Mumbai: State-run Rashtriya Chemicals and Fertilizers Ltd, India’s largest fertilizer maker by capacity and revenue, has signed a memorandum of understanding with Industrial Development Corp. of South Africa Ltd, or IDC, and Foskor Pty Ltd, to set up a $1.8 billion (Rs7,776 crore) fertilizer complex and rock phosphate mining joint venture in Africa.
“Rashtriya Chemicals will hold 51% in the joint venture company, which is being finalised soon,” said a senior Rashtriya Chemicals executive who didn’t want to be identified. “The rest will be held by IDC, Foskor and another equity partner representing the government of Mozambique.”
Foskor and IDC will together hold more than 40% in the venture.
The joint venture will invest around $1.5 billion in the fertilizer plant and close to $300 million in the mining venture. The total investment will be in the form of a 2:1 debt-equity ratio, taking the Indian company’s immediate investment to about Rs1,300 crore.
IDC, a self-financing development finance institution, promotes sustainable economic growth and empowerment in South Africa. Foskor is a chemical company in South Africa, supplying 14% of all the phosphoric acid—a key input to fertiliser manufacturing—that is traded internationally.
The fertilizer complex will produce ammonia, urea, diammonium phosphate and phosphoric acid at Maputo in Mozambique by sourcing rock phosphate from the Phalaborwa mines of Foskor in South Africa, the executive mentioned earlier said. “The key advantage of setting up a fertilizer plant in Mozambique will be the ability to source natural gas at a much lower cost,” he added.
The joint venture company plans to soon reach an agreement with the Mozambique government for securing allocation of nature gas on priority, and it expects the gas to be available for $2-2.5 per million British thermal unit (mBtu).
An mBtu is a standard unit of measurement for natural gas and provides a convenient basis for comparing the energy content of various grades of natural gas and other fuels. One mBtu is equivalent to 28 standard cubic metres.
Rashtriya Chemicals will buy back and import almost 90% of the finished products for its India market requirement as well as exports. The phosphoric acid will be imported to India to meet its local facilities’ input demand.
The African joint venture is significant now as the country’s import dependence is on a rise due to high input costs and a decrease in capacity utilization at local plants. According to industry data, India’s fertiliser imports for 2007-08 shot up to around 10 million tonnes, of which urea import alone is more than 50%.
The reason for the high input cost is the shortage offeedstock.
Currently, fertilizer makers in India use naphtha or imported liquefied natural gas (LNG) as a feedstock to power their plants.
Naphtha is purchased from oil firms at more than $14 per mBtu while LNG imported by Petronet LNG Ltd is sold by gas utility GAIL (India) Ltd at $9-10 per mBtu.
While t is expected that fuel costs for fertilizer companies in India could drop by about 50% when Reliance Industries Ltd starts selling natural gas to some of them from its offshore field at the Krishna-Godavari basin from mid-2008, the actual delivery time is not yet determined.
Reliance is negotiating with domestic fertilizer firms to sell its gas at $4.5 per mBtu (Rs194.4 at current prices), according to a person familiar with the development.