Govt looking at private sector aid for urea units

Govt looking at private sector aid for urea units
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First Published: Sun, Jun 08 2008. 10 47 PM IST

Widening gap: A file photo of a farm in Taki, 120km from Kolkata. India’s urea production capacity is around 20mt and demand around 25.3mt; the country will need at least 36mt of urea a year by 2012.
Widening gap: A file photo of a farm in Taki, 120km from Kolkata. India’s urea production capacity is around 20mt and demand around 25.3mt; the country will need at least 36mt of urea a year by 2012.
Updated: Sun, Jun 08 2008. 10 47 PM IST
Mumbai: Arising fertilizer subsidy bill and a global shortage of urea that has resulted in a higher import cost of the product have forced the ministry of chemicals and fertilizers to evaluate a proposal for a partnership with private sector firms to revive three non-functioning state-owned urea plants.
The three plants, in Durgapur in West Bengal, Talcher in Orissa and Sindri in Bihar, are owned by Fertilizer Corp. of India Ltd and Hindustan Fertilizer Corp. Ltd and they were shuttered because they could neither cope with the high cost of inputs nor line up supplies of feedstock or raw materials.
Widening gap: A file photo of a farm in Taki, 120km from Kolkata. India’s urea production capacity is around 20mt and demand around 25.3mt; the country will need at least 36mt of urea a year by 2012. (Photo : Krishnendu Halder/Reuters)
The proposal being considered by the ministry envisages state-owned fertilizer firm Rashtriya Chemicals and Fertilizers Ltd partnering with one or two private sector firms to form a special purpose vehicle or company (where the state-owned firm will own 51% and the private sector partner or partners the rest) to which ownership of the three plants will be transferred. Together, the three plants can produce 3 million tonnes (mt) of urea a year and their revival plan mainly includes modernization and de-bottlenecking of production at these plants by converting the feedstock used from naphtha to gas and other initiatives.
A feasibility study on the proposal is being carried out by the Noida-based design engineering and consulting firm —Projects and Development India Ltd. After this is submitted, “..... the ministry will call for the expression of interest from private sector players to participate in the project,” said a senior executive at Rashtriya Chemicals who did not wish to be identified.
The revival of the three units will substantially increase urea production in the country. India needs at least 36mt of urea a year by 2012. Current production capacity is around 20mt and current demand around 25.3mt.
The demand-supply gap is currently met by imports, which cost the public sector companies at least $530 (Rs22,578) per tonne. Since the government fixes the subsidized price at which fertilizers are sold, urea is sold in the market at Rs4,800 a tonne. Local firms, which use naphtha or gas as feedstock (both are imported) typically incur a production cost of Rs17,000-18,000 per tonne. The government’s subsidy bill averages at least Rs10,000 for each tonne of urea.
The ministry’s initial plan was to involve just Rashtriya Chemicals in the process. The new plan, however, will open up opportunities for at least half-a-dozen private sector fertilizer firms looking to expand.
Local fertilizer firms that are dependent on imported feedstock have been hit by rising prices and scarcity. While liquefied natural gas costs less than naphtha, it isn’t easily sourced and the success of the revival plan will depend on the ability of the special purpose vehicle to line up supplies. Fertlizer firms currently buy naphtha at around $14 per million British thermal unit (mBtu), while gas costs more. For instance, that imported by Petronet LNG Ltd and sold by gas utility GAIL (India) Ltd costs $9-10 per mBtu. Fertilizer companies are hoping to source gas locally at a better price. Some of them expect feedstock costs to fall by 50% when Reliance Industries Ltd starts selling natural gas to them from its offshore field in the Krishna-Godavari basin sometime this year.
Fertilizer firms are also looking at overseas expansion to secure feedstock. As first reported by Mint in May, a fertilizer consortium from India, led by Rashtriya Chemicals, signed a memorandum of understanding with Industrial Development Corp. of South Africa Ltd and Foskor Pty Ltd to invest $1.8 billion in a fertilizer complex and rock phosphate mining joint venture—Urvarak Videsh Ltd—in Africa. Of the investment, $1.5 billion will be in a fertilizer plant in Mozambique and $300 million in a mining venture in South Africa. Urvarak will get natural gas on a priority basis and at a low cost ($2-2.5 per mBtu) by the Mozambique government.
Besides, several private sector fertilizer firms including Tata Chemicals Ltd and Deepak Fertilisers and Petrochemicals Corp. Ltd are also now moving to secure low-cost feedstock by expanding operations in key international locations.
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First Published: Sun, Jun 08 2008. 10 47 PM IST
More Topics: Urea | Farm | West Bengal | Orissa | Bihar |