New Delhi, Feb. 28: The government today hiked the fixed cost of urea and approved certain policy changes that would restrict investment in the sector to only serious players.
With higher cost, the gap between the cost and fixed price of urea will go up, leading to an increase in subsidy by Rs 900 crore.
Amending the new investment policy for urea, the government will now seek bank guarantees and will drop a clause that assured the purchase of urea for eight years from the start of production.
The Cabinet Committee on Economic Affairs today cleared these proposals, including the hike in the fixed cost of urea by up to Rs 350 per tonne.
In line with the recommendation of the group of ministers (GoM), the minimum fixed cost, including the hike, should now be Rs 2,300 per tonne.
In the case of plants that are more than 30 years older, the hike in the fixed cost is Rs 500 per tonne.
Other changes in the policy include a bank guarantee of Rs 300 crore by companies keen to set up urea plants. The new investment policy was notified in January last year to encourage companies to invest in the sector and reduce dependence on imports.
The policy had evoked a good response. About 13 urea makers, including IFFCO, RCF, Chambal Fertilisers and Tata Chemicals, have applied to expand their capacities, while two new players will set up units of 1.3 million tonnes per annum.
However, the incentives will lead to excess capacity, forcing the government to check production.
The government also approved the continuation of additional compensation to state-run FACT for producing a mix of fertilisers using naphtha as feedstock.