India Govt likely to amend urea policy, may do away with import parity price ceiling

The government is mulling to amend the New Urea Policy 2015 and may scrap the import parity price (IPP) ceiling, so that domestic urea production does not suffer due to higher costs.

 

According to New Urea Policy 2015, for production beyond the reassessment capacity, fertiliser units are entitled for their respective variable cost and a uniform per million tonne (MT) incentive equal to the lowest of the per MT fixed costs of all the indigenous urea units, subject to IPP, which the government incurs on imported urea.

 

“At current international prices of urea at $210-220 per tonne, production for domestic fertiliser firms is unviable as their costs have gone up. This will lead to a fall in local production of urea. Hence, the department of fertilisers is going to amend the New Urea Policy 2015, doing away with the IPP ceiling,” said a senior government official, requesting anonymity. The draft cabinet note for amendment to the policy has already been moved for inter-ministerial consultations, the official added.

 

Another official, who also did not wish to be named, said that the amendment was the need of the hour as urea production with current IPP ceiling is not viable for domestic fertiliser firms.

 

“Due to higher production costs, domestic urea production may fall by a significant 10-15 lakh tonne,” the second official quoted above said. If the amendment is not done, then the country would have to depend more on imported urea, which will become costlier once international firms come to know about the deficiency in local market.

 

Queries emailed to the ministry of chemical and fertilisers on 20 January remained unanswered.

 

The industry has welcomed the move. “This step will be really good from the industry’s point of view as we will see lot of upside in terms of cash flows. Also, it should come along with revised fixed cost of Rs.2,300 per tonne, which has already been notified by the department, but has not been implemented so far,” said Satish Chander, director general of industry lobby group Fertiliser Association of India.

 

India’s annual demand for urea is around 31MT. The country witnessed a record production of 24.5MT of urea in the financial year 2015-16. Due to an increase in domestic production, urea import during that period came down by around 3.4% to 8.47MT, as compared with 8.75MT in 2014-15.  

 

According to information available on the website of fertiliser department, total urea imports till December 2016 stands at 4.988MT.

 

The government had planned to import the first tranche of 600,000 tonne of urea for FY2017 at a lower than average price of $227 per tonne, compared with $279.02 per tonne during the previous financial year.