New Delhi: In a renewed attempt to try and reduce its mounting bills for subsidising inefficient urea production within the country, the government has decided to earmark $2 billion (Rs8,800 crore) for setting up two new factories abroad.
The two units are slated to have a combined annual capacity of two million tonnes, or just under 10% of the country’s annual urea consumption.
Urea is a particularly vexing problem for the government as farmers continue to consume more and more even as the government picks up the tab for the gap between an artificially low selling price and the rising costs of making urea. A typical bag of urea sells for Rs150 but only after the government gives the producer Rs100 in subsidy.
Compounding the problem are soaring costs of raw materials—mostly fuel oil, coal, naptha and gas—that are used as feedstock for producing urea. This has a significant impact as the subsidy payouts are based on the cost of production.
And, on top of that, the government is saddled with inefficient fertilizer units and is also facing a fuel shortage for its more efficient gas-based units.
As a result, the government is looking to start the two new factories as joint ventures between public sector urea plants and foreign partners in West Asia, where natural gas, is more abundant.
“We intend to start with two projects, and may later increase the number depending on the response from these countries,” said an official in the ministry of chemicals and fertilizers who did not want to be identified. “We are exploring opportunities in Kuwait, Nigeria, Egypt, Saudi Arabia and Qatar.”
“A specialized agency will be set up under the control of department of fertilizers to act as the nodal agency for the projects,” said Ram Vilas Paswan, minister for chemicals and fertilizers. The two projects are expected to be finalized only in the 2007-08 financial year which means any new factories abroad are unlikely to come online before 2010. India currently imports about 17%, or four million tonnes, of of its annual urea consumption of 24 million tonnes.
Sukhmani Singh contributed to this story