Mumbai: State-owned Rashtriya Chemicals and Fertilizers Ltd (RCF) is considering a long-term gas procurement partnership with the $8 billion (Rs38,320 crore) coal-to-liquid fuel project in Orissa being set up by the Tata group and South African coal gasification technology firm Sasol Ltd.

The Tata-Sasol project is crucial for RCF as it finalises plans for setting up a Rs4,500 crore fertilizer plant at Talcher in Orissa—under a Union government scheme announced last year to revive sick fertilizer units.

The project would mean cost savings for India’s largest fertilizer company both in terms of logistics and supplies.

Exploring options: Cooling towers at the Sasol Secunda plant in South Africa. The Tata-Sasol project in India would mean cost savings for Rashtriya Chemicals and Fertilizers both in terms of logistics and supplies.Greg Marinovich/Bloomberg

The coal-to-liquid process involves the conversion of coal into gas and then finally into liquid fuel. A portion of the gas can be supplied to industrial users.

The plant in Orissa originally belonged to Fertilizer Corp. of India Ltd.

“It will be almost a brand new urea and ammonia plant with new coal gas-based technology, having a production capacity of at least 1.15 million tonnes (mt) a year," said the RCF executive, who didn’t want to be identified as the firm is still waiting for investment approval for the project.

“We are seriously exploring the possibility of sourcing the gas from Tata’s coal-to-liquid project as it makes lot of sense as far as logistics as well as expected pricing competitiveness are concerned," he added.

The Union government had in 2008 announced a revival scheme for seven public sector fertilizer units that were shut after they became financially unviable due to the high input costs of naphtha and outdated technologies.

RCF is reviving another fertilizer plant in Bihar through a special purpose vehicle, Urvarak Videsh Ltd, formed jointly with Krishak Bharati Cooperative Ltd and National Fertilizers Ltd. Gail (India) Ltd has agreed to supply natural gas to this plant.

As for the Orissa project, the government in March awarded a coal block in the state to the Tata-Sasol joint venture, Strategic Energy Technology Systems Ltd (SETSL). The government estimates the block will produce around 80,000 barrels of crude a day.

A spokesman for SETSL would only say the joint venture is holding preliminary discussions with several organizations for supplying gas from the project.

“SETSL is currently undertaking various studies to better understand the demand-supply scenario for the oil and oil products that could possibly be a part of the project’s product slate," he added.

Sasol is the world’s only commercial scale owner and operator of a coal-to-liquid facility.

The company has filed an application with the Orissa government to obtain a prospecting licence and is waiting for approval to start drilling and exploration work for technical analysis of the coal feedstock.