ET BureauIn an interview with ET, Satish Chander, Director General of the Fertiliser Association of India, shares his views on the proposed closure of the three urea plants located in Karnataka and Tamil Nadu, and its impact on the industry. Excerpts:
What do you think about the ‘Make in India’ concept proposed by the Prime Minister in his Independence Day speech?
We are happy on the move proposed by the Prime Minister to be self sufficient in terms creating domestic capacity/infrastructure. However, the government at the same time is also taking steps to close down the present efficient manufacturing facilities. The case refers to the proposed closure of the three urea plants (MCF, SPIC and MFL) located in Karnataka and Tamil Nadu. The GoI notified the Modified New Pricing Scheme on 2nd April, 2014, under which production for naphtha-based units will be continued till the gas availability/connectivity is provided or June 2014, whichever is earliest. It is proposed that no subsidy will be provided thereafter to the naphtha-based plants, resulting in the closure of these plants.
What will be the impact of closure of the three urea plants?
The closure of these units will necessitate higher urea imports by 1.5 million tonnes, which will result in higher prices for entire urea imports of more than 9 million tonnes. It will also result in the loss of jobs and render the capital assets non-productive. Three southern states of India (Tamil Nadu, Kerala and Karnataka) will be completely devoid of production of this vital fertiliser.
What are your suggestions to the government on the closure of these plants?
It is ironic that the government, on the one hand, is contemplating to revive various sick and closed fertilizer units and, on the other hand, is shutting down three efficient urea manufacturing units for no fault of their own. Also, the difference in the cost of production of urea based on LNG and naphtha is not significant. More than one third of gas-based urea production is based on imported LNG. Further, investment in the revival of one plant will be almost Rs 5000 crore. All the shutdown plants proposed to be revived have no gas pipeline connectivity. FAI believes that the three naphtha-based urea units, which are energy efficient and have very low fixed cost, should be allowed to operate till the gas supply is arranged. This will avoid large scale unemployment, and increase dependence on imports.
Please share your thoughts on the Deepak Fertiliser issue?
We at FAI have been insisting on giving priority to the allocation of domestic gas for production of fertilisers without any distinction of products, because there is no distinction between urea and complex fertilisers for application of nitrogen to increase agriculture productivity. The government had taken cognizance of reasonability of allocation of gas to NP/NPK plants and had allocated gas to the complex fertiliser plants. However, there seems to be rethinking on the issue to single out complex fertilisers and not to encourage domestic production of these products.
The government has been insisting that all the fertiliser companies should switch over to gas from other liquid fuels so that the fertilisers are available at competitive prices. However, the proposal of withdrawal of the allocation of gas will push the P&K sector to switch to LNG. The LNG in the spot market is available at a delivered price of about $20 per MMBTU. Based on this gas cost, the cost of domestically produced ammonia will exceed $700 per tonne. This will be a completely unviable proposition for the production of NP/NPK fertilisers and hence disturb equilibrium between domestic production and import in fulfilling the large requirement of the country.
India imported 1.3 million tonnes of ammonia in 2012-13 in spite of poor capacity utilization of 6I% of complex fertiliser plants. The country would need to import more than 2.5 million tonnes of ammonia if NP/NPK plants operate at I00oh capacity utilization. Also, some of the plants because of their location will not be able to import ammonia. India imported 6.3 million tonne DAP and complex fertilisers in 20l2-13. Any reduction in the production of domestic ammonia will increase dependence on imports of ammonia and finished products like DAP and NPKs. India is already dependent on the import of fertiliser and fertiliser raw materials to the extent of more than 70% of her requirement. Not providing domestic gas to the P&K fertilisers will be contrary to the efforts to reduce dependence on imported raw materials and fertiliser products.
Complex fertilisers also supply nitrogen along with phosphate and potash and the policy of the government is to promote balanced fertilisation through NPK fertilisers. Prices of these fertilisers are disproportionately higher than urea and efforts should be to reduce their cost of production within the country. Therefore, there is need to allocate gas for manufacture of NPAIPK fertiliser. We should not encourage the use of ‘N’ only through urea. In this context, it is necessary that priority in allocation of domestic gas be maintained for both the production of urea and NP/NPK fertilisers. The price of domestic gas is already high and will increase further. Therefore, there is no element of subsidy in making gas available for fertiliser production. It is our earnest request that the priority of NP/NPK fertilisers should remain at par with urea in the larger interest of self sufficiency in fertiliser production, balanced fertilisation and food security of the country.
