India had to resort to brinkmanship with global potash suppliers such as Canadas Potash Corporation and Russias Uralkali this year to source potash at a price similar to what Chinese importers got. The ministry of chemicals and fertilisers proposal for a dedicated fund with adequate resources for acquisition of assets abroad is now being seriously considered by the ministries of finance and external affairs, sources said.
The finance ministry is exploring all ways of reducing public spending, including the subsidy outgo, as it is the one of the ways to improve its financial health this year in the absence of one-time receipts such as telecom spectrum auction proceeds that boosted revenues last fiscal. India provided R54,977 crore as fertiliser subsidy in 2010-11 and has allocated R49,998 crore subsidy for the 2011-12 fiscal.
The size of the proposed fund is yet to be finalised. The idea of an investment fund has been mooted as state-owned firms alone are not able to commit substantial resources for overseas acquisitions.
The fertiliser ministry has also proposed that the government use its political leverage to secure ownership of resources in other countries. Also, a panel of secretaries, chaired by the Union fertiliser secretary, needs to be set up to routinely consider overseas investment options in the fertiliser sector, says the proposal mooted by minister M K Alagiri.
A government official said that senior officials from the ministries of chemicals and fertilisers, and external affairs would be visiting Belarus in a week to explore the acquisition of a stake in state-owned Belaruskali, which is valued at $30 billion for its potash mines. The cash strapped Belarus government is looking at raising funds from selling stake in the company. Making use of the opportunity, Russias Uralkalia leading potash producer--recently acquired about 33% in Belaruskali.
India should acquire sufficient stake (in Belaruskali) to secure future potash supply. Two global producers Potash Corporation and Uralkali together control 66% of the world potash market and further consolidation will adversely affect Indian importers interest as the market becomes less competitive, said a highly placed source, who is privy to the governments efforts to buy fertiliser assets abroad.
After tough posturing to the extent of not using potash this sowing season, Indias fertiliser importer, Indian Potash, earlier this month agreed to import about 5.5 million tonne of potash this fiscal for a price of $470 a tonne this quarter and the next. For the last quarter of this fiscal, the import price is $530 a tonne. This price is slightly higher than last years import price, but lower than the current prevailing global price of about $535 a tonne. At this contracted price, the price to the farmer will go up by 10-15%, but it would have become far more expensive if the Indian importer hadnt negotiated for price parity with Chinese importers.