1. Fertiliser self-sufficiency is a pipe dream

Fertiliser self-sufficiency is a pipe dream

The government has to contend with project and technical imponderables that affect the revival plans for fertiliser PSUs

By: | Published: January 8, 2015 12:40 AM

For nearly four decades successive governments have vowed to achieve self-sufficiency in the production of fertilisers, yet this goal has eluded them so far, barring for a brief while in the early 1990s. Will things be different under Modi?

Immediately after the current government took charge, fertiliser minister Ananth Kumar reiterated the need to reinvigorate the sick plants of the Fertiliser Corporation of India (FCIL) and Brahmaputra Valley Fertiliser Corporation of India (BVFCL)—earlier known as HFCL—both central PSUs.

Both have been incurring losses for decades. Indeed, some plants—Ramagundum and Talcher (FCIL) and Haldia (BVFCL)—were babies born sick. These PSUs have been on the ventilator for ages with the Centre pumping in thousands of crores of rupees to keep them alive.

Many high-level committees of the government and various think tanks taxed with PSU rehabilitation and restructuring strategies have considered these as natural choices in their reports. These reports, from studies funded by the taxpayer’s money, have been gathering dust in the fertiliser ministry.

What is the basis of Kumar’s confidence? Will he be able to break away from the lethargy of the UPA which never took revival proposals seriously or abandoned them midstream?

One of the proposals is the R8,000-crore rejuvenation plan for the Talcher unit in Odisha. The project, with a production capacity of 1.2 million tonnes per annum of urea and ammonium nitrate, was approved in April 2007 and should have been commissioned by 2010. After languishing for six years, the proposal was revived in 2013.

In an MoU signed in September 2013, two JVs were planned: an upstream coal gasification and coal purification unit where the Gas Authority of India (GAIL) would own 50%, Coal India Ltd (CIL) 35% and Rashtriya Chemicals & Fertilisers (RCF) 15%; and a downstream ammonia-urea complex where RCF and CIL would hold 40% each and FCIL the remaining 20%.

As per the MoU, this was slated to be commissioned by 2017. The government of the day left it in a limbo. The current regime is keen to resurrect the plan but has been thwarted by CIL (its participation in both the ventures holds the key) which is throwing a spanner in the works. Citing the articles of association (AoA), CIL expressed its unwillingness to continue. This is inexplicable as the AoA existed even at the time of signing the MoU! The real reasons lie elsewhere.

These have to do with the ability of CIL to commit required supplies of coal when it is already unable to honour fuel supply commitments to power plants. Can it really spare funds for the gas/fertiliser complex when it needs to fund its own capital spending for increasing coal production to 1 billion tonnes in the next five years, as has been promised by coal & power minister Piyush Goyal?

There are technical imponderables, too. While a fertiliser unit requires coal with ash content in the range of 30-35%, CIL supplies have a much higher ash content, of about 45%. The project proponents are struggling to import coal gasification technology suitable for use of high-ash coal.

The revival of another sick FCIL unit, at Sindri in Jharkhand, has been languishing with the Board for Industrial and Financial Reconstruction. In August 2011, the Cabinet Committee on Economic Affairs approved an investment of R35,000 crore by the Steel Authority of India (SAIL) for setting up a urea plant of 1.15 million tonne, a steel plant of 5.6 million tonne and a 1,000-mw power plant. Within three months, a special purpose vehicle, SAIL Sindri, was also incorporated.

Three years down the line, SAIL has decided to exit, alleging delay in getting various approvals, acquisition of land, etc. Shockingly, a chunk of the land earmarked for the project was found to have been encroached or diverted for other uses. Elucidating on its decision, the SAIL board argued “it cannot wait endlessly to get the land, all the more when its own expansion and modernisation plans worth $12 billion are crying for attention”.

Take the Namrup IV unit of BVFCL for which, in 2006, Ram Vilas Paswan, the then fertiliser minister, mooted rehabilitation at a cost of R2,500 crore. Eight years later, it is still languishing (no attention was paid to the ailing II and III units either, which run at only 50% of capacity). Now the Modi government wants to set up a brownfield plant for production of 860,000 tonnes that will cost R4,400 crore.

For implementing the project, it proposes to form a JV with Oil India contributing 26% and 11% each from BVFCL and the Assam government (on nomination basis). However, garnering the remaining equity from private players and strategic investors will be a daunting challenge.

Another major impediment is the availability of feedstock. The 2,050-km Jagdishpur-Phulpur-Haldia gas pipeline project—with a carrying capacity of 32 mmscmd and proposed to meet gas requirements of Sindri (Jharkhand), Gorakhpur (UP), Barauni (Bihar) and Durgapur (WB)—has been languishing for years.

Though the PM has resurrected the project, and even directed GAIL, the implementing agency, to commence work from October 1, 2014, and complete in two years, it remains to be seen whether Modi’s diktat forces the bureaucrats to shed their inertia.

As regards the viability of revamped projects, the amended Urea Investment Policy—approved last year—assures the investors in the FCIL and BVFCL revival projects a price linked to the Import Parity Price, with a floor of $305 per tonne and a ceiling of $335 with full compensation for gas cost. But this protection will collapse the day the government brings in the uniform nutrient-based subsidy on the lines of the already-decontrolled complex phosphate and potash fertilisers and eventually replaces the existing subsidy regime with direct cash transfer.
The prophesied self-sufficiency goal in fertilisers will remain a pipe dream even with Modi at the helm.

The author is a policy analyst
www.uttamgupta.com

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