New Fertiliser Policy... A Welcome Shot in the Arm to Revitalise the Industry

R G Rajan
CMD, Rashtriya Chemicals and Fertilizers Ltd.
Fertiliser industry has finally taken a breather after the announcement of the revised Fertiliser policy which envisages setting up a common gas pool mechanism and the policy encourages revamps of existing plants and capacity building through new projects to meet the growing fertiliser demand. In an exclusive interaction with Mittravinda Ranjan, R G Rajan, Chairman & Managing Director, RCF Ltd admires the Government for fi nally forming a concrete policy and setting a clear roadmap for the next four years to put the growth of fertiliser industry back on track. On a lighter note, he says, "Now that we have a policy in place, the industry is going to be on its toes to meet the project and production targets."

Now that our government has finally chalked out a clear cut fertiliser industry policy for the next four years, what is the reaction of the industry?
Revision of policy for fertiliser industry was long overdue, since 2010, when the old policy had expired. However, there were no concrete announcements from the government as the policy was only getting extended yearon-year, which was practically of no help, since the industry needed a clear cut long term policy which would enable them to set their short and long term goals. There was uncertainty in the policy environment and our industry has not seen any new projects over the last 10-15 years. Many of the fertiliser manufacturing units have been performing below the capacities and our margins have been adversely affected due to inconsistency in feedstock supplies, i.e, gas and subsidies.

The industry is very upbeat now after the government has overhauled the existing policy in the recent past and not only resolved the issues hampering the growth but also defined a clear cut roadmap for the next four years, which will rule out any hiccups for the existing as well as new projects that may be planned for building urea capacity in the country.

Current policy has mandated setting up a pooling mechanism to streamline gas supplies for the fertiliser industry and all the manufacturers will get the gas at the same price of around USD 10.5 per MMBTU which will help the plant owners to establish long term linkages for fuel supplies and operate plants at full capacity. GAIL has been designated as the nodal agency for the same. Availability of shale gas has already pushed down LNG prices globally which also favours the industry and will help us increase the profit margins.

Under the new policy, the government has also drawn incentive schemes to encourage the industry to conserve energy through energy efficient technologies, reduce environmental impact by minimising carbon footprint for new projects which is a winwin situation for the industry as well as the other industry stakeholders. We are planning two major brownfield projects - Thal III in Maharashtra, which is a gas based project and Talcher coal gasification based joint venture project of RCF, GAIL, Coal India and FCIL under this scheme.

The decision to allow the industry to produce 100 per cent neem coated urea from the earlier cap of 30 per cent is again a very positive step as this will help fertiliser manufacturers improve the profits by almost 3 percent. Moreover, use of neem coated urea offers added benefits in agriculture, which includes better absorption of fertiliser in soil and reduction in use of pesticides as neem is a natural insect repellent. One of the indirect benefits to the people at large would be reduction in the malpractice of using urea for adulteration of milk and other chemical industries since neem coated urea imparts natural brown colour to the liquid it is dissolved in, unlike normal urea which causes no colour change.

What kind of opportunities would open up in the Indian fertiliser sector for the allied services and equipment providing sectors for the new projects and the revamp of existing plants?
Speaking in terms of numbers, minimum cost of putting up a fertiliser plant comes to around Rs 5500 crore. Presently, 6 such plants in the country are likely to be implemented which would create market opportunity of around Rs 35,000 crore across the capital equipment, EPC, automation and process control, environment and water management sectors.

As far as revival of old closed plants is concerned, they will have to be rebuilt from scratch using new generation technologies since most of them are based on obsolete technologies that are no longer efficient. While one cannot rule out the possibility of use of some of the old equipment for storage and water facilities etc, that would still leave huge scope for the allied equipment and services providers in India. If you add up the costs of new projects and revamps of the existing operating plants, in my view total investment should come to around Rs 40,000 crore.

Tell us about RCF's ambitious projects at Thal III and Talcher .
Talcher project is a joint venture of RCF, Coal India, GAIL and FCIL based on coal gasification involving investments of around Rs 8000 - 9000 crore. Entire syn-gas produced by coal gasification will be used to set up the plant for producing Ammonia/ Urea.

We have already zeroed down on the coal gasification technology supplier and will announce the technology partner after receiving formal consent from the respective Boards of the JV partners. RCF has already floated tenders for downstream plants of ammonia and urea. Action has also been initiated to get a coal block allocated for the project. We are hoping to receive the necessary clearances and approvals within one year. Talcher project is targeted for commissioning by 2019.

Thal - III is the third phase of expansion project of our facility at Thal in Maharashtra and would incur investment of around Rs 5500 crore. We have already prepared the detailed project report and it will take us three years to commission the project after receiving the pending approvals which we expect to come through by September or October this year.

Tell us about RCF's international projects.
RCF is planning a joint venture project in Iran along with GNFC and GSFC, and appointed SBICAP to select a JV partner from Iran, which would be selected shortly. Following this we will sign the agreement and complete rest of the formalities. We plan to bring a major portion of the urea production from this plant to the Indian market and sell the balance in the local market, but it is too early to make a comment on this.

