New urea policy will help bridge demand-supply gap, says ICRA

The government's gas pooling and the new comprehensive urea policy are positives for the overall fertiliser industry and will help in bridging the demand-supply gap, rating agency ICRA said in a report.
While impact on individual players may vary, they are directionally positive for the industry and may also enable the industry to take up projects to bridge the demand-supply gap, the rating agency said in the report.
From July 2015, domestic gas will be pooled with imported re-gasified liquefied natural gas (R-LNG) for the urea industry and supplied to all plants connected to the natural gas grid at uniform prices.

GAIL (India) will be the pool operator and ICRA believes that the decisions taken by the government are positive for the overall fertiliser industry, the report said.
The policy initiatives provide a firm base to the government to enable it to decontrol the industry or enact a nutrient-based subsidy mechanism whenever it sees opportunity, although it appears unlikely in the next four years, the report said.
Gas rates will also be uniform for proposed plants to be set up under urea policy 2012 (NUP-2012). On the other hand, NUP-2015 is aimed at moving the industry from the current heterogeneous group-based subsidy approach based on feedstock and technological vintage, to a more homogeneous subsidy approach with a smaller number of groups based on energy efficiency of the units, the report said.

While decontrol or nutrient-based subsidy for the urea sector appears unlikely in the medium term, ICRA believes that a slew of measures are directionally positive for the urea industry and provides a base to the GoI and the industry to move towards decontrol in the long run, apart from clearing a significant hurdle for new projects, the report said.