India seeks stake in Belaruskali

India seeks stake in Belaruskali

New Delhi: India is looking to acquire a 20-25% stake in Belarus-based Belaruskali, one of the world’s largest producers and suppliers of potash, in a deal that could be worth $6-7 billion (Rs 27,120-31,640 crore).

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A proposal to this effect is likely to be discussed at a meeting chaired by Prime Minister Manmohan Singh on Wednesday, two senior fertilizer ministry officials confirmed separately.

The officials said the Belarusian government had valued Belaruskali at $30 billion.

India needs to ensure long-term supplies of fertilizer to cope with increasing demand, but could face competition for the Belarus company stake from rivals based in Russia and China.

Agriculture minister Sharad Pawar pressed the case for acquiring stakes in fertilizer companies abroad in order to “secure steady supplies of fertilizers at reasonable prices" in a 1 August letter addressed to the Prime Minister, which Mint has reviewed.

Pawar specifically argued that India needs to explore the prospects for partnerships and acquisitions of major potash sources in the world. “A suggestion has been made to take proactive steps for acquiring such mines/companies through a consortium of Indian companies with government support," the letter said.

Manoj Kumar Bharti, India’s ambassador to Belarus, met Belarusian Prime Minister Mikhail Myasnikovich to discuss the proposal on 4 August.

Russia’s largest bank OAO Sberbank said a day later that it acquired a 35% stake in Belaruskali as collateral for a $2 billion loan it had extended to Belarus along with Deutsche Bank AG. Bharti could not be reached for comment.

An India representative of Belarusian Potash Co., Belaruskali’s marketing arm, declined to comment.

Belaruskali is owned by the government of Belarus, which has been hit by a severe current account deficit that led to its currency being devalued by 36% in May.

The government could either acquire the stake itself or make a joint bid with a consortium of private fertilizer companies, said one of the two ministry officials cited earlier.

“The most important thing is the valuation. We do not want to buy an asset that is overvalued," this official said.

The 10 August meeting is likely to be attended by external affairs minister S.M. Krishna, chemicals and fertilizer minister M.K. Alagiri, finance minister Pranab Mukherjee and agriculture minister Pawar.

The valuation of $30 billion was not off the mark, said Sanjay Jain, director of Taj Capital Partners Pvt. Ltd, an investment firm that has interests in the fertilizer sector. Jain said that Russia’s Uralkali, and China’s China BlueChemical Ltd and Sinofert Holdings Ltd are also vying for stakes in Belaruskali.

Indian Farmers Fertiliser Cooperative Ltd and Krishak Bharati Cooperative Ltd have had an agreement with Oman Oil Co. since 2005 to supply urea at a fixed long-term price to India. Urea is the most dominant fertilizer and accounts for 55-60% of the total consumption in the country.

Tata Chemicals Ltd announced in April that it was acquiring a 25% stake in a urea manufacturing firm in Gabon for $290 million. Singapore-based agro-product processor and supplier Olam International Co. and the government of Gabon are the other investors in the project. Government-controlled Rashtriya Chemicals and Fertilizers Ltd is trying to set up a urea manufacturing facility in Ghana.

The present domestic demand for muriate of potash (MoP) stands at about 5 million tonnes (mt), all of which is imported. According to the fertilizer ministry’s figures, India is likely to import 2.1-2.2 mt of the commodity this year, less than half the projected demand. A note prepared ahead of the 10 August meeting says that MoP could not be imported “due to cartelization of international suppliers".

The meeting is also likely to discuss the issue of fertilizer shortages in the country. According to the note cited earlier, out of a total domestic demand of 12 mt of di-ammonium phosphate (DAP), India has so far contracted only 6 mt. The country is likely to produce 4.6 mt of DAP domestically, leaving a potential shortfall of 1.4 mt.

There is an acute shortage of fertilizer in Uttar Pradesh, said Sudhir Panwar, a professor at the University of Lucknow and an expert on farm issues.

“Farmers are not able to get any MoP. Even DAP and urea are in short supply," he said.

Pawar said in his letter to the Prime Minister that “since requirement for foodgrains, fruits and vegetables, oilseeds, millets and other crops is steadily increasing, demand for fertilizers will increase and will have to be met either through domestic production or imports, if we are to maintain growth momentum in agriculture and ensure food security".

The agriculture minister’s letter also noted that “skewed distribution of good quality phosphate and potash sources in the world have encouraged tendency towards cartelization among major suppliers". This was largely responsible for India’s fertilizer subsidy bill touching 1 trillion in 2008-09, he said.

Interestingly, the proportion of the subsidy spent on fertilizer imports as a percentage of the total has shot up from 6% in 2003-04 to 46% in 2010-11.

Elizabeth Roche contributed to this story.