New urea policy to help remove bottleneck in fert units: RCF head

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Mumbai, Aug 18: US Jha, chairman and managing director of Rashtriya Chemicals & Fertiliers (RCF) and also the chairman of Fertiliser Association of India (FAI), has welcomed the new urea investment policy as for the first time cost-plus concept has been given a goodbye and benchmarking is import parity price (IPP) with a collar and cap.

“This is the policy for revamp/de-bottlenecking of the existing units to improve the efficiency as well as create some incemental capacity. Through revamp, additional capacity of about 2.5 to 3 million tonnes of urea will be available in the quickest way say one and half to two years time provided Krishna Godavari gas is allocated,” Jha told FE in an exclusive interview on Monday.

Jha said that collar is important as it provides a minimum return if the prices slump in the international market. Similarly, the cap prevents a company from getting huge unintended benefits in rising market as of now. The policy indicates the normative price of urea at 85% of the IPP, subject to a floor price of $250 per tonne and a cap of $425 per tonne respectively for urea produced from the new capacities going forward. “Conceptually the investment policy is attractive. IPP is internationally accept benchmark. However, the numbers will have to be seen and the returns will have to be worked out, then only the investors will take a commercial call. Perhaps higher percentage of IPP could have given better return. Nevertheless the investments will be made even based on 85% IPP,” Jha noted.

According to Jha, if the capacities are not created within the country, then the government will have to import and obviously with the volument of imports going up, it will have a push effect on the price. “If government is allowing 85%, 90% of 95% depending upon whether it is revamp or brownfield or revival, the government will save on that account also. Therefore, again conceptually IPP will help the sector,” he viewed.

On the revival of seven closed plants of Hindustan Fertiliser Corporation (HFC) and Fertiliser Corporation of India (FCI), Jha said that these plants cannot be revived with the technologies based on which they were set up. “The new gas based plants will have to be set up at these locations and they will be highly capital intensive. Each plant of about one million tonnes of urea will require a little more than Rs 4,000 crore. The existing infrastructure of land, township and railway siding at best may be of use.

For reviving seven such units about Rs 30,000 crore will be required and even on 2:1 debt equity ratio, the requity requirement will be Rs 10,000 crore. It will be impossible for the profit making RCF, National Fertiliser Ltd (NFL) and Krishak Bharati Cooperative Limited (Kribhco) to mobilise so much of equity.

Thus the government should provide grant or soft loan,” Jha argued. He added that it would be a good investment for government also because there will be substantial saving on subsidy.