New Investment Policy

Report
NIP – 2012 – Contents of Discussion
Why NIP for urea.
- Population Boom In India.
- Foodgrain Production In India.
- Area Under Foodgrain Production.
- Yield of Foodgrain Per Ha In India.
- Per Capita Foodgrain Availability In India.
- Production of Urea In India Since 1960-61.
- The target for urea production in 2017.
- Investment Policy 2004.
22nd April, 2013
1
Contents of Discussion (Cont’d)
• Policy to Incentivize Production in NPS III.
• New Investment Policy 2008.
• New Investment/New Capacities through :
- Revamp
- Brownfield Expansion.
- Revival of closed plants.
-Greenfield (New Plant at new Location).
- JVs Abroad.
22nd April, 2013
2
Contents of Discussion (Cont’d)
• Concept of Cutoff quantity.
• Failure of New Investment Policy 2008.
• New Investment Policy 2012 introduced in
January 2013 covering the policy for :
- Revamp.
- Expansion.
- Revival of Old Plants.
- Greenfield Plants (New Plants at New Location).
- JVs Abroad.
- Gainers of New Investment Policy
22nd April, 2013
3
Population Boom
• World Population has crossed 715 Crore.
• Population of India which was 24 cr in 1901,
was 34 Cr in 1947, increased to 103 cr in 2001,
has crossed 124 crore.
• China has 19% of the world population and India has 17%.
• USA is at No. 3 with 4% of the world population.
• Just 3 countries have 40% of the world population.
• Add to it Indonesia, Brazil, Pakistan, Nigeria, Bangladesh, Russia and
Japan. These 10 countries have 58% of the world population. Rest of the
185 countries have 42% population.
• Conclusion : India is a very populous country. It grows @ 1.7 crore per
annum and is all set to cross China by the year 2030. In a span of 45 years
the population has gone up by 2.5 times.
• The task to ensure food security is very gigantic and timely steps need to
be taken to ensure food supply for all.
22nd April, 2013
4
Foodgrain Production
• Foodgrain production which was 95 Million
Tonne in 1967-68, was 130 MT in 1980-81.
• It crossed 176 Million Tonne in 1990-91.
• It went up to 197 Million Tonne in 2000-01.
• In 2012-13 it is estimated to touch 250 Million
Tonne mark.
• In a span of 45 years the foodgrain production
has gone up 2.6 times.
22nd April, 2013
5
Area Under Foodgrain Production
• Area under foodgrain production which was 121
Million Ha in 1967-68, was 127 Million Ha in
1980-81.
• It marginally crossed 128 Million Ha in 1990-91.
• It declined to 121 Million Ha in 2000-01.
• In 2012-13 it is estimated to be at 127 Million Ha
mark.
• In a span of 45 years the area under foodgrain
production has gone up hardly by 5%.
22nd April, 2013
6
Yield Per Hectare In India
• Where the area under foodgrain production went
up from 121 Million Ha in 1967-68 to 127 Million
Ha in 2012-13 i.e. by 5%, the foodgrain
production went up from 95 Million Tonne to 250
Million Tonne, i.e. by 2.6 times or by 163%.
• As a result the yield per Ha which was hardly 783
KGs in 1967-68, went up to 1023 KGs in 1980-81,
1380 KGs in 1990-91, 1734 KGs in 2000-01 and
finally 1931 KGs as on date.
22nd April, 2013
7
Per Capita Foodgrain Availability
Year
Foodgrain
Production
(Million MT)
Population
(Crores)
1967-68
95
51.5
184
504
1980-81
130
68.3
190
520
1990-91
176
84.6
208
570
2000-01
213
102.9
207
567
2011-12
250
121.5
206
564
22nd April, 2013
Foodgrain
Foodgrain
Availability Per Availability Per
Capita (KGs Per Capita Per Day
Annum)
(Grams Per
Day)
8
Production of Urea In India and The
Targets
• Urea production which commenced with hardly 12
Thousand MT during 1960-61, was 11 LMT during 1970-71.
• It Increased to 34 LMT during 1980-81 and went up to 128
LMT during 1990-91.