What do you think about the ‘Make in India’ concept proposed by the Prime Minister in his Independence Day speech?
We are happy on the move proposed by the Prime Minister to be self sufficient in terms creating domestic capacity/infrastructure. However, the government at the same time is also taking steps to close down the present efficient manufacturing facilities. The case refers to the proposed closure of the three urea plants (MCF, SPIC and MFL) located in Karnataka and Tamil Nadu. The GoI notified the Modified New Pricing Scheme on 2nd April, 2014, under which production for naphtha-based units will be continued till the gas availability/connectivity is provided or June 2014, whichever is earliest. It is proposed that no subsidy will be provided thereafter to the naphtha-based plants, resulting in the closure of these plants.
What will be the impact of closure of the three urea plants?
The closure of these units will necessitate higher urea imports by 1.5 million tonnes, which will result in higher prices for entire urea imports of more than 9 million tonnes. It will also result in the loss of jobs and render the capital assets non-productive. Three southern states of India (Tamil Nadu, Kerala and Karnataka) will be completely devoid of production of this vital fertiliser.
What are your suggestions to the government on the closure of these plants?
It is ironic that the government, on the one hand, is contemplating to revive various sick and closed fertilizer units and, on the other hand, is shutting down three efficient urea manufacturing units for no fault of their own. Also, the difference in the cost of production of urea based on LNG and naphtha is not significant. More than one third of gas-based urea production is based on imported LNG. Further, investment in the revival of one plant will be almost Rs 5000 crore. All the shutdown plants proposed to be revived have no gas pipeline connectivity. FAI believes that the three naphtha-based urea units, which are energy efficient and have very low fixed cost, should be allowed to operate till the gas supply is arranged. This will avoid large scale unemployment, and increase dependence on imports.
Please share your thoughts on the Deepak Fertiliser issue?
We at FAI have been insisting on giving priority to the allocation of domestic gas for production of fertilisers without any distinction of products, because there is no distinction between urea and complex fertilisers for application of nitrogen to increase agriculture productivity. The government had taken cognizance of reasonability of allocation of gas to NP/NPK plants and had allocated gas to the complex fertiliser plants. However, there seems to be rethinking on the issue to single out complex fertilisers and not to encourage domestic production of these products.
The government has been insisting that all the fertiliser companies should switch over to gas from other liquid fuels so that the fertilisers are available at competitive prices. However, the proposal of withdrawal of the allocation of gas will push the P&K sector to switch to LNG. The LNG in the spot market is available at a delivered price of about $20 per MMBTU. Based on this gas cost, the cost of domestically produced ammonia will exceed $700 per tonne. This will be a completely unviable proposition for the production of NP/NPK fertilisers and hence disturb equilibrium between domestic production and import in fulfilling the large requirement of the country.
India imported 1.3 million tonnes of ammonia in 2012-13 in spite of poor capacity utilization of 6I% of complex fertiliser plants. The country would need to import more than 2.5 million tonnes of ammonia if NP/NPK plants operate at I00oh capacity utilization. Also, some of the plants because of their location will not be able to import ammonia. India imported 6.3 million tonne DAP and complex fertilisers in 20l2-13. Any reduction in the production of domestic ammonia will increase dependence on imports of ammonia and finished products like DAP and NPKs. India is already dependent on the import of fertiliser and fertiliser raw materials to the extent of more than 70% of her requirement. Not providing domestic gas to the P&K fertilisers will be contrary to the efforts to reduce dependence on imported raw materials and fertiliser products.
Complex fertilisers also supply nitrogen along with phosphate and potash and the policy of the government is to promote balanced fertilisation through NPK fertilisers. Prices of these fertilisers are disproportionately higher than urea and efforts should be to reduce their cost of production within the country. Therefore, there is need to allocate gas for manufacture of NPAIPK fertiliser. We should not encourage the use of ‘N’ only through urea. In this context, it is necessary that priority in allocation of domestic gas be maintained for both the production of urea and NP/NPK fertilisers. The price of domestic gas is already high and will increase further. Therefore, there is no element of subsidy in making gas available for fertiliser production. It is our earnest request that the priority of NP/NPK fertilisers should remain at par with urea in the larger interest of self sufficiency in fertiliser production, balanced fertilisation and food security of the country.
( Originally published on Sep 07, 2014 )
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