield projects. Natural gas is the main feedstock of urea and accounts for 80 per cent of the cost.
At present, the government controls the urea sector and has fixed a maximum retail price (MRP) at Rs 5,360 per tonne.
The difference between MRP and cost of production is given as subsidy to manufacturers.
The country produces 22 million tonnes of urea against the requirement of 32 million tonnes.
For determining the cost of production of new plants to be set up after the policy comes into effect, the ministry has set a floor and ceiling price of urea based on the price of natural gas plus 12-20 per cent equity returns.