Fertilizers

The Industry had a very humble beginning in 1906, when the first manufacturing unit of Single Super Phosphate (SSP) was set up in Ranipet near Chennai with an annual capacity of 6000 MT. The Fertilizers & Chemicals Travancore of India Ltd. (FACT) at Cochin in Kerala and the Fertilizers Corporation of India (FCI) in Sindri in Bihar (Now Jharkhand) were the first large sized-fertilizer plants set up in the forties and fifties with a view to establish an industrial base to achieve self-sufficiency in food grains. Subsequently, green revolution in the late sixties gave an impetus to the growth of Fertilizer industry in India. The seventies and eighties then witnessed significant additions to the fertilizer production capacity.

The installed capacity as on 28.02.2003 has reached a level of 12.11 million MT of nitrogen (inclusive of an installed capacity of 20.84 million MT of urea after reassessment of capacity) and 5.36 million MT of phosphatic nutrient, making India the 3rd largest fertilizer producer in the world. The rapid build up of fertilizer production capacity in the country has been achieved as a result of a favourable policy environment facilitating large investments in the public, co-operative and private sectors. Presently, there are 57 large sized fertilizer plants in the country manufacturing a wide range of nitrogenous, phosphatic and complex fertilizers. Out of these, 29 units produce urea, 20 units produce DAP and complex fertilizers, 13 plants manufacture Ammonium Sulphate (AS), Calcium Ammonium Nitrate (CAN) and other low analysis nitrogenous fertilizers. Besides, there are about 64 medium and small-scale units in operation producing SSP.

Self sufficiency in the fertilizer sector

Out of three main nutrients namely, nitrogen, phosphate and potash, required for various crops, indigenous raw materials are available mainly for production of nitrogen. The Government's policy has hence aimed at achieving the maximum possible degree of self-sufficiency in the production of nitrogenous fertilizers based on utilization of indigenous feedstock. Prior to 1980, nitrogenous fertilizer plants were mainly based on naphtha as feedstock. A number of fuel oil/LSHS based ammonia-urea plants were also set up during 1978 to 1982, two coal-based plants were set up for the first time in the country at Talcher, Orrisa and Ramagundam, Andhra Pradesh. These coal based plants have been closed by Government with effect from 1.4.2002. However, with natural gas becoming available from offshore Bombay High and South Basin, a number of gas based ammonia-urea plants have been set up since 1985. As the usage of gas increased and its available supply dwindled, a number of expansion project camp upon the last few years with duel feed facility using both naphtha and gas Feasibility of making available liquefied natural gas (LNG) to meet the demand of existing fertilizer plant and/or for the expansion projects along with the possibility for utilizing newly discovered gas reserves is also being explored by various fertilizer companies in India.

In case of phosphates, the paucity of domestic raw material constrains the attainment of self-sufficiency in the country. Indigenous rock phosphate supplies meet only 5-10% of the total requirement of P205. A deliberate policy has therefore been adopted which involves mix of three options. First, domestic production based on indigenous/imported rock phosphate and imported sulphur. Second, domestic production based on imported intermediates, viz. Ammonia and phosphoric acid; and third, import of finished fertilizers. During 2001-02 roughly 87% of the requirement of phosphatic fertilizers was met through the first two options.
In the absence of commercially exploitable potash sources in the country, the entire demand of potassic fertilizers for direct application as well as for production of complex fertilizers is met through imports.
Given the Volatility in international fertilizer market in general and urea market in particular, marginal provision through imports could be used to the country's strategic advantage. This is also desirable as the international market, especially in case of urea, is very sensitive to demand supply scenario. The possibility of securing additional supply of urea by permitting economically efficient indigenous units to produce their reassessed capacity to substitute imports is also being explored in the pricing regime for urea units, which is applicable from 01.04.2003.

Technological Advancements

To meet the growing demand of fertilizers in the country through indigenous production, self-reliance in design engineering and execution of fertilizer projects is very crucial. This requires a strong indigenous technological based in planning, development of process know-how, design engineering and expertise in project management and execution of the projects. With the Continuing support of the Government of India for research and development as well as for design engineering activities over the years, Indian consultancy organisations Project and Development India Ltd. (PDIL) & FACT Engineering and Design Orgfanisation (FEDO) in the field of fertilizers have grown steadily in tandem with the fertilizer industry. These consultancy organisations are today in a position to undertake execution of fertilizer projects starting from concept/designing to commissioning of fertilizer plants.

