As per the proposal, an ammonia-urea plant will be set up at Thal in Maharashtra with a capacity of 1.27 million tonnes per annum on 200 acres of land.
Rashtriya Chemicals and Fertilisers (RCF) had awarded tender for the project to engineering and construction company Tecnimont ICB (TICB) in 2012 for Rs 4,112.50 crore, but construction work on the project did not initiate in last two years.
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"Last month, the technology partner TICB had opted out of the project as it became unviable for them on the cost at which it was awarded to them two years back," sources said.
Sources added that only last year the project got pre-Public investment Board (PIB) clearance and presently it is stuck at the PIB level.
"RCF is contemplating to issue new tenders inviting bids for the technology partner of the project and as per the estimations, project cost is likely to increase by Rs 500 crore to Rs 4,600 crore," a source said.
The Mumbai-based PSU produces various grades of complex fertilisers at its two manufacturing units in Thal and Trombay in Maharashtra.
RCF, along with Coal India, GAIL and Fertiliser Corporation of India (FCIL), has also formed a consortium to revive the sick unit of FCIL at Talcher at a cost of Rs 8,000 crore to manufacture urea and ammonium nitrate via coal gasification.
The proposed unit at Talcher, which is expected to be commissioned by 2017, will manufacture 1.2 million tonnes of urea per annum (mtpa).
RCF had reported 28% fall in net profit at Rs 52.90 crore for the third quarter ended December 31.