New Delhi: Two state-owned fertilizer companies have together commissioned SBI Capital Markets Ltd (SBICap) to find Iranian partners for a urea plant they want to build in the petrochemicals hub at Chabahar in south-western Iran, seeking to take advantage of low gas prices in that country to produce the farm nutrient.
The project by Rashtriya Chemicals and Fertilizers Ltd (RCF) and Gujarat Narmada Valley Fertilizers and Chemicals Ltd will cost an estimated ₹ 7,000 crore, according to two fertilizer ministry officials who spoke on condition of anonymity.
Iran has offered gas for the project at an affordable $3 ( ₹ 180) per million British thermal unit (mBtu), making it cheaper to produce urea in Iran and ship it to India, which imports 8 million tonnes (mt) of the fertilizer to meet domestic demand.
Domestic gas now costs $4.2/mBtu. The new National Democratic Alliance government has not yet taken a call on the new gas pricing formula accepted by the previous government that would nearly double domestic gas prices.
“SBICap will make a list of potential partners from Iran for the joint venture," said one of the two officials cited above.
SBICap, an arm of State Bank of India, was commissioned last week after consultations with the fertilizer ministry.
“We got the mandate only a few days back. It is too premature to comment on specifics," said an official at the investment bank who requested anonymity.
An RCF official said the project will also depend on whether economic sanctions against Iran are lifted and the outcome of the ongoing nuclear talks between Iran and the P5+1 partners (the five permanent members of the UN Security Council and Germany).
A deal would see Iran scale down its nuclear programme in return for ending the sanctions imposed by the UN and Western countries.
No new urea capacity has been added in India over the past 13 years for lack of a policy framework, resulting in widening demand-supply gap. Domestic production of urea has stagnated at 22 mt since 2007-08, while the current consumption is around 30 mt. The gap of 8 mt is met through expensive imports. Urea prices in global markets hover around $300/tonne.
New chemicals and fertilizer minister Ananth Kumar has listed self-sufficiency in urea as one of his main priorities. The ministry has already set the ball rolling on the revival of three sick units of Fertilizer Corp. of India Ltd.
The ministry also plans to notify a new urea investment plan offering incentives to set up new urea plants although companies have expressed their reservations over the withdrawal of a buy-back guarantee—under which the government would buy unsold urea produced by new plants in the first eight years of operations—and the low availability of cheap domestic gas.
All new capacities will have to rely on greater volumes of imported liquefied natural gas, the landed prices of which are at least four-five times that of domestic gas. The fertilizer industry consumes 31.5 million standard cubic metres per day of gas from domestic sources and receives top priority in allocation of domestic gas.
Fertilizer companies are scouting for local joint venture partners in countries including Canada and Africa as high gas prices in India and low gas availability, along with a shortage of key fertilizer inputs, puts pressure on fertilizer production in the country.
Indian Farmers Fertiliser Co-operative Ltd recently received the formal go-ahead from the government for a proposed $1.6 billion fertilizer plant at Becancour in Quebec, Canada.