S Nand, Deputy Director General, The Fertiliser Association of India (FAI)

For the existing capacity there is full allocation of gas barring some infrastructure bottleneck and gas pipeline limitations etc. There is also enough gas for the companies which are undertaking de-bottlenecking exercise. Also, additional 3 MMSCMD of gas has been allotted to the fertiliser sector in addition to 48 MMSCMD of gas that we were already getting. There is no shortage of gas as such.

The full impact of unavailability-shortage of gas will be felt in the year 2012-13. The current demand for urea in the year 2010-11 stands at 28 million tonnes which is expected to go upto 34 million tonnes by the end of XII Five-Year-Plan. To this add the additional capacity that is expected to come-up through a project based on coal bed methane (CBM). With this project we expect urea production to go upto 24 million tonnes by 2013-2014 vis-à-vis 34 million tonnes in the terminal year of XII FYP (2016-2017). So, the 24 million tonnes of urea production will be achieved without any additional gas demand. Yes for any fresh capacity you need additional gas.

At present there are four fuel oil based plants. They are major investment for us. These plants will be commissioned in 2012-2013. We have indicated gas requirement of about 3.8 MMSCMD for these plants. Then there are four naphtha based plants which are not connected yet and are operating plants. Their requirement of gas to run these plants will be roughly about 5 MMSCMD. The important thing to remember here is that these are the plants contributing to the current urea production.

We had eight projects that were shut down. Their fate has to be decided by the Government. As a representative association I cannot comment on the issue.

There are suggestions from various quarters on models and viability of these plants. Moreover, six more projects are being proposed by the existing players and all the eyes are on Government’s new investment and gas allocation policy.

There are various reasons that contributed to the closure of these plants. To start with there was problem with the technology itself, the equipment.  They came at a time when we did not have foreign exchange so we had to take equipment against soft loans. Then huge investment had to be made to bring these plants to production. And these plants belonged to only one company or at best two companies whose very capacity to run them came under stress resulting in huge financial losses.

Now, when we talk about revival of plants what we essentially mean is putting-up new projects.

This whole idea of producing urea abroad was modeled on Oman. This was based on the cooperation between the two governments. And the Government of India committed itself to buy that urea at the pre-determined price though the price of urea was not fixed because at that time urea price were depressed.

 A number of companies have been trying to follow this model in countries such as Nigeria and Iran. However, the model has not met with expected success. There are challenges in terms of gas price, security environment, infrastructure including link road etc. Despite these hurdles we have companies such as Tata Chemicals and Rasthriya Chemicals and Fertlisers going out and making their presence felt in Nigeria and Ghana, respectively.

For things to progress on this front there has to be clarity regarding the fact that anybody who puts-up investment abroad need not necessarily bring that urea back to India. Investors should have the freedom to sell it in international market like any other export oriented manufacturer. If a company making investment abroad like any other entrepreneur wishes to sell its products at the international prices it should have the freedom to do so.

If we talk about urea specifically, it’s given that the urea uptake of plants/soil is limited. About 70 percent of it percolates to ground. Now first of all it’s not peculiar to India. It’s the very nature of fertiliser as a product and everything does not go down into ground water. But the fact remains that depending upon the type of crop and soil condition about 34 to 40 percent is the maximum uptake of fertilisers.

Also, I think from the point of view of energy efficiency we need to ask which power plant has 100 percent fuel efficiency. Most of the power plants operate at 45 percent. So whatever fuel it may be if hydrocarbons are burnt then either carbon dioxide or monoxide is going to be released. We always have more unburnt hydrocarbon. The question is where does the rest of the energy go? There is no such thing as 100 percent efficiency as it is against the law. Secondly, thermo dynamics says that you have to reject some energy, something would be dissipated. And the same argument applies everywhere. There is no such thing as 100 percent efficiency as it is against the law.

The efficiency can be improved by various means. Foremost thing is that urea too should be brought under NBS. It should be priced in such a way that farmer has a balanced application of urea along with other micro nutrients. He should get maximum benefit out of usage of urea and fertilisers. Secondly the product targeted at farmer should suit his plant-soil requirement and the products should not be pushed merely as a commodity. We have to offer complete nutrient solution to the farmers. We call this complete crop solution as integrated nutrient benefit. One you strike balance between major nutrients and the micro nutrients. Major nutrients are calcium, magnesium and micro nutrients include Zinc, copper. Second thing is that you do use the organic matter that plays an important role in improving soil’s physical properties like water retention. These things work in conjunction they are not opposed to each other. One has to work towards maximising benefits from fertilisers and chemicals. Efforts are geared towards providing farmers with customised fertilisers which are say water soluble. Now depending upon viability and infrastructure it saves you water as you supply fertiliser through irrigation water and get maximum benefit of it.

All these solutions are being advocated by the industry through farm demonstrations, meetings with farmers. But fertiliser industry’s ability to provide potential crop solution is limited because of its environment. For example its capacity to generate funds is very-very limited. What fertiliser industry is asking for is that keep it away from subsidies. The need of the hour is to extend direct subsidy to farmers.

Before talking about subsidy mechanism we need to realise that we have a gap of about 10 million tonnes. The capacity which is planned now whether it comes through revival of existing projects or through new projects is something that depends on how things fold out as a result of the Government’s investment and gas allocation policy. Point is that we need 10 million tonnes of urea and to produce all of this 10 million we will require 20 MMSCMD of gas. At the same time we do have an arrangement of 1.6 million tonnes of import of urea from Oman so discounting that we still have a requirement of 8.5  billion tonnes of urea capacity for which we will require 17 MMSCMD of gas.

Now the Government’s subsidy policy has two segments which are working under very different environment. For the existing urea plants the policy which continues is called New Pricing Policy. As part of this the cost of production of each unit is calculated using pooling element and on basis of factory gate prices.  There are fixed group and they are averaged within the group and then weighted average of that group is paid either the weighted average or your own price whichever is decided upon. This price which we called New Pricing Policy for urea expired in March 2010. This has been extended on ad-hoc basis.

A new dispensation that we are advocating as an industry association for urea is what is called Nutrient Based Subsidy (NBS). The rest of the fertlisers including phosphatic and potassic are already under NBS. What we are saying is that the Government of India should notify a fixed subsidy depending upon the nutrient content of the product. One could calculate subsidy for that particular product for the year. The industry has been given the freedom to fix MRP of products so whatever is the difference between subsidy and the cost of production or import has to realised through MRP. Now this came as a much welcome reform for the sector. And we are asking the Government to bring urea also under this dispensation.

I don’t think I’m qualified to speak on this. But my personal observation is that it’s going to be a humongous task implementing such a thing to fertliser industry. With thousands of dealers and nearly 120 million farmers buying fertiliser twice a year, implementing processes for disbursing direct subsidy is not going to be easy. Again these subsidies are not going to be restricted to fertlisers but for agri inputs. There could be other inputs or cash transfer for seeds, fertlisers among others.

There are talks of linking these reliefs with food subsidy, LPG. We are participating in the entire exercise to the extent that they want data, inputs and feedback from us. As an association we are fully committed to providing information that is required from us. However the entire exercise is going to take a long -time.