Finance ministry trashes Plan panel’s draft new urea investment policy

The Department of Expenditure has strongly opposed the suggestions and asked the Planning Commission to give a realistic policy to attract investment in the urea sector

New Delhi: The finance ministry has rejected a policy drafted by the Planning Commission to attract new investment in the urea sector, saying the proposals are unrealistic, unviable and will lead to high subsidy outgo, reports PTI.

The government had come out with a fertiliser investment policy in 2008, but it failed to attract fresh investment in the sector. Last year, the government said it will come with a new policy structure to overcome the shortfall in domestic urea production.

Accordingly, the Planning Commission—the government’s apex economic planning body—had prepared a draft policy framework and has already circulated it among the concerned ministries, including fertilisers and finance, for comment.

According to sources privy to the development, the Department of Expenditure has strongly opposed the suggestions and asked the Planning Commission to give a realistic policy to attract investment in the urea sector.

“The regime proposed by the draft report under consideration is unrealistic. It would not address the core issues of a viable gas price,” the Department of Expenditure noted.

The Planning Commission has suggested a domestic gas price at $7-$8 per million metric British thermal units (mmBtu) for new fertiliser units as against the existing price of $4.2 per mmBtu.

Gas is the main feedstock for urea and accounts for more than 70% of the cost of manufacturing.

Sources also mentioned that the government’s subsidy would rise sharply if it were to go by Plan panel’s suggestion of fixing a high floor price of $370 per tonne for urea and a ceiling price of $470 per tonne.

Under the investment policy implemented in September 2008, the floor has been fixed at $250 per tonne and the ceiling price at $424 per tonne.

Last year, urea accounted for Rs23,900 crore of the government’s total fertiliser subsidy bill.

 “The floor and ceiling prices prescribed are proposed to be constant, irrespective of the gas price actually paid by the unit. In the event of the Empowered Group of Ministers (EGoM) allocating natural gas to the units, the policy would lead to unnecessary, excess subsidy outgo,” sources said.

 On the other hand, if the final allocation of gas to new units by EGoM falls short of the requirement, the compensation proposed at the ceiling level might not be adequate for viable production, they said.

 Sources said the finance ministry has also opposed the proposal that at least 75% of new capacity in the fertiliser industry should be fed by domestic gas and the remaining 25% with imported gas (LNG), saying “the assumption is without any basis”.

 The ministry has also pointed out that the draft policy note is silent on the issue of investment abroad to take advantage of cheaper energy in some countries, they added.

 The country’s urea production stood at 22 million tonnes in 2010-11, as against the annual demand of 28.24 million tonnes. The gap of 6-7 million tonnes is met through imports.



Small positives on the cards: Friday Closing Report

Although a small bounce back may be seen, the medium-term trend is negative


The instability of the global markets has resulted in the domestic indices closing down for the seventh day today. After opening well below yesterdays close, the Nifty managed to make a smart recovery towards the end of the session; however, it closed in the negative. The Nifty recorded the maximum a weekly closing loss of 5.09% since the week ended 30 October 2009. From here we may see the Nifty making a small bounce back, which will not be sustained for too long. The medium-term trend shows negative bias. Today’s fall has again been on a large volume of 70.75crore shares on the National Stock Exchange (NSE). 

Continuing its lacklustre performance the whole of this week on strong rumblings in Europe, the market opened lower today. The lower opening of the rupee against the dollar on account of higher demand for the US currency from importers also weighed on investor sentiment. The Nifty opened at 4,899, down 36 points from its previous close, and the Sensex saw a cut of 74 points at the opening bell as the index opened at 16,388.

The indices fell to the day’s low at around 12.15pm with the Nifty at 4,838 and the Sensex at 16,165. Trade was range-bound throughout the session with the market firmly in the red as policymakers are worried about the global events pulling down the market. A marginal recovery was seen in late trade as the European indices pared early losses. The development helped the indices touch their intraday high and make a splendid recovery from the day’s lows. At the highs, the Nifty went up to 4,911 and the Sensex rose to 16,397. Closing lower for the seventh successive day, the Nifty declined 29 points to 4,906 and the Sensex settled at 16,372, down 90 points.

The advance-decline ratio on the NSE was 453:1308.

Among the broader indices, the BSE Mid-cap index fell by 1.03% and the BSE Small-cap index declined 1.90%.