• During 2011-12 it was 220 LMT and is likely to be 226 LMT
during 2012-13.
• The target for 2013-14 has been fixed for 230 LMT.
• Keeping in view the increasing population, the target for
the end of 12th FYP (2012-17) the requirement is projected
to be 360 LMT.
• Overall it is estimated that an additional capacity of 100
LMT would be required for the country
22nd April, 2013
9
Trends in Production,Consumption and
Imports of Urea
Year
Production (LMT)
Consumption(LMT)
Imports(LMT)
2005-06
201
223
21
2006-07
203
243
47
2007-08
198
260
69
2008-09
199
266
57
2009-10
211
267
52
2010-11
219
281
66
2011-12
220
296
78
2012-13(Prov)
226
302
80
22nd April, 2013
10
Investment Policy 2004
• In January 2004 a New Investment Policy was announced
that covered only the increase in capacity under Revamp,
Expansion and Greenfield projects. The policy was very
brief.
• Revamp
• To be eligible, a unit was required to increase the existing
capacity by at least 10%.
• Units were to be allowed to retain energy efficiency gains
there-from and no mopping up was to be carried out from
the preset energy norm of the unit.
• Considering heavy investment required, savings in energy
was found to be meager as such the returns were not
found to be sufficient.
22nd April, 2013
11
Investment Policy 2004 (Cont’d)
•
•
New and Expansion Projects
This policy was exclusively based on NG/LNG based new projects. No other feed stock was allowed.
•
Concession was to be based on the principal of Long Range Average Cost (LRAC) on 15 years basis.
•
The concession so determined was to be available to the units for 5 years only.
•
Cost of gas was considered at $3 per MMBTU for domestic gas and $3.5 per MMBTU for LNG. The
escalation clause was present in case of increase in cost of gas beyond these prices.
•
After 5 years Govt would evaluate the option between LRAC and IPP. (IPP would apply in case it is
found to be lower after 5 years).
•
Normative Debt-Equity ratio of 2.5:1, 12% post tax on equity (and not networth).
•
No redetermination of of LRAC in case of increase in Project cost.
•
No Revamp or Expansion or New Urea Project materialised under this policy.
22nd April, 2013
12
NPS Stage III – Policy to Incentivize
Additional Urea Production
• NPS stage III announced on 08.03.2007 introduced incentives for
additional urea production.
• All Productions between 100% and 110% of the existing reassessed
capacity to be incentivized on existing gain sharing formula
between Govt and Unit @ 65:35 subject to unit’s concession rate.
(Basically IPP based but maximum price would be existing CR).
• Beyond 110% was to be compensated @ concession rate subject to
overall cap of IPP.(IPP would apply if it is lower than CR).
• It had a clause that to the extent the Govt does not require any
quantity of additional production, the units were free to export or
to sell it to the complex manufacturers at any price, but with the
consent of DoF.
• This policy also mentioned that the additional production, if not
required by Govt for agricultural production, would not be
subsidised by Govt.
22nd April, 2013
13
New Urea Investment Policy – Sept,
2008
• New Investment Policy 2004 and the policy to
incentivize additional urea production from
existing plants as per policy dated 8th March,
2007 failed to give desired results.
• Poor returns was the basic reason.
• A new policy was required that would give
fairly good returns high enough to bring in
more investment in highly capital intensive
urea plants.
22nd April, 2013
14
New Urea Investment Policy – Sept,
2008 (Cont’d)
• The New Investment Policy 2008 superceeded the
Investment policy announced in 2004.
• This Policy came up with a bright idea of reimbursing the
additional urea produced on the basis of Import Parity Price
(IPP) prevailing in the International Market.
• This Policy was totally delinked with the cost of production
Urea.
• A very rational basis had been adopted to consider the FOB
Arabian Gulf during preceding three months published in
three magazines viz Fertiliser market Bulletin, UK, Fertiliser
Weekly, UK and Fertecon Weekly, UK.
• The exchange rate for a month is the average of preceding
three months as per RBI.
