Only decontrol can solve urea industry’s problems

By: |
Updated: Jul 31, 2019 5:15 PM

The government's urea pricing policy effectively disincentivises any investment by the industry in environmental protection.

Moving from use of fossil fuels won’t happen till industry is decontrolled. Only then will units get competitive & look at innovations; so even in environment terms, decontrol of urea is required

The urea fertiliser industry is one of the most important industrial sectors for the country. About 70% of all the fertilisers used in the country is urea. So, how green is the urea sector? To find this answer, my colleagues and I at the Centre for Science and Environment (CSE) started a detailed assessment of this sector in mid-2017. We completed this assessment after an extensive 18-month long process and released the report on 29th July. This assessment was done under CSE’s flagship Green Rating Project (GRP).

GRP was started in 1997 to act as an independent watchdog on the environmental performance of large Indian companies. It is one of the few public-disclosure projects in the world in which an NGO ranks the environmental performance of industries and makes the results public. The ratings recognise good performers and pushes bad performers to improve. The rating process is robust and transparent and the outcomes of our ratings have been used by companies as well as policymakers to improve policies and practices. Independent studies show that the rating results are used by the financial sector in their investment decisions. Urea sector is the seventh sector rated by GRP. GRP has earlier rated the pulp and paper, automobile, chlor-alkali, cement, iron and steel, and thermal-power sectors.

The urea sector was rated on more than 50 parameters. The rating covered all 28 operational plants in the country. 57% of the plants voluntarily participated in the rating by disclosing information and by allowing the GRP team to verify them on-site. The remaining plants were rated on the basis of information available in the public domain and the stakeholder survey. National Fertilizers Ltd, the biggest public-sector company, and IFFCO, the biggest cooperative company, refused to voluntarily participate. In fact, private-sector companies were far more transparent than public-sector and cooperative-sector companies.

The sector was rated ‘average’, with a respectable 42% score and was awarded the Three Leaves Award. The highest a sector or a company can achieve under GRP is the Five Leaves Award. Urea is only the second sector to get the Three Leaves Award, the other being the cement sector. The other sectors have received the Two Leaves Award or below.

Grasim Industries Ltd’s Indo Gulf Fertilisers, Jagdishpur, Uttar Pradesh, was rated as the greenest urea plant in the country. This plant, with a 61% score, received the coveted Four Leaves Award. It is only the second company out of 250+ companies rated by GRP so far to receive the Four Leaves Award.

The next three winners have all received the Three Leaves Award—these are KRIBHCO, Hazira, Gujarat, Mangalore Chemicals & Fertilizers Ltd, Mangalore, Karnataka and Yara Fertilisers India Pvt. Ltd., Babrala. Uttar Pradesh. The worst rated plant was Madras Fertilizers Ltd, Chennai.

The sector has performed very well in curtailing its energy use and CO2 emissions. The sector as a whole emits far lower CO2 per tonne of urea than the urea sector in the US or China. In fact, some plants, like Indo Gulf Fertilisers and Yara Fertilisers, match the global best levels in energy efficiency and CO2 emissions.

However, the sector has slipped on its water consumption and water-pollution parameters. Its water consumption is high and can be reduced by at least one-third by using recycling/reuse technologies. The sector also has water-pollution problems. The sample of groundwater and effluents tested in the laboratory by GRP found high levels of contaminants. For instance, the ammoniacal nitrogen concentration in the groundwater in and around many plants was way above permissible limits.

Another major concern is health and safety practices in older plants. The urea sector handles dangerous chemicals, like ammonia. GRP’s assessment is that most old plants need to upgrade their safety practices as well as on-site and off-site disaster-management plans.

The overall assessment is that incentives largely determine the environmental performance of the sector. As the urea sector is strictly controlled, the government has incentivised energy efficiency. Plants who do better than the energy consumption targets set by the government make more money. This is the reason why plants have done really well in energy consumption. However, since no incentives are offered for controlling water consumption and environmental pollution, companies have shied away from investing in pollution-control measures or in technologies to reduce water use. In fact, the government’s urea pricing policy effectuates a disincentive to invest in environmental protection.

The biggest issue is the very future of urea fertiliser itself. The industry has a significant role to play in addressing three major environmental issues: nitrogen pollution, ozone layer depletion, and climate change.

Urea production is completely dependent on fossil fuels and, hence, contributes to greenhouse gas (GHG) emissions. Nitrous oxide (N2O) emitted from agricultural fields due to the use of urea is also a potent GHG and an ozone-depleting substance (ODS). Its GHG potential is 300 times that of CO2 and its ozone-depleting potential is similar to that of many hydrochlorofluorocarbon refrigerants. N2O is now the largest ODS emitted through human activities.

In addition, the world has breached the planetary limit for nitrogen, and the use of nitrogenous fertilisers is a significant contributor in this. In fact, nitrogen pollution of surface water and groundwater has reached alarming levels in many states of India. There is also widespread soil sickness due to imbalanced application of nitrogen fertilisers. It is estimated that the cost of nitrogen pollution on health and ecosystems in India is Rs 5 lakh crore—four times the turnover of the urea industry.

To address these issues, the industry will have to reinvent itself. Firstly, Indian agriculture needs to graduate from the present practice of bulk application of urea to a more precise supply of required nutrients. The industry needs to come up with new and innovative products to improve efficiency of nitrogen use from the current 30-35% to more than 60%. This will reduce urea consumption, improve soil health, increase yields and reduce N2O emissions.

Secondly, the production of nitrogen fertilisers will also have to shift from fossil fuels to renewables. It is interesting to note that the Fertilizer Corporation of India’s Nangal plant employed electrolysis of water to produce hydrogen until it switched to hydrocarbons in the 1970s due to shortage of power in the Bhakra grid. Clearly, we have the technology to produce nitrogenous fertilisers without using fossil fuels. The falling costs of renewable energy will make this an economically feasible option.

The Indian fertiliser industry needs to be geared for these future challenges. But, this industry is also one of the most tightly controlled sectors of the economy. For the urea sector to take these steps, the government needs to change its policy and bring a measure of decontrol. Decontrol will make the industry competitive and bring innovations in production and products. So, apart from fiscal reasons, there are solid environmental reasons to decontrol the urea sector. This is the key outlook emerging from GRP.

(The author is Deputy director general, CSE Twitter: @Bh_Chandra Views are personal)

Get live Stock Prices from BSE, NSE, US Market and latest NAV, portfolio of Mutual Funds, calculate your tax by Income Tax Calculator, know market’s Top Gainers, Top Losers & Best Equity Funds. Like us on Facebook and follow us on Twitter.

Financial Express is now on Telegram. Click here to join our channel and stay updated with the latest Biz news and updates.

Next Stories
1Economic revival: Focus on building infrastructure
2Trai moves lower confidence in the telecom sector: Neither Vodafone Idea nor Airtel plans really affect net neutrality
3Missing the forest for the trees: Why policymakers must focus on need for growth as govts look to cover huge deficits