Tata Chem, Deepak Fertilisers follow PSUs for overseas deals

Tata Chem, Deepak Fertilisers follow PSUs for overseas deals
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First Published: Tue, May 27 2008. 11 35 PM IST

Wider view: The Tata Chemicals plant at Haldia, West Bengal. The firm is exploring sourcing opportunities in West Asia and Africa
Wider view: The Tata Chemicals plant at Haldia, West Bengal. The firm is exploring sourcing opportunities in West Asia and Africa
Updated: Tue, May 27 2008. 11 35 PM IST
Mumbai: On the heels of several public sector fertilizer firms moving to secure low-cost feedstock by expanding back operations in key international locations, two private companies, Tata Chemicals Ltd and Deepak Fertilisers and Petrochemicals Corp. Ltd, say they too are exploring similar opportunities in West Asia and Africa.
Wider view: The Tata Chemicals plant at Haldia, West Bengal. The firm is exploring sourcing opportunities in West Asia and Africa
People familiar with the developments say both companies have hired consultants and merchant bankers for identifying options that could lead to joint ventures (JVs) and strategic stakes being acquired.
The key advantage for Indian fertilizer companies in expanding operations to such regions is a regular supply of raw materials such as phosphoric acid, as well as low-cost fuel. The overseas moves come as Reliance Industries Ltd (RIL) is readying its significant natural gas supply at a comparatively lower rate from its Krishna-Godavari basin.
Tata Chemicals’ executive vice-president R. Mukundan, responding to a Mint query on whether the company is looking for strategic acquisitions or JVs for a stabilized feedstock supply, said: “Yes, we believe feedstock security is important for our business. We have, in fact, participated in a joint venture in Morocco with precisely the same intention.”
“We have looked at international growth from the context of securitizing our back-end to reliably connect our front-end requirements. The cost competitiveness and participation in global trade flows is an important element of our strategy,” he added.
In 2005, Tata Chemicals acquired a strategic stake in Indo-Maroc Phosphore SA in Morocco, which makes phosphoric acid that is a key raw material for manufacturing complex fertilizers.
A senior executive at Deepak Fertilisers, who didn’t want to be identified, said: “The company is scouting for opportunities overseas to support its back-end operations as far as the raw material and other inputs supply is concerned. We are in talks with a couple of overseas players, which have been identified. But it’s too early to give details.”
As first reported by Mint last week, a fertilizer consortium from India, led by state-run Rashtriya Chemicals and Fertilizers Ltd, signed a memorandum of understanding with Industrial Development Corp. of South Africa Ltd and Foskor Pty Ltd to set up a $1.8 billion (Rs7,722 crore) fertilizer complex and rock phosphate mining JV—Urvarak Videsh Ltd—in Africa.
The JV will invest around $1.5 billion in a fertilizer plant in Mozambique and close to $300 million in the mining venture in South Africa. Urvarak will be supplied natural gas on priority at a much lower cost ($2-2.5 per million British thermal unit, or mBtu) by the Mozambique government.
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.
An official spokesperson of RIL said the fertilizer firms’ rush for expanding their feedstock sourcing to international locations will not have any impact on the market potential for its proposed gas distribution business in India.
“Even after setting up a fertilizer plant in Africa or the Middle East with a cheap sourcing of feedstock, the actual cost to convert them into final products and to make it available to the Indian market is going to be more than the price that they are going to source it locally,” he said.
According to him, the demand and supply gap in the Indian fertilizer market is too huge and “…it is just the matter of an industry reformation in this sector that will open upthe capacity expansion and so is the demand for local feedstock”.
RIL, which is currently negotiating with local fertilizer companies, is offering natural gas from the Krishna-Godavari Basin at $4.2 per mBtu and it will be available in another two-three months, he added.
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First Published: Tue, May 27 2008. 11 35 PM IST