18023 /02/2016-FCA Government of India Ministry of Chemicals & Fertilizers Department of Fertilizer Shastri Bhawan, New Delhi Dated: the 2” November, 2016 To, Chicf Executive Officer, Hindustan Urvarak & Rasayan Limited, New Delhi Sub: New Investment Policy 2012 dated 2~ January, 2012 and amendment order No. 12012/39/20111-FPP dated 7% October, 2014. ‘This has reference to the deliberations of first IMC meeting held on 11 August, 2016 in which concerns were raised by HURL on the issues of provisions of subsidy for new urea plants beyond 8 years of production as well as commitment of guaranteed buyback in the New Investment Policy 2012, both of which may affect the bankability of the project. In this regard, as you are aware, urea projects under revival at Sindri, Gorakhpur and Barauni are covered under the guidelines applicable to revival project as per the NIP 2012 read with its amendment issued in 2015. As per Para 8.1 of NIP 2012 as amended by order No, 12012/29/2011-FPP dated 7! October 2014, subsidy will be'given only upon domestic sale as at present for a period of 8 years from the date of start of production. Thereafter, the units will be governed by the urea policy prevalent at that time. In this regard, it is clarified that Department of Fertilizers, at appropriate time will notify the subsidy policy for production of urea beyond 8 years. It will be relevant to mentioned here that Department has been notifying policies for promotion of investment in urea sector from time to time. All these policies have been taken into account a minimum assured returns on investment as described below: a) The policy notification dated 29.01,2004 regarding pricing policy for investment made in new and expansion projects of urea which was based on the principle of Long Range Average Cost (LRAC) had been taken into account 12% post tax return on equity.b) New Investinent Policy 2008 which was based on the Report of Prof. Abhijit Sen Committee on New Investment in urea sector hac prescribed Floor and Ceiling Prices, which was fixed taking into account the minimum /maximum estimated project cost, minimum/maximum price of feedstock, an entergy efficiency of 5.2 G. cal/MT of urea and 6%/18% post tax return on equity respectively. The presently prevailing New Investment Policy 2012, which was based on Dr. Sauritra Choudhury Committee Report, had also made similar provisions 90 that urea units get at least @ post-tax retum of minimum 12% and maximum 20% on equity. It is evident from above examples that the past as well as prevailing policies for new investments in urea sector had taken into account assured minimum returns, and same principles will also be followed while formulating policies in future aleo. As regards assurance for off take of urea produced by these units, it is to clarify that at present the country is not fully self-sufficient in urea and around 25%-30% of the requirement is imported. In the year 2015-16, against requirement of 313.36 lalch MT of urea only 245 lakh MT was produced domesticelly from the available units and the deficit was met through imports, At the time of assessing the requirement of imports, as per the prevailing practice, the entire domestic production is ‘first taken ints account and only the balance quantity is imported through designated STEs. Also, with the revival of these unite, Government of India intends to reduce its dependence on imports and promote self-sufficiency. This will not only promote direct and indirect employment within the country and give a boost to the domestic economy but will also protect Indian farmers from the vagaries of volatile international ure market, As such, it is evident that urea to be produced by HURL will have readily available market/demand. ‘This clarification is being issued to adress the concerns of the project lenders and investors due to perceived uncertainty in the visibility of Project Cash Flow after 8 years and also to andrese concerns regarding offtake Qe (Neeraj Singhal) Director (PSU & Vigilance) Tel: 23383814 © mail: neeraj,singhal@nic.in