Director and chief operating officer of Nagarjuna Fertilizers and Chemicals, R S Nanda, feels that the shift in government policy in 2002-03 has affected the growth of fertiliser industry in the country. He tells Ch Prashanth Reddy that due to the policy shift, the industry margins are shrinking and there has been no capacity addition, leading to shortage of the vital agriculture input. Excerpts:
What is the reason for the current product shortage in the fertiliser sector?
The change of government policy in 2002-03 is the main reason. At that time we were self-sufficient in urea production. Now, we are importing 6-7 million tonnes at a cost of about $800 per tonne. Because of the heavy imports, the subsidy amount has also shot up from Rs 30,000 crore to Rs 1.2 lakh crore this year. The government is also not coming to grips with the actual subsidy it is giving to the farmers. There is going to be a gap of about Rs 85,000 crore-Rs 90,000 crore between the budgeted and actual subsidy this year. Since no new production capacity has come up, situation will be worse in the coming years if the policy changes are not made.
Why there is no capacity addition in the industry?
It is again the government policy, which is not favourable for setting up greenfield units in the country. Year after year, the margins of fertiliser companies are declining.
Do you expect the new fertiliser policy to be helpful in this regard?
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As per the current indications, the new policy will surely give some encouragement but only for additional production by the existing units. For setting up a greenfield urea project, huge investments are required. For instance, to set up a 1 million-tonne urea plant an investment of about Rs 4,500 crore is needed. To sink in such kind of money, the new policy has to be long-term and fairly attractive.
What kind capacity additions do you expect from the existing units following the new policy?
The revamp of existing plants following the policy announcement is expected to bring in an additional urea capacity of about 2.5 million tonnes. As the average domestic price of urea is about $230 as against an import price of $800 per tonne, this will lead to a saving of Rs 800 crore to Rs 1,000 crore in subsidies.
Is NFCL also going in for capacity expansion?
Yes, we are planning to add 200,000 tonnes to the existing capacity of 1.3 million tonnes. The expansion project is estimated to cost Rs 250 crore.
Why are many domestic fertiliser units exploring overseas projects?
We don't have enough raw material like natural gas, rock phosphate and potash (NoP). Wherever there is availability of raw materials, the companies are exploring. Besides, as I told, the government policy so far has not been favourable for starting greenfield projects.
It does not give the kind of returns the companies will get abroad.