New Urea Policy 2015

In May 2015, the Union Cabinet gave its approval to a comprehensive New Urea Policy 2015 for the next four financial years (June 2015 to March 2019).

Objectives

The key objectives of the New Urea Policy 2015 are as follows:

• Maximise indigenous Urea Production to reduce import dependency and reduce subsidy burden on the government
• Promote energy efficiency to reduce Carbon-footprint (via energy efficiency) to make Urea production environment friendly. [This will be done via revised specific energy consumption norms]
• Make Urea production plant to adopt best technology available and become globally competitive.
• Timely supply of Urea to farmers at the same MRP.

Proposed Outcome

• According to the government, the new Urea policy will result in direct saving of Rs. 2618 Crore and Indirect saving of Rs. 4829 Crore. It also expects to output additional 20 Lakh tonnes of Urea every year.

Promotion of Energy Efficiency

Currently, the subsidy for Urea plants varies as per their actual energy consumption vis-a-vis the predefined norms of the government for different plants depending on their vintage. Higher is the energy efficiency of a unit, higher is its profitability. Via the 2015 New Urea Policy, the government has tightened these norms for next four years. The overall idea is to make these units go for maximum saving of power to get maximum incentives. This is good for the government but is marginally negative for the industry because the new norms will not allow them to get the same quantum of incentives as they were getting earlier. The companies will have to improve their energy consumption levels and adopt best technology available to produce urea efficiently.

Cost of Urea for Farmers

Interestingly, the new Urea Policy has the old rates of Urea for farmers. MRP of urea for the farmers is same @ Rs. 268/- per bag of 50 kgs. excluding local taxes. Farmers have to pay an additional price of only Rs.14/- per bag of neem coated urea.

Comment / Analysis

The above discussion makes it very clear that the new Urea Policy is mostly about making energy efficiency norms more tight for fertilizer units. What the government has done is to link their incentives with the annual energy consumption and prompted them go for most energy-efficient technologies to raise actual production. The units that fail to do so would lose their profit margins. If we look at it with Gas Pricing Pooling mechanism; we find that government has  tried to make the urea production a level playing field.

However, the new Urea Policy does not seek to trim Urea subsidy substantially. It keeps the Urea prices same as before, otherwise that move could be tagged as anti-farmer. Not only this, the subsidy rates for decontrolled P and K fertilizers has also been kept at same level. In summary, we cannot call this a big reform. The real problem of huge price differential between N and P/K is not going to be alleviated. To check the misuse of Urea, government has gone to remove restrictions on Neem Coated Urea instead.