Fertiliser Sector Prospects Brighten; Government Support Acts As
The fertiliser industry, entangled in a host of problems since the last few years, appears well set to straighten itself out of the tangle. This is clearly indicated by the latest trends in fertiliser output.
The production of nitrogenous fertilisers is estimated at 7.6 lakh tonnes during November 1996 as against the target of 7.3 lakh tonnes. Phosphatic fertiliser output stood at 2.42 lakh tonnes as against the targeted 2.24 lakh tonnes.
The government provides a prop to the fertiliser industry with a mix of policy initiatives and fiscal incentives. The capacity expansion plans of major fertiliser companies are expected to remove the uncertainty that hangs over this industry.
The industry has lately been bogged down in a slew of problems like demand/supply imbalance, consumption pattern, pricing policy, infrastructure bottlenecks, technology handicaps and subsidy.
The recent pronouncement by the prime minister that the government will continue with fertiliser subsidy is yet another positive factor for the industry. The pronouncement should also remove the nagging uncertainty on this score.
Besides this, the government has made higher allocation for fertiliser in the five-year plans. In 1996-97, Rs 2,670 crore has been spent out of the Eighth Plan outlay of Rs 5,484 crore - the first four years accounting for 48.7 per cent of the total plan outlay.
Actual expenditure in the fertiliser sector during the Eighth Plan period is likely to match the outlay.
In order to attract more investment to this sector, the government has modified the policy and opened up the fertiliser sector. No industrial licence is required for setting up a fertiliser plant. The policy allows entrepreneurs to set up projects anywhere in India, subject to environmental clearance.
The entrepreneurs are also expected to tie up for feedstock and fuel linkage for ensuring continuous availability.
Urea is the only fertiliser under the statutory price and movement control of the government. The gap between the estimated demand for urea and its indigenous availability is made up through imports.
The import of urea is canalised through designated agencies that procure it through tender as well as long-term contracts with producers.
Urea imports during 1995-96 were 37.82 lakh tonnes. Out of this, 3.70 lakh tonnes was procured from Libya at Rs 7,221.08 per tonne (on weighted average C&F).
The availability of urea during the current rabi season (up to November 30, 1996) in relation to the Essential Commodities Act allocation is 43 per cent. As regards other decontrolled fertilisers, their requirement is determined by demand /supply forces.
The output of nitrogenous fertilisers in the current year has fallen short of expectation mainly due to raw material shortages. Major problems, such as infrastructure and technical constraints, have further crippled the performance of National Fertilisers Ltd, Fertilisers and Chemicals Ltd, Indian Farmers Fertiliser Corporation, Fertiliser Corporation of India and Hindustan Fertiliser Corporation. The technology used for fertiliser production has also undergone a sea change over the years mainly because of the hydrogen/carbon ratio used in feedstock. The choice of feedstock is determined by considerations like technology, adaptability, energy consumption, maintenance flexibility and operational efficiency.
The changes are led by impurities in generated gas and hydrogen/carbon ratio in feedstock. This pattern is closely linked to consumption of energy and the cost of production.
The domestic urea industry is supported through the retention price-cum-subsidy scheme. Liquid petroleum products used as feedstock and fuel in fertiliser plants are supplied at concessional price. Apart from the fact that there is no need for an industrial licence for setting up a fertiliser plant, the industry is also given concession on imports of capital goods in the form of import duty exemption and deemed export benefits.
Interest rate concession on long-term borrowing are also offered. In addition, assistance is provided for recurring linkages of feedstock, fuel and rail movement.
The tardy demand has forced the companies to pare their production of phosphatic fertilisers. Fund constraints and uncertainty over special concessions has also had a cascading effect on sales. Rock phosphate is an essential raw material in the manufacture of phosphatic fertilisers.
It is being imported directly by various manufacturers and other agencies since adequate quality and quantity are not available within the country. As such the availability of phosphatic fertiliser is determined by market forces of demand and supply.
Recently, Prime Minister H D Deve Gowda hinted at raising the phosphatic fertiliser subsidy to offset the recent cost escalations in manufacturing fertilisers.
The special concession announced is expected to boost the sales of fertilisers. The rate of special concession on indigenously manufactured di-ammonia phosphate has been enhanced from Rs 1,000 to Rs 3,000 per tonne.
Proportionate increase in the rate of concession in respect of other complex fertilisers has also been enhanced. In respect of SSP, the rate of special concession has been raised from Rs 340 to Rs 500 per tonne.
During the seven-month period, from April to October 1996, the production of nitrogen and phosphatic fertilisers was 46.95 lakh MT and 13.89 lakh MT, respectively, being marginally lower than the pro-rata target of 49.52 lakh MT of nitrogen and 15.67 lakh MT of phosphate fertilisers.
The non-availability of gas - the preferred feedstock for nitrogenous fertilisers - and over dependence on imported raw material for phosphatic fertilisers are viewed as major constraints causing a drop in production. Hence, the governments policy to maximise urea production based on the utilisation of indigenous feedstock seems perfectly justified..
There are altogether 139 fertiliser manufacturing units in the country.
Of this, 35 are in the public sector, 5 in the co-operative sector and 99 in the private sector.
Barring two sick units, FCI and HFC, central public/co-operative sector fertiliser companies seem to perform well. The overall capacity utilisation of these enterprises in 1995-96 was 101.6 per cent for nitrogen and 95.5 per cent for phosphate.
The two sick fertiliser enterprises, namely FCI and HFC, cannot be merged with any of the profit-making fertiliser enterprises as they have prior commitments towards ongoing expansion projects and joint ventures.
The government is encouraging Indian companies to set up joint venture production facilities with buy-back arrangements with countries having rich deposits of feedstock, such as natural gas and rock phosphate.
A joint venture project in Jordan to produce 2.24 lakh tonnes of phosphatic fertiliser per annum is expected to be commissioned by 1997. A MoU between the government of India, Krishi Bharati Corporation, Rashtriya Chemicals and Fertilisers, the government of the Sultanate of Oman and an Omani oil company has been signed for setting up a joint venture in Oman.
The project will have a production capacity of 14.5 lakh tonne of urea. A detailed feasibility report has been prepared for the project. A pre-feasibility report is under finalisation for setting up a joint venture nitrogenous fertiliser project in Iran.
The fertiliser scenario in India in the near future may change for the better after the proposed expansion plans go on stream. They may also ease the demand pressure.
Yet, the perennial issue of subsidy is unlikely to have an easy solution due to political and economic reasons.
The basic issue is to ensure balanced consumption of fertilisers which will entail a fair return to the producers. Hence, this calls for a rational pricing policy. Most of these are long-term issues that need a pragmatic approach.