Offsets proposed for fertiliser sector

The ministry of chemicals and fertilisers has recommended the government extend its national policy on offsets/ counter trade to the fertiliser sector.  According to official sources, this move will facilitate entry of Indian entities into the ownership and sourcing of basic raw materials like gas, rock phosphate and potash abroad.

The proposal says, as with the defence sector, high value government purchases, should be leveraged for gaining entry of fertiliser companies, both  PSUs and private entities, in acquiring assets for mining of rock phosphate/potash or for long-term gas linkages from countries which have abundant resources.

The demand forecasts for the 12th-five year plan are 33.7  million tonnes (mt) for urea, 12.4 mt for diammonium phosphate, 4.8 mt for muriate of potash and 11.4 mt for complex fertilisers. While it is expected that over and above the present installed capacity of 23.9 mtpa of urea, additional capacity is expected to come in the next Plan period, for non-urea categories, India is dependent on imports for 70-90 per cent of its consumption. Thus, like oil, fertiliser prices are vulnerable to exchange rates and a drag on the import bill.

 

“Thus, such offsets will primarily aim at securing access of Indian companies to basic raw material as well as price advantage compared to its competitors”, explained an official source.

They said, currently the national policy of offsets is applicable primarily for the defence sector but primarily for import of items and not acquisition. Under such arrangement, defence hardware acquisitions above Rs 300 crore require the foreign supplier to ‘offset’ at least 30 per cent of the contract value by sourcing sub-assemblies, components and services from India, as is the case with the recent $10.6-billion jet fighter deal with Dassault Rafale.

They explained India procures a lot of defence items from Belarus and Russia and such a policy may help the fertiliser companies to procure assets or leases in fertiliser resources in those countries.  Further the ministry has proposed a model for acquisition of raw material assets abroad by first creating goodwill by building infrastructure needs of a country rich in fertiliser resources and then acquiring the raw material resources.

Officials explained that this model has been successfully adopted by China in many African countries. Chinese construction firms are building dams, telecom networks, railways, hotels etc in African countries and in exchange acquire concessional leases/rights to African mines and oil and gas resources.

For financial funding, while the ministry has already proposed a separate corpus of $ 1 billion in the twelfth plan period, it has recommended lending at attractive rate of interest by Indian financial and Export credit agencies to companies venturing overseas for acquisition. For separate corpus , it has urged the government either for a grant or a loan of $ 1 billion at subsidised rate of interest.