BSE Healthcare (up 0.19%); BSE consumer durables (up 0.02%) and BSE Oil & Gas (up 0.01%) managed to end in the green while the other 10 sectoral gauges settled lower. The top losers were BSE Realty (down 1.59%); BSE Fast Moving Consumer Goods (down 1.39%); BSE Metal (down 1.30%); BSE Auto (down 1.20%) and BSE Power (down 1.09%).

Hero MotoCorp (up 3.05%); Tata Power (up 2.42%); Wipro (up 1.88%); Sun Pharma (up 1.36%) and HDFC (up 1.34%) were the major gainers on the Sensex. The laggards were led by BHEL (down 3.06%); Mahindra & Mahindra; Tata Motors (down 2.74% each); ITC (down 2.46%) and TCS (down 2.24%).

The top performers on the Nifty were SAIL (up 7.79%); Hero MotoCorp (up 3.79%); IDFC (up 2.57%); Tata Power (up 2.31%) and Wipro (up 2.30%). The top decliners were Sesa Goa (down 4.18%); ITC (down 3.51%); Power Grid Corporation (down 2.91%); M&M (down 2.74%) and BHEL (down 2.42%).

Markets in Asia closed lower on renewed European concerns after a weak Spanish bond auction. European concerns once again impacted the banking sector in Asia. In Hong Kong, Bank of Communications tumbled 3.9%, Agricultural Bank of China declined 2.9%, and Bank of China tanked 3%.

The Shanghai Composite tanked 1.89%; the Hang Seng declined 1.73%; the Jakarta Composite fell 1%; the KLSE Composite slipped 0.76%; the Nikkei 225 decreased by 1.23%; the Straits Times lost 1.72%; the Seoul Composite tumbled 2% and the Taiwan Weighted settled 2.08% lower.

Back home, foreign institutional investors were net sellers of stocks aggregating Rs195.20 crore on Thursday while domestic institutional investors were net buyers of equities worth Rs371.59 crore.

Hindustan Petroleum Corporation has informed the exchanges that the company has entered into a memorandum of understanding with Greater Calcutta Gas Supply Corporation and Gas Authority of India to carry out natural gas business for Kolkata and its adjoining districts. The stock surged 7.07% to close at Rs299.90 on the NSE.

Realty major Unitech today said it has sold over 300 housing units worth Rs250 crore under a recently launched project at Gurgaon. Group housing project ‘Crestview’ is part of the 500-acre integrated township that the company is developing in Gurgaon, Haryana. The stock fell 1.30% to close trade at Rs22.85 on the NSE.

Reliance Industries (RIL) and BP have announced the incorporation of India Gas Solutions Pvt Ltd, a 50:50 joint venture company which will have an equal equity from both partners. The JV will focus on global sourcing and marketing of natural gas in India and will also develop infrastructure for transportation and marketing of natural gas within the country. RIL ended flat at Rs809.95 on the NSE.



Union KBC’s Dynamic Bond Fund

Will this scheme be more dynamic than others?

After IDBI Mutual Fund, Union KBC has also filed offer document with Securities and Exchange Board of India (SEBI) to launch Union KBC Dynamic Bond Fund, an open ended debt scheme. As we said earlier a dynamic bond fund, as the name suggests, is designed to give the fund manager the flexibility to change the duration of the bond as and when needed. Interest rates and bond prices are inversely related. When the interest rate is rising, bond prices fall and the fund manager should be able to decrease the duration of the bond; short-term bonds face a lower impact. In addition, when the interest rate is falling they should be able to increase the duration of the bond.

The other flexibility is to move into cash and sit on the sidelines when the interest rate is rising sharply over different horizons. Dynamic bond funds would dynamically move from a fully invested situation to a fully cash position and various stages in between, depending on the fund manager’s reading of the interest rate situation. The idea of dynamic bond funds has by and large proved to be good only on paper. We studied eight of them and their returns since inception do not seem great.

The Union KBC will invest 100% of assets in debt instruments including government securities and corporate debt with medium risk profile and money market instruments with low risk profile. Investments in securitized debt including Pass Through Certificates (PTCs) not to exceed 25% of the net assets of the Scheme as at the time of purchase. The benchmark index is CRISIL Composite Bond Fund Index


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