The fertilizer plant operators have now fully absorbed and assimilated the latest technological developments incorporating environmental friendly process technologies and are in a position to operate and maintain the plants at their optimum levels without any foreign assistance and no international standards in terms of capacity utilization, specific energy consumption & prescribed pollution standards. The average performance of gas-based plants in the country today is amongst the best in the world.

The country has also developed expertise for fabrication and supply of major and critical equipment such as high pressure vessels, static and rotating equipment, Distributed Control System (DCS), heat exchangers and hydrolyser for fertilizer projects. The indigenous vendors are now in a position to compete and secure orders for such equipment both in India & abroad under International Competitive Bidding (ICB) procedure. Presently, about 70% of the equipment required for a major domestic fertilizer plant are designed and manufactured indigenously.
A significant development/advancement has also been made in the country in the field of manufacturing of catalysts of various ranges by our catalyst-manufacturing organisation like PDIL.

Concessions/Incentives on Import of Capital Goods for Fertilizer Industry

To encourage investment in the fertilizer sector, the following concessions are available to the domestic industry:-

• Concessional customs duty on import of capital good for setting up of new plants/substantial expansion/renovation/modernization of existing plants.
• Deemed export benefit to indigenous suppliers of capital goods for new/revamp/retrofit/modernization projects of fertilizers provided such supplies are made under the procedure of International Competitive Bidding.
  

Development and Growth of Fertilizer Industry

Capacity Build-Up

At present, there are 57 large sized fertilizer plants in the country manufacturing a wide range of nitrogenous, phosphatic and complex fertilizers. Of these, 29 units produce urea, 20 units are of DAP and complex fertilizers, 7 units produce low analysis straight nitrogenous fertilizers and remaining 9 manufacture ammonium sulphate as by-product.

Besides, there are about 64 small and medium scale plants in operation producing single super phosphate (SSP). The total installed capacity of fertilizer production, which was 120.58 lakh MT of nitrogen and 52.31 lakh MT of phosphate as on 31.03.2003 has marginally reduced to 119.98 lakh MT of nitrogen and 53.60 lakh MT has risen to 54.20 lakh MT of phosphate as on 01.04.2004.

Production capacity

The production of fertilizers during 2003-04 was 106.34 lakh MT of nitrogen and that of phosphatic fertilizers was 36.30 lakh MT of phosphate. The production target for 2004-2005 has been fixed at 117.02 lakh MT of nitrogen and 48.78 lakh MT of phosphate, representing a growth rate of 10.04% in nitrogen and 34.4% in phosphate, as compared to the actual production in 2003-2004. Production targets of both nitrogen and phosphate are less than the installed capacity because of low production by Rashtriya Chemicals & Fertilizers (RCF), equipment problems. This trend is likely to continue as the Government has decided to close all the plants of Fertiliser Corporation of India (FCI) and Durgapur & Baruni plants of Hindustan Fertilizer Corporation of India (HFC), barring Namrup units of erstwhile HFC presently under revamp, which is now under the separate entity of BVFCL. Actual produciton during 2003-04 was 106.32 lakh MT of nitrogen and 35.68 lakh MT of phosphate. Taking ëNí and ëPí together, almost equal to the production during the corresponding period of last year.

The production performance of both nitrogenous and phosphatic fertilizers during 2003-04 was less than the target mainly due to constraints in supply and quality of natural gas, equipment breakdowns, delay in commissioning of Namrup-II and Duncan Industries Limited (DIL) Kanpur remaining under unscheduled shutdown. In case of phosphate, production in DAP plants was low due to shortage of phosphoric acid and imported ammonia. Similary, production of complexes was also low due to high inventory in silo as well as in field godowns and poor off-take due to dismal sale in many states.

Capacity Utilisation

The domestic fertilizer industry has attained the level of capacity utilisation that compares favourably with others in the world. The capacity utilisation during 2002-03 and 2003-04 was 87.2% and 88.6% for nitrogen and 72.8% and 67% for phosphate respectively.

