The revival of sick plants of two central public sector undertakings [PSUs] viz., Fertilizer Corporation of India Limited [FCIL] and Hindustan Fertilizer Corporation Limited [HFCL] is once again in the news.
Last year, the Union Cabinet had approved a plan to revive the Barauni [Bihar] of [HFCL], Gorakhpur [UP] and Sindri [Jharkhand] of FCIL through auctions. Having failed to get a good response through this route, the central government had asked cash-rich PSUs viz., Oil and Natural Gas Corporation Limited [ONGC], National Thermal Power Corporation limited [NTPC] and Coal India Limited [CIL] to adopt one closed urea plant each for revival.
Accordingly, CIL and NTPC have signed an agreement to form a joint venture [JV] to revive Sindri and Gorakhpur at an estimated cost of about Rs 18,000 crore over the next four years. The feedstock [gas] will be supplied to the plants through the proposed Jagdishpur-Phulpur-Haldia pipeline – a project currently under implementation by Gas Authority of India Limited [GAIL].
The initiative is modest as after commissioning 4 years from now, they will add 2.54 million tonnes of urea per annum [1.27 mt each] each to domestic production as against current demand-supply gap of 8 million tonnes which would have increased [due to increasing demand and no other concrete project – in public or private sector – on the anvil]. But, given the past record, even this looks unlikely. At the outset, let us capture some facts.
HFCL emerged as a separate company following reorganization of the erstwhile FCIL and NFL [National Fertilizers Limited] group of companies in early 1978. It got control of the operating Units at Durgapur [W. Bengal], Barauni [Bihar] and Namrup [Assam]. A fertilizer–cum–chemical project at Haldia [W. Bengal] was also annexed to it [it never took off, courtesy flaws in conception, design, choice of technology/equipment, commissioning etc]
In view of mounting losses [due to technical and financial viability issues], the company was declared sick and was referred to the Board for Industrial and Financial Reconstruction [BIFR] in 1992. In its order dated December 12, 2001, a bench of BIFR confirmed its winding up. But, the order was set aside by Appellate Authority for Industrial and Financial Reconstruction [AAIFR] vide its order dated November 29, 2002.
Meanwhile, after de-merging Namrup Unit into a new company Brahmaputra Valley Fertilizer Corporation Limited (BVFCL), Govt. of India declared closure of all its 3 remaining plants in 2002. Thereafter, it started a seemingly never ending process of reviving them.
In April 2007, the Cabinet approved in-principle revival of these plants but waited for over 18 months only to set up an empowered committee of secretaries (ECOS) to consider various options of revival [October 30, 2008]. On August 24, 2009, ECOS recommended a Revival Model [via bidding route] for approval of GOI. In August, 2011, cabinet committee on economic Affairs (CCEA) approved recommendations of the ECOS. The cabinet granted its approval on May 9, 2013.
FCIL has under it five units viz., Sindri [Jharkhand], Talcher [Odisha], Ramagundam [Telangana], Gorakhpur [UP] & Korba [Chhattisgarh]. These were shutdown during 1990-2002. In October, 2008, the cabinet asked ECOS to evaluate all options for their revival. The latter recommended their revival through ‘nomination route’ by PSUs and by private sector through ‘bidding route’. The nominated PSUs were Steel Authority of India [SAIL] for Sindri; Rashtriya Chemicals and Fertilizers [RCF], GAIL & CIL for Talcher; NFL and Engineers India Limited [EIL] for Ramagundam. For Gorakhpur and Korba units, ECOS recommended revival through ‘bidding route’.
In short, after watching HFCL and FCIL in the red for over a decade, GOI declared them sick in 1992. It took another decade to declare their closure in 2002. Even thereafter, while the patient was gasping on the ventilator, a decision whether to revive them or not was caught in bureaucratic red tape for more than a decade. Now, it is more than 3 years since cabinet approved their revival in 2013.
What is the present status? Out of a total of 8 plants [3 HFCL and 5 FCIL], the government’s focus is only on 2 viz., Sindri and Gorakhpur. Even for these, there is hardly anything to feel enthused.
For Sindri, in August 2011, CCEA had approved an investment of Rs 35,000 crores by SAIL [nominated PSU] for setting up urea plant 1.15 million ton, steel plant 5.6 million ton and 1000 mw power plant. Within 3 months, a special purpose vehicle SAIL Sindri was also incorporated. Yet, 3 years thereafter, in 2014 SAIL decided to exit alleging delay in getting various approvals, acquisition of land [a major chunk of land earmarked for the project was encroached or diverted for other uses] etc. If, SAIL did not succeed and was forced to leave in desperation, how can CIL/NTPC duo get their way through such intractable problems?
CIL was earlier roped in for revival of Talcher unit. The project to set up 1.2 million tons per annum of urea [plus ammonium nitrate] was originally approved in April, 2007. After languishing for 6 years, it was revived in 2013. In a MOU signed in September 2013, two JVs were planned viz., (i) an upstream coal gasification and purification unit where GAIL would own 50%, CIL 35% and RCF 15% and (ii) a downstream ammonia-urea complex where RCF and CIL would hold 40% each and FCIL 20%.
As per MOU, this should have been ready by 2017. But, last year, CIL decided to leave mid-stream citing its Articles of Association (AOA) which does not permit foray in to an un-related area [inexplicable as this fact was known even at the time of signing MOU]. One wonders how CIL will overcome this barrier when it comes to its participation in revival of Sindri and Gorakhpur.
Meanwhile, Paswan then fertilizer minister in UPA – dispensation in 2006 had mooted rehabilitation of ailing Namrup IV unit of BVFCL at a cost of Rs 2500 crores. It languished for 8 years. In 2014, Modi-government decided to set up a brown-field plant for production of 860,000 tons urea per annum that will cost Rs 4400 crores. It proposed to form a JV with Oil India limited (OIL) contributing 26% and 11% each from BVFCL and Assam government. The balance 52% was to come from private company/strategic investor. But, there has been no movement!
An over-arching factor that affects the fate of fertilizer plants is availability of feedstock. The 2050 km Jagdishpur-Phulpur-Haldia gas pipeline project that will carry gas to them has been in a limbo for several years. In 2014, Modi had directed GAIL to commission it within 2 years. But, for now its timely completion would only mean losses for GAIL as fertilizer plants won’t be ready to take gas even by 2020.
The project related imponderables viz., land acquisition, local approvals, legal nuances, finding partners, funding constraints, bureaucratic inertia etc which impeded revival in the past won’t go away too soon. However, the most critical factor that has the potential of jeopardizing the projects [even after successful commissioning which itself is suspect] is their ‘viability’ under a regime of direct benefit transfer [DBT] of fertilizer subsidy to farmers.
Under DBT regime, all fertilizer manufacturers will have to survive at market determined price as the protection of current new pricing scheme [NPS] which compensates them on unit-specific basis will no longer be available. Since, production cost of revived plants will be much higher than industry average and even imported urea [due to high cost of amortizing fresh investment], these will incur loss from day one.
This brings us to a fundamental question as to why we should at all look at revival of sick units in pursuit of self-sufficiency in fertilizers which never worked in the past and is unlikely to yield results in future. Why should we not explore better options such as expansion at existing sites of efficient units in private & cooperative sector or setting up JVs abroad in countries such as Iran, Oman etc where gas is plenty and cheap with buy-back agreements.