22nd April, 2013
15
New Urea Investment Policy – Sept,
2008 (Cont’d)
• The Floor Urea Price (Minimum Price) is kept at $250
and the Ceiling Urea Price (Maximum Price is kept at
$425.
• This was based at the feedstock price of $4.88 per
MMBTU as fixed for RIL gas fixed for five years.
• It was clearly mentioned in the policy that in case of
sharp increase in price of feedstock, the floor and
ceiling price would be adjusted to take care of the
increase in cost of production.
• On the basis of these parameters, DoF come up with 5
different types of alternatives to boost the urea
production.
22nd April, 2013
16
New Urea Investment Policy – Sept,
2008 (Cont’d)
• Revamp – Improvement in capacity of existing plants
involving Investment up to Rs 1000 Cr. Additional qty to
be priced at 85% of IPP subject to $250-$425.
• Expansion – A New Ammonia-Urea train in the existing
premises. Minimum Investment Rs 3000 Cr. Additional
Qty to be priced at 90% of IPP subject to $250-$425.
• Revival – Applicable to HFC and FCI. Entire qty to be
priced at 95% of IPP Subject to $250-$425.
• Greenfield – Through Bidding route subject to $250$425. Bidder to indicate the price as a percentage
discount below prevailing IPP.
22nd April, 2013
17
New Urea Investment Policy – Sept,
2008 (Cont’d)
JVs Abroad
• To encourage urea production in gas rich
countries through firm off-take contracts.
• Price as per principle applicable to green-field
projects or 95% of IPP as applicable to brownfield projects.
• To be priced in the range of $225-$405.
• To be limited to Max of 50 LMT.
22nd April, 2013
18
Cut Off Qty – A New Concept for
Existing Plants – NIP 2008
• Instead of “upto 100%”, “100%-110%” and “Beyond
110%”, a new concept of Cut off quantity was
introduced vide NIP 2008.
• Reassessed capacity or maximum achieved during 4
years (2003-07) for 330 days, which ever is higher.
• Eligible only if total production crosses 105% of the
cutoff qty or 110% of the reassessed capacity
whichever is higher.
• Units to be eligible for IPP based prices beyond cut off
qty only after achieving the eligible quantity.
22nd April, 2013
19
Cost of Gas
• Cost of Gas for the quantity Upto Cut off Point and for
the quantity beyond cut off point is not the same.
• Where the cost of gas upto the cutoff point includes all
the gases whether Cheap gases like APM and PMT
gases ;
• The cost of gas for the quantity beyond cutoff point
does NOT included cheap gases like APM/PMT gases.
• As a result the cost of gas for Quantity beyond cut off
quantity is bound to be higher than the cost of gas for
the quantity upto cut off point by about 10-15%.
22nd April, 2013
20
Failure of NIP 2008
• NIP 2008 was successful only to add capacities through
revamp only.
• No new investment was attracted through Expansion,
Greenfield Projects, Revival Projects or Joint Ventures
abroad.
• The failure to attract new investments was attributed to the
fact that there was no provision for increase in price of
feedstock/fuel which accounted for as much as 70% of the
total cost of production.
• In order to safeguard the interest of the investor NIP 2012
has now been introduced which provides cushion to the
investor against sharp increase in price of Feedstock/Fuel in
the form of Natural Gas.
22nd April, 2013
21
New Investment Policy 2012
• The demand of urea at the end of the 12th FYP
(2012-17) is expected to be 360 LMT.
• Present capacity is about 220 LMT and
another 20 LMT urea comes from OMIFCO.
• This NIP 2012 is expected to add 100 LMT by
the end of 12th FYP with an investment of Rs
35000 Crores.
• This is expected to make the country self
reliant in Urea by the end of 12th FYP.
22nd April, 2013
22
New Investment Policy – 2012 (Cont’d)
• NIP Policy 2012 proposes to increase the capacity
of production of urea in the country by various
means e.g. Revamp, Expansion, Revival of closed
plants, Greenfield projects and Joint Ventures
abroad.
• The attractive point in NIP 2012 is that it takes
care of possible increase in price of
Feedstock/Fuel which is the main cause of worry
for the investors as there is no control over price
of such inputs.