The capacity utilisation of the fertilizer industry is expected to improve through revamping, modernisation of the existing plants and closure of unviable capacity of sick
fertilizer untis.

Strategy for Growth
The fertilizer industry has adopted the following strategy to increase fertilizer production

• Expansion/retrofitting/revamping of existing fertilizer plants.
• Setting up joint venture projects in countries having abundant and cheaper raw material resources.
• Working out the possibility of adopting alternative sources like liquefied natural gas to overcome the constraints in the domestic availability of natural gas.

Projects Under Implementation

The major fertilizer projects involving an estimated investment of about Rs 689 crore are, at present, under implementation in the country. When commissioned, these projects will produce an additional .38 million MT of urea and .39 million MT of DAP per annum. The details of these projects are given below:-

• Brahamputra Valley Fertilizer Corporation LTD (BVFCL) is revamping its ammonia-urea units at Namrup, Assam in the North Eastern region of the country, at an estimated cost of RS 509.40 crore to produce an additional .38 million MT per annum of urea. The project is expected to be commissioned in July 2003.
• Gujarat State Fertilizers & Chemicals Ltd. (GSFC), is implementing a project for expanding the capacity of its plants at Sikka, Gujarat, by .39 million MT per annum of DAP at an estimated cost of RS 180 crore. The project has been completed and is under trial commissioning since June 2002.
  

Feedstock Policy

At present, natural gas based plants account for more than 60% of urea capacity, naphtha is used for less than 30% of urea production and the balance capacity is based on fuel oil and LSHS as feedstock. The two coal based plants at Ramagundam, Andhra Pradesh and Talcher, Orissa were closed down due to technological obsolescence and nonviability.

Natural gas has been the preferred feedstock for the manufacture of urea over other feedstocks viz. naphtha and FO/LSHS, firstly, because it is clean and efficient source of energy and secondly, it is cost effective and internationally competitive in terms of manufacturing cost of urea. However, pricing of feedstock also becomes a very important factor in the production of urea due to the fact that the cost of feedstock constitutes about 60 to 75% of the total cost of production of urea. In respect of gas based units, cost of feedstock accounts for 60% of cost of production, whereas for naphtha based and FO/LSHS based units, it accounts for about 75% of the cost ofproduction.

Although natural gas is the preferred feedstock for production of urea, due to the dwindling supplies of natural gas, even the gas based units have been forced to partially use naphtha even for feedstock. The burgeoning demand for natural gas by sectors such as fertilizer, power, transport etc. has resulted in efforts to increase domestic gas supply, mainly from fields being developed by private companies/joint ventures as well as development of new gas reserves recently discovered, through step up in exploration. It has also given rise to the prospects of early LNG import into the country by 2004-05. It is expected that by the terminal year of the tenth Five Year Plan, 4-5 LNG terminals may be operational at different coastal locations in the country.

The Dahej LNG terminal of Petronet LNG Ltd. (PLL) has already been commissioned. The fertilizer industry is in negotiations with the prospective LNG suppliers on the issues of pricing and availability of LNG. An Inter-Ministerial Group, under the Chairmanship of Deputy Chairman. Planning Commission has been constituted to deliberate on these issues.

The Government has already announced a policy for treatment of conversion of the non-gas based units to NG/ LNG. Under this policy, while the investments made on conversion will not be recognised, the operational efficiency including energy efficiency arising from conversion to NG/ LNG will not be mopped up for a maximum period of 5 years in respect of naphtha based plants and for 10 years in respect of FO/LSHS based plants from the date of commissioning of the converted plant.

Joint Ventures Ahead

Due to constraints in the availability of gas, which is the preferred feedstock for production of nitrogenous fertilizers and the near total dependence of the country on
imported raw materials for production of phosphatic fertilizers, the Government has been encouraging Indian companies to establish joint venture production facilities, with buy back arrangement, in other countries, which have rich reserves of natural gas and rock phosphate.

