The fertiliser industry is seeking a higher cap on urea cost than the proposed $340 a tonne for the purpose of calculating subsidy to the new plants. With the fertiliser ministry in the process of finalising recommendations for a New Investment Policy in Urea, the industry also wants that the gas price cap corresponding to the urea price band be increased to $20 a million British thermal unit.
The urea manufacturing companies, which enhanced their capacities through debottlenecking under the 2008 policy presently have a floor and cap of $250 and $425 a tonne, while the new policy proposes a floor and cap of $290 and $320 for expansions and revival of existing plants, and $310 and $340 for greenfield projects linked with gas prices of $6.5 and $14 a mmbtu. The floor price is the minimum production cost that the fertiliser ministry takes into account while reimbursing the subsidy on urea while the cap is the highest cost that it assumes.
The fertiliser industry, under the banner of Fertiliser Association of India (FAI), is trying to bargain hard to maximize the benefit from the upcoming policy. It has written to the Department of Fertilisers presenting its reservations and expectations from the new policy.
In its effort to gain maximum from the new policy, the industry has sought safeguarding investments that went into debottlenecking under the policy unveiled in 2008. Besides, they are looking for enhanced returns for the domestic production in relation with the import parity price of urea and a wider band of prices for gas, which is a key requirement for urea production.
The FAI is demanding that the band of prices for gas be extended to at least $20 considering the low domestic supply and an anticipated increase in prices by the time the new investment would begin production. Presently, the fertiliser companies get domestic gas at a landed cost of around $7, while the price of imported LNG is around $14 and $15.
A sector analyst, who did not want to be quoted, said the keenness to discuss this policy at the earliest was primarily due to the factor that this time the government has learnt some lessons from its earlier mistakes and has formulated a policy that is closer to industry expectations.
On getting a price more reflective of international price, FAI has asked the government to increase the import parity price for brownfield production to 95% from the existing 90% and that of greenfield to 100% from 95%.
The new policy is said to be applicable for eight years from the date of start of production. It might take 4-5 years after the policy is notified, for the new investment greenfield plants to become operational. Under the 2008 policy, no investments were made in greenfield projects, while a few manufacturers enhanced production through debottlenecking.
