Efforts by successive Government’s to achieve self-sufficiency in the production of fertilisers have failed. The Modi Government should broaden its options and look for expansion of existing units or set up joint ventures abroad
The Coal India Limited (CIL) and the National Thermal Power Corporation limited (NTPC) signed a joint venture agreement to revive the Sindri (Jharkhand) and Gorakhpur (Uttar Pradesh) plants of the Fertiliser Corporation of India (FCIL), at an estimated cost of about Rs 18,000 crore, over the next four years.
CIL and NTPC operate in coal and power sectors respectively and both have their plates full to meet their commitments in those areas to help India achieve the growth target. But, given fertiliser is a different cup of tea, why are they so keen to take a plunge, that too with such heavy financial commitment?
The reason is that the Union Government has directed them to do so. In fact, the Cabinet had approved a plan last year, to revive the units of the Hindustan Fertiliser Corporation Limited (HFCL) in Barouni through auctions. Since no private company showed interest, the axe has fallen on the CIL and the NTPC.
But this is not the first time that cash-rich public sector units have been involved in resurrection of ailing fertiliser plants. Several attempts were made in the past too, but were abandoned mid-stream or simply did not move beyond the drawing board.
In August 2011, the Cabinet Committee on Economic Affairs approved an investment of Rs 35,000 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 meggawatt power plant. Within three months, a special purpose vehicle, SAIL Sindri, was also incorporated.
Three years down, SAIL 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”.
In 2013, to revive the Talcher fertiliser plant in Odisha, the Gas Authority of India (GAIL), CIL and Rashtriya Chemicals and Fertilisers Limited, were roped in its Rs 8000 crore rejuvenation plan for production of 1.2 million tonnes per annum of urea and ammonium nitrate.
In a memorandum of understanding (MoU), signed in September 2013, two joint ventures were planned viz, (i) an upstream coal gasification and coal purification unit where GAIL would own 50 per cent, CIL 35 per cent and RCF 15 per cent and (ii) a downstream ammonia-urea complex where RCF and CIL would hold 40 per cent each and remaining 20 per cent with FCIL. As per the MoU, this was slated to be commissioned by 2017. But, the UPA Government left it in a limbo.
However, the Modi Government resurrected the plan within six months of its taking charge. But, CIL has expressed unwillingness to continue citing its Articles of Association (AoA) which does not permit diversification into an unrelated area (read fertilisers).
In yet another glaring instance, in 2006, Ram Vilas Paswan, the then Minister for Chemicals and Fertilisers had mooted rehabilitation of ailing Namrup IV unit of the Brahmaputra Valley Fertiliser Corporation Limited Rs 2,500 crore. It languished for eight years. In 2014, the Modi Government decided to set up a brown-field plant for production of 860,000 tonnes of urea per annum at Rs 4,400 crore.
A joint venture was formed in which Oil India limited (OIL) — a cash-rich public sector unit in the upstream oil and gas segment — was to hold 26 per cent equity and 11 per cent each from BVFCL and Assam Government (on nomination basis). The balance 52 per cent was to come from private company/strategic investor. But, one does not hear about it any more; seemingly, on one was willing to commit funds.
If, previous attempts did not bear fruit, is there any basis for optimism now? If SAIL was forced to leave in desperation (courtesy, delays in land acquisition, encroachment/diversion et), what is the guarantee that CIL and NTPC won’t meet the same fate? If in case of Talcher, CIL was then hamstrung due to its AoA, how will it overcome now taking up Sindri and Gorakhpur? Finally, how will they garner resources, especially when they need funds for their own growth (CIL needs to achieve coal production target of one billion tonnes by 2020)?
Even if these are commissioned surmounting all obstacles (suspect), has the Government thought of their ‘viability’ under a regime of direct benefit transfer of fertiliser subsidy to farmers which it is committed to achieve within its term? Given high cost of amortising fresh investment, the cost of urea from them will be higher than industry average, rendering them unviable.
Instead of attempting something that failed in the past and unlikely to succeed in the future, the Government should pursue better options such as expansion of existing efficient units or set up joint ventures abroad say in Iran, Oman etc where gas is plenty and cheap with buy-back agreement.
http://www.dailypioneer.com/columnists/oped/reviving-indias-fertiliser-plants.html