The government may give Rs 1,300 crore each to four public sector fertiliser plants to help them shift from liquid fuel to gas as the feedstock for production of urea.
These plants are currently using expensive naphtha and fuel oil and need additional investment for the conversion.
“Three plants of National Fertilizers Ltd (NFL) and one of Gujarat Narmada Valley Fertilizers Company (GNFC) may receive Rs 1,300 crore each for their conversion to a gas-based plant,” a senior government official said.
Mooted by the fertiliser ministry, the proposal will soon be sent to the Public Investment Board for its approval before it is placed before the Cabinet, he added.
Both NFL and GNFC have already signed the term sheet with public sector utility GAIL for supply of gas and once the Centre clears the Rs 5,200 crore investment, they will sign the agreement, he said.
GNFC’s 636,000-tonne capacity Bharuch factory, and NFL’s Panipat, Bhatinda and Nangal facilities, with a capacity of nearly 1.5 million tonnes would be the beneficiaries.
The use of expensive naphtha has resulted in increased expenditure by the government on subsidy, which was Rs 1,11,000 crore in 2008-09, he noted. Last year, the production cost of urea was over Rs 20,000 a tonne for the naphtha-based plants, while this nitrogen fertiliser is sold at a government-fixed price Rs 4,830 a tonne.
The Centre reimburses the balance between production and selling costs of urea to companies, as the maximum retail price (MRP) of the nitrogen fertiliser is quite low.
By converting the four units to gas-based plants, the government expects to save on the subsidy, as the production cost may come down to about Rs 10,000 a tonne.
Industry experts said if the ‘front-end’ technology was changed in conversion, the production cost of urea would be Rs 11,000-12,000 a tonne at the current gas price received from Reliance Industries.
They also said the plant conversion would take at least three years and these units would not be able to be converted by March 2010, which was the target fixed under NPS-III policy for changing all naphtha-based plants to gas-based.
During the conversion, these plants would not be shut, except for three months for ‘hook-up’, as parallel works would continue, they added.
