GAIL eyeing fertilizer sector; second quarter net profit rises 28%

GAIL eyeing fertilizer sector; second quarter net profit rises 28%

New Delhi: GAIL (India) Ltd, the government-run gas pipeline infrastructure company, plans to enter fertilizer manufacturing together with Rashtriya Chemicals and Fertilizers Ltd (RCF) in a Rs2,400 crore joint venture at Talcher in Orissa that will have the capacity to produce one million tonnes per annum (mtpa) of urea.

The company’s board on Wednesday approved the signing of a memorandum of understanding with RCF, which is also state-run.

U.D. Choubey, chairman and managing director of GAIL, said the move into fertilizer was synergestic for his company. “It will be an integrated ammonia urea plant which will use gas obtained from coal gasification. The share of participation is yet to be decided. Though we supply gas to the fertilizer sector, it is for the first time that we will be getting involved in fertilizer production," he said.

Gasification involves the conversion of hydrocarbon stock such as coal or petroleum products into gas by applying heat under pressure in the presence of steam. GAIL plans to set up a coal gasification plant at Talcher, as part of the fertilizer project. The project will help produce 7.76 million metric standard cu. m per day (mmscmd) of synthesis gas which will help in producing ammonia.

“We needed an anchor consumer for our gas which we found in this understanding with RCF," said Choubey, denying the diversification was a result of GAIL’s marketing margins coming under pressure in a pricing regime controlled by the government.

The country’s total fertilizer production capacity stood at 16mt by the end of fiscal 2007, according to government statistics.

RCF will have a minority investment in the fertilizer project. “Our stake in the project would be minimal, around 10-15% only. Talcher has been chosen because all the basic infrastructure is already there," a senior RCF executive, who did not wish to be identified, said.

An industry representative said the location of the plant augured well for fertilizer consumers. “This move is a part of an ongoing effort to increase domestic capacity," said R.C. Gupta, deputy director general of the Fertilizers Association of India.

India is expected to import 10mtpa of urea by 2011-12. Also, the Namrupa plant in Assam with a capacity of 270,000 tonnes per annum is the only urea plant in Eastern India currently.

Meanwhile, GAIL said net profit for the second quarter ended September rose 27.68% to Rs572.54 crore from Rs448.40 crore in the year-ago period on the back of better realization in petrochemicals, liquefied petroleum gas and other liquid hydrocarbons. The company’s turnover rose by 22.17% to Rs4,528.90 crore in the quarter.

GAIL also plans to form a city gas distribution joint venture (JV) company with Vadodara Mahanagar Seva Sadan (VMSS), the municipal corporation of Vadodara. While GAIL will hold a 25% stake in the joint venture, VMSS will hold a 26% stake. The remaining equity will be held by strategic investors and the public.

“We are also evaluating opportunities to form JVs with municipal corporations of other cities for city gas distribution," said B.C. Tripathi, director, marketing, GAIL.

Shares of GAIL fell by 3.79% on the Bombay Stock Exchange (BSE) on Wednesday to close at Rs417.40. The BSE index fell by 1.76%.