As we all are aware that India is completely dependent on imports for potash requirement, RCF has entered into a joint venture agreement with NMDC, NFL, FACT and KRIBHCO and is exploring the possibility of picking up stakes in a potash based project being developed by Acron in Russia. Currently, feasibility studies are going on to consider whether Indian consortium should have a 30 percent stake in the project. The production will be targeted for the Indian market. Besides, RCF is also exploring possibilities of entering into long term off-take agreements for potash with suppliers in Canada. The company is also prospecting Rock Phosphate Assets and Phosphatic Joint Venture Projects in resource rich countries of Africa and Middle-east .

Few years back we were exploring the possibility of setting up a urea project in Ghana, however we are not pursuing that project at present due to lack of assurance from the Ghanaian side for gas allocation for the project .

Globally, many countries are in the process of setting up greenfield urea projects which are likely to be commissioned around the same time as that of Talcher and Thal III. What kind of competition do you foresee from the international market?
At present, there is a deficit of 7-8 MMTPA of indigenously produced urea in meeting India's total requirement which is being met through imports. The fact is that when we enter the world market to buy urea, market prices shoot up. The whole rationale of Make in India for the fertiliser sector is to reach the levels of indigenous production to cater to 95-100 percent of demand in the domestic market. Once the new projects are commissioned, overall indigenous production will increase by around 8 MMTPA, which will benefit both the industry and farming fraternity.

Globally, many fertiliser manufacturers are revamping and upgrading old plants, and there are many plants still which need to be completely replaced with new generation plants from the techno commercial feasibility point of view. I do agree that globally many new urea units are being set up which are likely to come on-stream around 2018 -19 but all this is not going to impact our business in the domestic market, since government will give first preference to domestic urea and imports will only be to the extent to meet the shortfall if any. Moreover it has been seen that farmers prefer indigenous urea.

Amidst land constraints and continuously increasing food demand, urea demand is growing at 2- 3 percent year on year. Despite growing food demand, per capita consumption of urea in India is still far below the world average, which is something that needs to be addressed.

But as far as industrial urea is concerned, chemical industry will have to continue to rely on imports.

Let us talk about the market dynamics of the sector and if there is much more that industry expects from the Government?
As I have already said, urea demand is growing but we need to increase the per capita consumption to produce more to meet the growing food demand. There have been talks about decontrolling of urea sector in the past, but I think ultimately Nutrient Based Subsidy policy will also be implemented for Urea. Of course this may take 3 to 4 years to be implemented. The NBS will help control the subsidy burden of the Government and at the same time will also help in promoting balanced use of fertilisers.

The industry expects import of urea to be allowed under OGL as in the case of P & K fertilisers. As of now, only three companies viz, IPL, MMTC and STC enjoy the privilege to import fertiliser grade urea. Permission to import urea will help companies like RCF leverage the potential to have greater market share and improve top as well as bottom lines.

In a nutshell, which global trends need to be emulated in India ?
Government is on the right track and moving ahead with the aim to sustainably increase productivity and production of crops to ensure food security. Increasing per capita consumption of fertilisers in a balanced way is the foremost and the basic challenge that needs to be addressed.

It is critical to train farmers to use the 'Right fertiliser' at the 'Right time' in 'Right dose' and with 'Right method of application' and acquaint them with the techniques such as Integrated Nutrient Management for balanced fertilisation. However, such practices mandate the need of understanding the nutrient balance in the soil. Many countries have introduced the revolutionary concept of issuing soil health cards to the farmers to make them aware about the mineral content in soil for sustainable farming practices. Indian government has already started emulating this and within next three years, it is expected that the farmers across India will be issued these cards.

Taking a scientific approach above conventional farming practices, such as on-site production of organic fertilisers from bio-waste and use of bio -fertilisers along with chemical fertilisers to improve nutrient efficiency and soil health are some of the novel concepts that can be easily implemented through proper training to farmers.

Using advanced water soluble fertilisers along with drip irrigation to realise the mission of 'Each Drop More Crop' is a proven technique for crop production in water stressed areas and should be popularised in India. At RCF, we have 8000 MTPA plant for water soluble fertilisers. There is enough scope for enhancing use of these fertilisers.

Translating global best practices in India would deem it necessary for the fertiliser industry to have a closer engagement with the farming community .

What are your plans for future and the challenges that you foresee ?
At RCF, Thal III and Talcher are at the top of our priority list. We will kick off the planned international projects in Iran and Russia once we do the due diligence and find them to be attractive. Though we had deferred pursuing the project in Ghana in the past, we are very much open to alliances in African countries which have rich phosphate and natural gas reserves.

The industry has already gone through a phase of uncertainty and turbulence in the past due to lack of conducive and persistent policy for new investments as well as for sustaining operations of the existing plants. With the new policy in place, the only challenge in my view is to stay on our toes to deliver the planned projects as faster commissioning would mean faster returns on investments.