For nearly 4 decades, successive governments have vowed to achieve self-sufficiency in production of fertilizers yet, this much trumpeted goal has eluded them barring a brief stint in early 90s. Will things be different under Modi – dispensation?
Immediately after the present government took charge in May, 2014, fertilizer minister, Ananth Kumar reiterated the dire need for achieving self-sufficiency in fertilizers by re-invigorating sick plants of Fertilizer Corporation of India (FCIL) and Brahmaputra Valley Fertilizer Corporation of India (BVFCL) (earlier known as HFCL) both undertakings of central government.
Both these undertakings have been incurring losses for several years in fact decades. Indeed, some plants under them viz., Ramagundum and Talcher (FCIL) and Haldia (BVFCL) were babies born sick. It would be no exaggeration to say that these PSUs have been on ventilator for ages with central government pumping thousands of crores only to keep them alive.
These undertakings have also been natural choice for high level committees of government and various think-tanks to come up with rehabilitation and restructuring packages. Such studies have also consumed hundreds of crores of tax payers money but their reports have been gathering dust in the fertilizer ministry.
What is the basis of Mr Ananth Kumar confidence? Will he able to break away from the lethargy of UPA which never took proposals for revival seriously or abandoned midstream after the initial start? What challenges does he face? A reality check is needed.
One such proposal is Rs 8000 crores rejuvenation plan of Talcher unit (Odisha) of FCIL. The project with a production capacity of 1.2 million tons per annum of urea and ammonium nitrate was originally approved in April, 2007 and should have been commissioned by 2010. After languishing for 6 years, proposal was revived in 2013.
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 Gas Authority of India (GAIL) would own 50%, Coal India Limited (CIL) 35% and Rashtriya Chemicals & Fertilizers (RCF) 15% and (ii) a downstream ammonia-urea complex where RCF and CIL would hold 40% each and remaining 20% with FCIL.
As per MoU, this was slated to be commissioned by 2017. Yet again, then government left it in a limbo. The present regime is keen to resurrect the plan but it has been dented by CIL (its participation in both the ventures holds the key) throwing a spanner in works. Citing its articles of association (AoA), it has expressed its unwillingness to continue. This is inexplicable as the AoA existed even at the time of signing MoU! The real reasons lie elsewhere.
These have to do with the ability of CIL to commit required supplies of coal when already it is unable to honour fuel supply commitments to power plants. One also wonders whether it would be able to spare funds for gas/fertilizer complex when it needs to fund its own capital spending for increasing coal production to 1 billion tons in the next 5 years as promised by Piyush Goyal.
There are technical imponderables too. While, fertilizer unit requires coal having ash content in the range of 30-35%, supplies from CIL have much higher ash content of about 45%. The project proponents are struggling to import coal gasification technology suitable to use of coal with higher ash content!
Another sick unit of FCIL at Sindri (Jharkhand) was languishing with Board for Industrial and Financial Restructuring (BIFR). In August 2011, Cabinet Committee on Economic Affairs (CCEA) approved an investment of Rs 35,000 crores by Steel Authority of India Limited (SAIL) 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.
Three years down the time lane, SAIL has now decided to exit alleging delay in getting various approvals, acquisition of land etc. Shockingly, a major chunk of land earmarked for project was found to have been encroached or diverted for other uses. Elucidating on its decision, SAIL board argued ‘it cannot wait endlessly to get the land all the more when its own expansion and modernization plans worth US$ 12 billion are crying for attention’.
Take Namrup IV unit of BVFCL for which Mr Paswan then fertilizer minister in 2006 had mooted rehabilitation at a cost of Rs 2500 crores. 8 years thereafter, it is still languishing (no attention was paid to ailing II & III units either which run at only 50% of capacity). Now, Modi-government wants to set up a brown-field plant for production of 860,000 tons that will cost Rs 4400 crores.
For implementing the project, it proposes to form a joint venture with Oil India (OIL) contributing 26% and 11% each from BVFCL and Assam government (on nomination basis). However, garnering the remaining equity of 52% from private players and strategic investors will pose a daunting challenge.
Apart from project related imponderables, a bigger impediment is the availability of feed stock. The 2050 km Jagdishpur-Phulpur-Haldia gas pipeline project – with carrying capacity of 32 million standard cubic meter per day (mmscmd) and was to meet gas requirements of Sindri (Jharkhand), Gorakhpur (UP), Barauni (Bihar) and Durgapur (WB) – has been languishing for years.
Though, prime minister has resurrected the project and even directed Gas Authority of India (GAIL) – the implementing agency – to commence work on October 1, 2014 and complete in 2 years, it remains to be seen whether Modi’s diktat will force the bureaucrats break-away from their inertia to meet the deadline.
As regards the viability of revamped projects, the amended urea investment policy (UIP) – approved early this year – assures investors in revival projects of sick FCIL & BVFCL a price linked to import parity price (IPP) with a floor (F) US$ 305 per ton and ceiling (C) US$ 335 per ton with full compensation for gas cost.
But, this protection will collapse the day government implements reforms in urea segment to bring in uniform nutrient-based subsidy on the lines of already decontrolled complex phosphate and potash fertilizers and eventually replacing extant subsidy regime by direct cash transfer to farmers.
The prophesied self-sufficiency goal in fertilizers will remain a pipe dream even with Modi at the helm!