The prime minister’s office (PMO) is nudging the fertiliser department to facilitate acquisition of potash and phosphate assets abroad by Indian companies, after the recent fiasco in acquiring a stake in Belarussian potash manufacturer Belaruskali.
With the PMO’s push, the department had asked the industry to come forward with suggestions for acquiring assets abroad, a senior official privy to the development told Business Standard.
But the industry has once again demanded the government should create a sovereign wealth fund of $20 billion to facilitate acquisition of these assets by domestic firms.
These developments come after the government’s hopes of striking a long-term supply contract and acquiring a stake in Belaruskali, one of the largest potash producers in the world, were dashed as talks with the company did not succeed, mainly due to valuation issues.
Belarus had offered India a 20 per cent stake in Belaruskali for $6 billion, valuing the state-run potash manufacturer at $30 billion.
The industry had claimed at that time no single fertiliser company in India was capable of investing such an amount on its own.
The Fertiliser Association of India (FAI) had raised the demand to create a sovereign wealth fund of $20 billion. FAI director general Satish Chander said the industry had been scouting various countries for acquisition opportunities.
“To acquire assets, we need a sovereign wealth fund. There is no response to this demand of ours,” he said.
The idea of a sovereign wealth fund is not new. A suggestion was made earlier that such a fund be floated out of the foreign exchange reserve for the infrastructure secto.
But that did not materialise.
Analysts said setting up of the fund would be more difficult now, as the country would see only a billion dollar addition to its reserves this financial year. This is because of the current account deficit, slated to increase to 3.6 per cent of gross domestic product, against 2.6 per cent in 2010-11.
The deficit is set to be higher than three per cent witnessed in 1991, when the balance-of-payments crisis hit India. Foreign exchange reserves fell to $293.38 billion as of February 10, from $293.753 billion in the preceding week, according to Reserve Bank of India data.
A senior industry official said the government could only be a facilitator. But things cannot move ahead unless the government is ready to spend.
India’s excessive dependence on imports for potash (100 per cent) and phosphate fertilisers (90 per cent) has been a cause of concern due to constantly rising international prices.
Tarun Surana from Mumbai-based Sunidhi Securities said the industry could be a minority stakeholder in the deals, as no private player had the muscle power to make the required investments.
“Acquiring assets requires huge capital. Apart from the long time for a mine to give results, it takes an investment of around $2.5 billion for a one-million tonne mine,” he said.
