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Centre looks at overseas tie-ups for fertilizer units

Centre looks at overseas tie-ups for fertilizer units
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First Published: Thu, May 24 2007. 12 17 AM IST

Updated: Thu, May 24 2007. 12 17 AM IST
The government plans to set up fertilizer units in West Asia and Africa, either on its own or in partnership with private or cooperative sector fertilizer companies, in an effort to reduce its fertilizer subsidy bill which is expected to touch Rs42,000 crore in the current year. The move is also seen as an attempt to check cartelization by global suppliers of fertilizers.
The government’s initiative will cover both urea and diamonium phosphate (DAP) , the main products for the Indian fertilizer industry.
“International prices of DAP are changing very frequently. And with China chasing the same product there is an increasingly trend of cartelization affecting the prices by 40-50%,” said a senior official in the ministry of chemicals and fertilizer, who did not want to be identified.
The government plans to set up the new units either through joint ventures or by taking equity stakes in local companies in countries where natural gas, the main fuel for urea plants, is easily available. The target countries are Saudi Arabia, Kuwait, Egypt, Mozambique, Morocco and Nigeria.
Fertilizer units currently face a shortage of around six million standard cubic metres a day (mscmd) of gas, an estimated shortfall of 21%. The ministry of chemicals and fertlizers estimates demand for gas by fertilizer units will nearly double in the next five years, growing from 41mscmd in 2007-08 to 76mscmd in 2010-11. It is this demand for gas that is pushing the Centre to look for avenues overseas.
“For urea, we want to set up at least one plant with the capacity of one million tonnes in each of these countries and then ship that urea produced to India. Since most of these countries have abundant natural gas supply, it makes sense for us to set up urea factories there,” said a senior official in the ministry of chemicals and fertilizers, who did not want to be identified. Each unit will cost the government $1 billion (Rs4,030 crore).
Setting up greenfield projects is a priority but the Centre is also not averse to joining hands with private and cooperative sector companies such as Nagarjuna Fertilizers and Chemicals, Gujarat State Fertilizer Corp., Indian Farmers Fertiliser Cooperative Ltd (Iffco), SPIC and Coromandel Fertilisers. “We aim to leverage the presence of existing Indian fertilizer companies in these countries,” the official added.
Arvind Mahajan, executive director at accounting firm KPMG said, “Getting closer to the fuel source which is gas is not a bad idea provided we get it at the right price.” A senior executive working in the fertilizer industry agreed and said, “I wonder if we will get the deal as we got in Oman-India Fertilizer Company. Both urea price at $150 free on board and gas at 77 cents per mBtu were very affordable.” He added most JVs these days want market determined rates and India will have to make long-term commitments in order to bargain a good deal..
India currently imports about 17%, or four million tonnes, of its annual urea consumption. “It is the private sector companies who should be setting up these units with the government helping them at the diplomatic levels,” Mahajan added. While India is looking at setting up a greenfield project in Saudi Arabia, in Nigeria it is planning to leverage the clout of Nagarjuna Fertilizers and Chemicals, which is already present. The government will guarantee the offtake of urea from these units.
With Kuwait, the government may enter into a joint venture in the neighbouring Qatar. “We are talking to Kuwait through some intermediaries. Since Kuwait does not have enough gas of its own, the business model will be different. Most likely, Kuwait wants to do a joint business with India in neighbouring Qatar,” said the official. For DAP, the government wants to leverage the presence of Chennai-based SPIC in Jordan. SPIC is already there through a joint venture. Iffco also figures on the government’s list as it is about to start operations there.
Since both Urea and DAP are subsidized, the government’s subsidy burden has been going up. A typical bag of urea sells for Rs150, but only after the government gives the producer Rs100 in subsidy. Rising costs of raw materials such as fuel oil, coal, naptha and gas—used as feedstock for producing urea are further complicating matters. Ramvilas Paswan, Union minister for chemicals and fertilizers, wants all non-gas-based plants to convert to gas-based ones by 2009, but lack of gas availability will continue to be a big constraint.
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First Published: Thu, May 24 2007. 12 17 AM IST