Fertiliser majors waiting to make investments in new urea plants have reasons to cheer as the government has promised, subject to a ceiling, it would cover the additional cost from natural gas imports given the paucity of domestic gas. Currently, the Asian spot price of the feedstock, which forms over three-fourths of the cost of production of fertilisers, is $14 per million metric British thermal unit (mmBtu), while the domestic gas is priced at $4.2/mmBtu. The government has said it would bear the difference in costs arising out of the fertiliser companies importing gas to meet their needs, to the extent the imported gas price is below $14/mmBtu. This would mean that the new offer would mean a substantial extra burden on the government, as the retail price of key fertiliser urea is heavily subsidised. The proposal is likely to put an end to a long spell of stagnation in investments in the sector as most of the risk in setting up new production units would be with the government that covers the unpredictable price of natural gas up to the prescribed limit. Analysts reckon that gas import price may not exceed $14 per mmBtu considering steps being taken by the government to facilitate gas supplies from US and Canada where the fuel is cheap. Also, companies have the liberty to strike long term gas purchase deals from abroad that would protect them from any possible fluctuation in spot gas price. Availability and price of gas has been the biggest hurdle for investors to set up new urea plants for almost a decade. With the Union Cabinet approving the new urea investment policy last week, a total of eight companies are planning to set up plants of 1.267 million tonnes (MT) each, at an estimated cost of R4,200 crore per plant, according to the fertiliser ministry sources. Among the companies that have lined up investment plans include Rashtriya Chemicals & Fertilisers, Tata Chemicals, Indo Gulf Fertilisers, Nagarjuna Fertilisers & Chemicals, Chambal Fertilisers, Iffco (Indian Farmers Fertiliser Cooperative), GNFC (Gujarat Narmada Valley Fertilisers Company) and GSFC (Gujarat State Fertilisers & Chemicals), these sources said. The sector could see investments of about R35,000 crore in greefield plants. Since the government would be largely subsidising the feedstock cost, companies would be allowed to charge a margin of 12-20%, they said. The new urea investment policy would provide subsidy to meet the extra fuel cost on imported LNG or coal gas; makes it viable for private companies to import costlier fuel to run fertiliser plants. Imported LNG is nearly three times costlier than the scarce domestic gas. Compared to the domestic price of $4.2 per mmBtu, imported LNG is available at about $14-15 per mmBtu. The new policy aims to add about 7-8 million tonnes of fresh production capacity to the country’s existing capacity of 22 million tonne, which would help in meeting the annual demand of 30 million tonnes. The gap is currently met through imports of urea.