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Fertiliser industry seeks ‘sovereign fund’ to buy production assets abroad

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Farm worker applying fertilizer at a paddy field ...
Farm worker applying fertilizer at a paddy field ...

Fertiliser makers want the Centre to create a ‘sovereign fund’ that can enable Indian firms set up joint ventures and acquire production assets abroad. This is to ensure long-term supply of nutrients and raw materials at reasonable prices here.

“It is for the Government to decide the size of the fund. But given the capital costs of over $1.1-1.2 billion for a 10-lakh-tonne (lt) a year potash plant, it could start with that sum and then expand gradually,” R. G. Rajan, Chairman, Fertiliser Association of India (FAI) and CMD of Rashtriya Chemicals and Fertilisers (RCF), told presspersons here on Friday.

In 2011-12, India imported roughly $11.5 billion worth of finished fertilisers. These included 78.34 lt urea (about $3.1 billion); 69.05 lt di-ammonium phosphate ($4.5 billion); 39.85 lt muriate of potash ($2 billion), 36.75 lt NP/NPK complexes ($1.5 billion), 4.94 lt mono-ammonium phosphate ($300 million), and small quantities of triple super-phosphate (1.6 lt), sulphate of potash (0.54 lt) and ammonium sulphate (0.36 lt).In addition, it imported large quantities of fertiliser raw materials and intermediates valued at almost $5 billion. These included 19.06 lt phosphoric acid ($2 billion), 75.22 lt rock phosphate ($1.6 billion), 17.26 lt ammonia ($950 million) and 17.48 lt sulphur ($375 million).

According to Satish Chander, Director-General, FAI, imports constituted 39 per cent of the total annual fertiliser materials consumption of 590.40 lt in 2011-12 and 45 per cent in terms of NPK nutrients. The percentage would go up further if imports of raw materials and intermediates are also added. Given the extent of dependence on imports, it would make sense for Indian firms to establish overseas joint ventures on the lines of Oman India Fertiliser Company. Last year, India imported 24.15 lt of urea from this venture — in which Iffco and Kribhco hold 25 per cent each and Oman Oil Company the balance — at a landed cost of $215.19 a tonne, as opposed to an average $481.74 paid for imports from other sources.

The fertiliser industry is pushing for similar investments abroad to secure long-term supplies of fertilisers or raw materials at favourable prices. “This is one way by which we can also fight the various global cartels that are currently dictating the prices at which are importing. Some of them have even resorted to cut production by half to maintain prices at artificially high rates,” Chander added.

A sovereign fund would basically pick up equity in overseas projects along with the main promoters, which can then be leveraged to raise additional debt funds.

Currently, there are as many as three overseas fertiliser joint ventures under implementation and scheduled for commissioning in the next 2-3 years. These include two projects for manufacture of phosphoric acid at Skhira in Tunisia (the Indian promoters are Coromandel International and GSFC) and Eshidiya in Jordan (Iffco), and a 13-lt urea plant at Gabon, promoted by Tata Chemicals, Olam International and the Republic of Gabon.

Besides, RCF and Nagarjuna Fertilisers have proposed urea projects at Nyankrom (Ghana) and Koko (Nigeria) respectively, though these are still on the drawing board.

(This article was published on December 8, 2012)
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