Even as the government’s spending on fertiliser subsidy is set to rise over ₹2.3 lakh crore in the current fiscal, the net profit in terms of percentage of turnover of 24 companies producing the crop nutrients dipped to 1.39 per cent during 2021-22 from 2.47 per cent in 2020-21. Unless there is a ‘reasonable’ improvement in the profit, private investment is unlikely in the fertiliser sector, industry experts said.

“Though it is better in the last two years compared to the previous three years, such a low level of profit is not seen in any other sector,” said an industry official. He cited the revival of closed urea plants with the help of only public sector undertakings. The profit after tax as a percentage of turnover of those 24 companies was 0.61 per cent, 0.39 per cent and 0.64 per cent during 2017-18, 2018-19 and 2019-20, resepectively, according to Fertiliser Association of India (FAI) data.

Hindustan Urvarak & Rasayan Limited was incorporated with 29.67 per cent equity participations, each by National Thermal Power Corporation (NTPC), Indian Oil Corporation Limited (IOCL) and Coal India Limited (CIL) and 11 per cent by Fertilizers Corporation of India Limited (FCIL) for the revival of three urea plants at Gorakhpur, Sindri and Barauni. Talcher unit is getting revived through Talcher Fertilizer Limited (TFL), a joint venture of Gas Authority of India Ltd. (GAIL), Coal India Limited (CIL), Rashtriya Chemicals and Fertilizers (RCF) and FCIL. The Ramagundam plant, recently inaugurated by the Prime Minister, has been revived through a joint venture company owned by National Fertilizers Limited (NFL), Engineers India Limited (EIL) and FCIL.

Informal understanding

There are two other urea plants in the private sector — one at Kota (Rajasthan) and another at Panagarh (West Bengal) — which have come up in the last two decades.

“The urea price (MRP) is fixed by the government so is the subsidy, effectively deciding what margin companies will have. On the other hand, there is some informal understanding between government and fertiliser companies about the retail prices at which DAP and other fertilisers can be sold whereas the subsidy is not always on the actual cost of import,” the industry official said.

Stating that the government’s fertiliser subsidy bill will rise to ₹2.3-2.5 lakh crore in this fiscal, FAI Chairman KS Raju said the figure may dip in 2023-24 with moderation in global prices, but it is difficult to say by how much since a lot of factors including the gas price determine the cost of production. The fertiliser subsidy stood at ₹1.62 lakh crore in the previous financial year.

No hike

He expressed concern that the fixed cost of urea has not been increased affecting the viability of urea plants and said as a result industry is running on a very thin margin, which is hampering new investments in this sector.

The industry body said there was sufficient availability of fertilisers, including urea and DAP, for the ongoing rabi (winter-sown) season.

FAI board member PS Gahlaut, who is MD of Indian Potash Ltd (IPL), said the subsidy bill in the next fiscal year could fall by around 25 per cent as the global prices have softened. However, he said a lot will depend on the future trends of global prices.

The association said in a statement that there have been unprecedented international price rises for fertilisers and fertiliser raw materials including natural gas/LNG during the past two years. The international price of DAP (FOB) increased from $555 per tonne for April 2021 to $945 per tonne for July 2022. It has now declined to $722 for October 2022. Similarly, the price of phosphoric acid increased from $876 per tonne in April 2021 to $718 per tonne by July 2022, before declining to $355 in October 2022.

CFR-India price of imported urea increased from about $400 per tonne in April 2021 to more than $990 per tonne by December 2021. According to latest tender, it has declined to about $550 per tonne.