Mumbai: The New Urea Policy 2015 (NUP) is expected to have a positive impact on the fertiliser industry as it will maximise domestic production and help reduce reliance on imports, CARE Ratings said today. “The overall impact of NUP would be positive on the fertiliser industry. For government, the NUP is expected to bring benefits of subsidy rationalisation and maximisation of domestic production, thus reducing reliance on imports.

“Further, the policy is expected to reduce complexity in implementation of previous policies,” the rating agency said in a report. With tightening of energy consumption norms for urea units, the profit on energy savings would be driven by the company’s ability to reduce power usage level. Even with tightening of norms, many units, it said, would still earn reasonable profit on energy savings.

The policy for production above reassessed capacity is also likely to be positive for all urea units as it entitles them for a fixed contribution, subject to a cap of International Parity Price (IPP) of urea plus other incidental charges that the government incurs on imported urea.

Thus, energy efficient units would be able to compete against imports and produce more, which would improve their cash flows, the rating firm maintained. The NUP, which is effective from June 1, 2015 aims to maximise domestic urea production and promote energy efficiency to rationalise the subsidy burden. The policy also seeks to tighten the energy consumption norms based on the actual consumption levels of respective units during the past few years.

Further, the subsidy calculation for production above reassessed capacity has been modified to protect the interest of stakeholders in case of significant volatility in the IPP. Meanwhile, the government today informed Rajya Sabha that it imported urea at an average price of USD 289.77 per tonne during the first quarter of current financial year, 5 per cent less than the average price of last fiscal.

The selling price of urea is fixed at Rs 5,360 per tonne, and the difference between cost of production and selling price is paid as subsidy to manufacturers, the Lower House was informed.

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