Mumbai: The country’s top fertilizer producer plans to add new capacity locally and consolidate raw material supplies overseas after the government eased investment and pricing rules for fertilizer makers, its chief said on Monday.
Indian Farmers Fertiliser Cooperative Ltd (Iffco) plans to add 1.3 million tonnes (mt) of urea capacity, costing Rs5,000 crore, and will spend another Rs1,200 crore for three phosphate-related ventures in Australia, Senegal and Jordan.
The country’s producers are weighed by government policy requiring them to sell below market prices, but are compensated for the deficit through cash subsidy and bonds.
The pricing policy and lack of returns has deterred fresh investments for a decade.
Last month, the government linked urea pricing to import costs, easing pressure on local makers.
“After the policy, we have looked at possibly expanding capacity in Gujarat, but are yet to take a final decision,” Iffco managing director U.S. Awasthi said.
Roadblocks: Fertilizer being scattered in a field. The pricing policy and lack of returns has deterred fresh investments in fertilizers for a decade. Fayaz Kabli / Reuters
India, the world’s second biggest fertilizer user, imports a quarter of its 46mt yearly demand. A global foodgrain shortage has trebled its 2008-09 subsidy bill to Rs1.19 trillion.
On Sunday, Reliance Industries Ltd said it will start pumping natural gas from its deep-sea block early next year which, analysts say, will benefit fertilizer producers, who had cut production due to gas shortage, or were using expensive naphtha. “Fertilizer production can go up by 10% if gas is made available in plenty,” Awasthi said. “This will also help to push international prices southward.”
Iffco has hedged its sector-related risk by venturing into a 1,300MW power plant and 3,000-acre agri-processing special economic zone, together costing Rs8,500 crore, Awasthi said.
“In all, we need to bring in equity of about Rs30 billion (Rs3,000 crore) over three years for our projects,” he said. “We need to generate all this internally. This is a big challenge.”
Iffco functions through 39,564 member societies, operating a domestic urea capacity of 4.2mt and complex fertilizer capacity of 4.3mt.
It posted a net profit of Rs260 crore in 2007-08, on revenue of Rs12,160 crore.
Iffco has, over the last year, been quietly tying up its raw material supplies, especially phosphoric acid, which is scarce. In February, it acquired 85% in Senegalese phosphate producer Industries Chimiques du Senegal for $100 million and in July bought 15% stake in Australian rock phosphate miner Legend International Holdings Inc. for a total investment of $100.5 million.
“We are also working to set up a unit with the Jordan Phosphate Mining Co. there, which should yield 900,000 tonnes of phosphoric acid annually,” Awasthi said. “We are negotiating with lenders and technology suppliers.”
The plant is expected to cost another $100 million, he said.