At the Cabinet Committee of Economic Affairs on Thursday, the Government approved of a plan to help fertiliser plants switch to natural gas from from fuel oil and naptha as feedstock.
"The new policy would allow special fixed costs towards reimbursement for the cost of conversion," Chidambaram said.
Fertiliser companies like RCF in Trombay, Mumbai; Duncans India in Kanpur; FACT in Kochi; NFL and GNFC stand to benefit from the move.
Under the new policy, fertiliser units would be granted an additional 'special fixed cost' of Rs 3,500 per tonne of urea. The companies will effectively get Rs 750 crore as re-imbursement for conversion, thus getting Rs 3,200 crore back.
Commenting on the policy change, US Jha, CMD, Rashtriya Chemical Fertilizers, said the company welcomed the changes made in the fertiliser policy.
Both RCF and FACT plants have been shut down due to a shortage of naptha — they will now be allowed to use natural gas. FACT has a unit at Cochin that was shut due to shortage of naptha while RCF's urea and ammonia plants in Trombay were effectively down due shortage of gas.
Commenting on the projects, Jha said RCF Trombay plant would begin production as soon as it receives KG basin gas from Reliance Industries. "We expect an addition of Rs 300 crore to revenues due to incremental urea production," Jha said.
Sources said that the Government has given RIL a list of urea companies for initial D6 gas supply. RIL is expected to ink a gas supply pact with fertiliser companies by next week.
NFL and GNFC also plan to convert to a plant to a gas-based unit from furnace oil, which requires average investment of Rs 1,200 crore. National Fertilizers has three such plants while GNFC has one plant using furnace oil.
The total subsidy for 2008-09 is estimated to be Rs 100,000 crore. The earlier estimate of Rs 120,000 crore has been revised due to a fall in international prices of raw materials.
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