The details of the existing joint ventures in the fertilizer sector are given below. The joint ventures already established have given the Indian sponsors an assured source of supply of phosphoric acid, a vital input for manufacture of DAP and other phosphate and complex fertilizers.

The Government of India (GOI), Indian Farmers Fertilizer Cooperative Ltd. (IFFCO) and Southern Petrochemical Industries Corporation Ltd. (SPIC) are equity partners in a joint venture company set up in Senegal. The initial equity contribution of the Indian consortium in the venture in 1980 amounted to Rs. 13.67 crore, i.e. about 18.20% of its total equity. At present the Indian sponsors together hold 25.57% of equity (GOI- 9.06%, IFFCO-15.23% and SPIC-1.28%) in the joint venture company in Senegal named Industries Chimiques du Senegal (ICS). The company produces phosphoric acid and finished phosphate fertilizers in its plants in Senegal.

The phosphoric acid produced in the plant is being utilized for production of phosphate fertilizers in the country through buy back arrangements by the Indian sponsors. ICS implemented a project for doubling the production capacity of its phosphoric acid plants and development of new rock phosphates mines at cost of about US $ 250 million, which has been commissioned in February 2002.

The phosphoric acid production capacity of the plant has thus increased to 6.60 lakh tonnes per annum. A major portion of the phosphoric acid produced by ICS is sold to IFFCO.

SPIC, Jordan Phosphates Mines Company Ltd.(JPMC) and Arab Investment Company (AIC) have set up a joint venture project in Jordan to produce 2.24 lakh tonnes of phosphoric acid per annum. 52.17% of the equity of the joint venture named Indo Jordan Chemicals Company Limited is held by SPIC, 34.86% by JPMC and 12.97% by AIC. The plant had been commissioned in May 1997. The phosphoric acid produced by this venture is imported by SPIC.

A joint venture (Indo Moroc Phosphore SA) between Office Cherifien Des Phosphates (OCP), Morocco and Chambal Fertilizers & Chemicals Ltd. (CFCL) to produce 3.30 lakh tones per annum of phosphoric acid at a total cost of US $ 205 million had been commissioned in Morocco in October 1999. The equity of US $ 65 million in the venture is held by OCP and CFCL equally.
Joint Venture Projects Under Implementation/Consideration

IFFCO & KRIBHCO along with Oman Oil Company are setting up a joint venture urea project in Oman for production of 16.52 LMT of urea and 2.48 LMT of ammonia per annum. Oman India Fertilizer Company (OMIFCO), the joint venture company, will sell urea produced to Government of India at fixed long term prices (LTPs), for a period of 15 years and ammonia to IFFCO for 10 years at a fixed price. The implementation of this project has commenced on 15.8.2002 and is expected to be completed within 35 months i.e. by 15.7.2005. OMIFCOís equity of US $ 320 million is held by the Oman Oil Company (50%) and Indian Sponsors, IFFCO & KRIBHCO equally (25% each).

SPIC is setting up a gas-based nitrogenous fertilizer plant at Dubai in United Arab Emirates to produce 4.00 lakh tonnes of urea per annum at an estimated cost of US
$ 170 million. The joint venture company by the name SPIC Fertilizers and Chemicals Limited, incorporated in Mauritius, is promoted by SPIC with equity participation of 51%, MCN Investment Corporation of USA with equity participation of 39% and Emirates Trading Agency of UAE with equity participation of 10%. The project is under
implementation and is expected to be commissioned during the last quarter of 2005 and urea produced is proposed to be imported by SPIC through a firm buy back arrangement.

A Memorandum of Understanding (MOU) was signed between Government of India/IFFCO & KRIBHCO and Govt. of Iran/Qeshm Free Area Authority (QFAA) on 6.3.1994 for exploring the possibility of setting up a nitrogenous fertilizer plant in QFAA. A supplementary MOU was signed on 26.11.1996, reflecting the agreed position of the joint venture partners on the price of inputs required for the proposed fertilizer project. The feasibility report for the establishment of a 7.26 lakh MTPA urea and 0.74 lakh MTPA of surplus ammonia project at an estimated cost of US $ 470 million was appraised by the joint venture partners and found to be unviable. Fresh studies are being conducted by QFAA on the proposal for exploring possible alternatives.