22nd April, 2013
23
Revamp Projects
• It means incremental increase in capacity of existing plants
by way of small investment.
• Urea will be recognized @ 85% of IPP subject to the range
is $245-$255 Per MT Urea for the output above cutoff level.
• Includes delivered price of gas @ $7.5 per MMBTU.
• Rate of $ has no floor or ceiling.
• Say @ Rs 54 per $, the Minimum revenue is Rs 13,230 PMT
with cost of gas at Rs 8910 PMT (7.5X4X54*5.5), so the rate
for fixed cost including bags works out to Rs 4320 PMT.
• In case cost of gas increase by $0.10 per MMBTU, i.e. by Rs
119 per MT, DoF will reimburse an additional $2.2 per MT,
i.e. Rs 119 Per MT.(as long as the price of gas is upto $14
Per MMBTU).
22nd April, 2013
24
Revamp Projects (Cont’d)
• The units which have undertaken revamp under the
NIP 2008 will remain under the same policy.
• In case a unit under NIP 2008 undertakes further
revamp and the additional quantity is more than 10%
of the present production, such unit has an option of
dispensation under NIP 2012 for the entire revamp
quantity i.e. existing and new combined.
• The option of whether to remain under the old NIP
2008 or to switch over to NIP 2012 will have to be
exercised within 3 months of the start of the new
increased production.
22nd April, 2013
25
Expansion Projects
• It means setting up of new ammonia-urea train involving a
minimum investment of Rs 3000 Cr.
• Urea will be recognized @ 90% of IPP subject to the range is $285$310 Per MT Urea.
• Includes delivered price of gas @ $6.5 per MMBTU.
• Rate of $ has no floor or ceiling.
• Say @ Rs 54 per $, the Minimum revenue is Rs 15,390 PMT with
cost of gas at Rs 7020 PMT (6.5X4X54*5.0), so the rate for fixed cost
including bags works out to Rs 8370 PMT.
• Higher reimbursement of Fixed cost has been envisaged due to
minimum investment of Rs 3000 Cr.
• In case cost of gas increase by $0.10 per MMBTU, i.e. by Rs 108 per
MT, DoF will reimburse an additional $2.0 per MT, i.e. Rs 108 Per
MT.(as long as the price of gas is up to $14 Per MMBTU).
22nd April, 2013
26
Greenfield/Revival Projects
• NIP 2008 provided for bidding route for Greenfield projects. 95% of
IPP within $250-$425 without any provision for escalation of price if
Feedstock/Fuel.
• NIP 2012 recognises urea @ 95% of IPP subject to the range is
$305-$335 Per MT Urea for Greenfield and Revival Projects.
• Includes delivered price of gas @ $6.5 per MMBTU.
• Rate of $ has no floor or ceiling.
• Say @ Rs 54 per $, the Minimum revenue is Rs 16,470 PMT with
cost of gas at Rs 7020 PMT (6.5X4X54*5.0), so the rate for fixed cost
including bags works out to Rs 9450 PMT.
• Higher reimbursement of Fixed cost has been envisaged due to
minimum investment of Rs 5500 Cr for Greenfield/Revival projects.
• In case cost of gas increase by $0.10 per MMBTU, i.e. by Rs 108 per
MT, DoF will reimburse an additional $2.0 per MT, i.e. Rs 108 Per
MT.(as long as the price of gas is up to $14 Per MMBTU).
22nd April, 2013
27
Joint Ventures Abroad
• Decision will be taken on case to case basis based on
many factors like prevailing IPP, price of gas, availability
of gas, cost of gas offered to the JV, demand and supply
gap in the country etc.
• The guiding factor would be the floor price of greenfield project with gas cost of $6.5 per MMBTU.
• Higher return is considered by DoF keeping in view
risks involved in foreign land, likely time overrun, likely
cost overrun etc.
• Normally gas is available in Gulf countries @ $1 per
MMBTU.
