The government is exploring coal gasification-based ammonia for new urea plants to reduce dependence on liquefied natural gas (LNG), boost energy security, and decrease fertiliser subsidies. According to reports from Business Standard, sources revealed that the government raised this issue during recent meetings with industry players, suggesting a framework similar to the current mechanism where fertiliser plants use imported LNG for urea production. This strategic pivot comes as the old urea investment policy expired in December 2025. The move to opt for ammonia produced from coal gasification has gathered added urgency after the West Asia crisis exposed India's urea sector to steep price hikes and supply shocks, with the sector suffering similar shocks during the Russia-Ukraine war in 2022.
Coal-based urea projects offer significant cost advantages over conventional LNG-linked facilities. As reported by Business Standard, industry assessments indicate coal-based urea can reduce production costs by $50–75 per tonne compared with LNG-linked facilities under prevailing market conditions. An industry official noted that after capital recovery, production costs could potentially fall to $300–350 per tonne, making Indian coal-based urea globally competitive. The government has announced coal gasification support programmes worth over ₹37,500 crore, including ₹8,500 crore exclusively for urea. Key advantages of coal-based urea include lower operating costs than LNG-linked facilities, complete feedstock security from domestic coal, reduced production costs by $50-75 per tonne, and substantial long-term foreign exchange savings.
The new investment policy aims to raise India's urea production by almost 9-10 million tonnes over the next eight years. Each unit is proposed to have an approximate annual production capacity of 1.27 million tonnes of urea. According to Business Standard, the new policy has taken the approximate project cost of ₹11,000 crore for greenfield category and ₹9,000 crore for brownfield category based on an exchange rate of ₹90 to a dollar. The guaranteed buy-back under the new policy will be available to units for a period of eight years from the start of production. Some plants have already been announced pending the formal policy announcement.
The policy is projected to save the exchequer more than ₹10,500 crore annually in subsidies assuming an average imported urea price of $345 per tonne. As reported by Business Standard, supporting 10-15 coal-based fertiliser projects could save India tens of thousands of crores annually in import bills and subsidy outgo. The industry is seeking dedicated coal-to-urea investment policy, parity support with gas-based fertiliser projects, infrastructure status for coal gasification plants, tax and customs incentives for capital-intensive projects, and long-term offtake assurance mechanisms. The move gains urgency after the West Asia crisis exposed India's urea sector to steep price hikes and supply shocks, with almost 95 per cent of India's domestic urea production capacity depending on natural gas, a significant portion sourced through imported LNG.