22nd April, 2013
28
Calculation of Monthly Quantity
Eligible for IPP
Apr
May Jun
Jul
Aug
Sep
Oct
Nov Dec
Jan
Feb
Mar
Ttl
Prdn
90,000
90,000
80,000
20,000
90,000
90,000
90,000
90,000
90,000
90,000
90,000
90,000
10,00,000
Cut
off
75,000
75,000
75,000
75,000
75,000
75,000
75,000
75,000
75,000
75,000
75,000
75,000
9,00,000
IPP
15,000
15,000
5,000
-55,000
15,000
15,000
15,000
15000
15,000
15,000
15,000
15,000
100,000
Adj
NIL
NIL
NIL
+55,000
-15,000
-15,000
-15000
-10000
NIL
NIL
NIL
NIL
NET
15,000
15,000
5,000
NIL
NIL
NIL
NIL
5,000
15,000
15,000
15,000
15,000
22nd April, 2013
100,000
29
NIP 2012 Vs Retention Price
• Under Retention Price Scheme which started in 1977 the
returns were based on actual cost incurred by the units and
add to it a fair return on the capital invested @ 12 post tax
on net worth. This concept never made the units cost
conscious as most of the costs were reimbursed along with
assured returns.
• Under NIP 2012, returns are fixed. This will compel the
investor to be more cost conscious leading to avoidance of
wastages of company’s resources.
• The New Policy will require more farsightedness,
experience, expertise, professional approach before any of
the scheme announced is undertaken by an investor.
22nd April, 2013
30
Gain To The Country
More urea
Production
$ can be
used to
import
essential
items
Lesser
Imports
Lesser
Pressure on $
22nd April, 2013
31
Gain To the Companies
More Income by
Better
Contribution
More Taxes for
Govt
Can afford better
returns for
Shareholders
22nd April, 2013
Can afford better
Salaries
More funds
available for
investment
32
Gain To Employees
22nd April, 2013
More Urea
Production
More
Production
Incentive
Better
Dedication
and
Devotion
More
Income for
employees
33
Gain To Investors
More Investment
Avenues
Funds used for
capital formation.
More
Opportunities for
Banks to Invest
funds
More Incentive to
save
Demand for funds
goes up
Higher rates
create more
demand for
funds.
22nd April, 2013
Interest rates go
up
34
Gain To Local Community
More Urea
Production
Better
Standard of
living
More
Employment
Opportunities
Better
infrastructure
More Skill
Development
More
Incomes for
local citizens
22nd April, 2013
35
Gain to the Farmers
More Urea Locally Available
No Need to Store during off season
Lesser Funds Requirement
More certainty of Availability of Urea for farmers
22nd April, 2013
36
Interesting Quotes from Corporate
Chanakya by Radhakrishnan Pillai
• All of us have to rise from CSR to PSR i.e. from
Corporate Social Responsibility to Personal
Social Responsibility.
• No matter which position we hold, we must
personally commit to make our little
contribution to the growth and development
of Urea/Fertilizer Industry in particular and
Indian Economy in General.
22nd April, 2013
37
Interesting Quotes from Corporate
Chanakya (Cont’d)
• The role of a king is to create wealth for all the
stakeholders. A king should not be satisfied
with what he has got. He should constantly
think about expansion and growth.
• This applies to Urea/Fertilizer Industry also.
The Captains and the leaders of the industry
must constantly endeavor to expand the
capacities especially when we need the same
for import substitution.
22nd April, 2013
38
Bibliography
• Notifications issued by DoF.
• Fertilizer Statistics.
22nd April, 2013
39
A Big Thank You
•
•
•
•
•
Shri Rakesh Bhalla, Chairman, NIRC of ICAI.
Shri Sourabh Srivastava, Vice Chairman, NIRC of ICAI.
Shri Arvind Kumar, Secretary, NIRC of ICAI.
Shri SK Bhatt, Treasurer, NIRC of ICAI.
A very Special and Very Big THANK YOU TO Shri Ravi
sahni, Regional Council Member and Chairman of CEP
Committee for giving me an opportunity to give a
presentation to such an August audience.
• Shri Vijender Sharma, RCM, NIRC of ICAI.
• And all the listeners for a patient hearing.
22nd April, 2013
40

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