Fertilizer industry

Introduction-


Though much euphoric services sector growth in Indian economy has drawn the attention over the globe, still its importance brings confusion when we come across the parameters like increasing inequality and a stalemate in condition.

Agriculture the backbone of Indian Economy still holds its relative importance for more than a billion peoples. The Government Of India from time to time has taken considerable steps for the upliftment of Agriculture Sector. Here we have analyzed the performance of Fertilizer Industry being one of the vital parts in agricultural production and Government's policy initiatives for the same.

Fertilizer in the agricultural process is an important area of concern. Fertilizer industry in India has succeeded in meeting the demand of all chemical fertilizers in the recent years.The Fertilizer Industry in India started its first manufacturing unit of Single Super Phosphate (SSP) in Ranipet near Chennai with a capacity of 6000 MT a year.

Production of Fertilizers


India has become third largest country with a total capacity of 11.07
million tons of N and 3.760 million tons of P2O5 in year 2000-2001.

Further capacity addition for N has now been stalled for the time being
due to very narrow demand supply gap at present and costly feed stock.

However, there will be some addition to the phosphatic capacity.
Domestic production of nitrogenous fertilizers was 11.004 million
tons in 2000-2001, whereas production of phosphatic fertilizers was 4.70
million tons, which are marginal higher compared to last year
production. All India capacity utilization has gradually improved over the
years and was maintained at almost cent per cent level for N. However,
during 2000-01 restrictions were imposed on capacity utilisation of Urea at
92% as a consequence the production of urea declined. The increase in
production of total N is observed due to increase in production of DAP
and other complexes which also have 'N'. Production of DAP during
2000-01 was 10 % higher compared to previous year



Imports of Fertilizers


Imports of urea has declined substantially during the past five years
. There has been no imports of urea during 2000-01. Already
there is a huge stock of urea, around 2.5 million tons as on march 31,
2001. Therefore there will be no need for any further stock building during
next six months. India is presently self sufficient in respect of urea.



Investment in Fertilizer Industry

Fertilizer production is capital intensive and presently the cost of
production of indigenous material is high and returns on investment are
low. The Indian fertilizer industry which achieved phenomenal growth in
eighties, witnessed decline in the growth rate during the nineties. In the
recent past, the fertilizer industry has not attracted any significant
investment. No multinational has invested in fertilizer sector in India.

Due to sufficient indigenous capacity and low international prices of
urea the Government of India in Feb. 2000 decided that no new
grassroots projects will be allowed during the next three years in either
public, private or cooperative sector. So even if the Government reviews
its decision, the earliest a project could start would be by 2004-05.

Government is also considering disinvestment of its equity of public
sector fertilizer units upto 51 per cent or even more. Thus, handing over
the management control of the company to a strategic buyer. The
disinvestment in National Fertilizer Limited (NFL), a major urea producer
in the country is underway.

Lack of availability of natural gas in the country has prompted
investors to collaborate for joint ventures abroad for urea production. Gulf
countries, due to abundant availability of gas, nearness to Indian shores
and investment friendly environment, are becoming the first choice for
joint ventures.

Among the Public Sector Units, The Fertilizer Corporation of India
Limited (FCI), Hindustan Fertilizer Corporation Limited (HFC), Projects &
Development India Limited (PDIL), Pyrites, Phosphates & Chemicals
Limited (PPCL) were declared sick. They are under consideration of
Bureau of Industrial and Financial Restructure (BIFR).

As India does not have potential rock phosphate reserve, it is
completely dependent on import of either rock phosphate or phos acid or
DAP. There has been new capacity addition by way of importing rock
phosphate and converting it to phos acid and then to DAP/NPK or
conversion of phos acid at rock phosphate mines abroad in JV and
importing phosphoric acid for further conversion to DAP/NPK. It is
heartening to note that apart from the operating joint venture plants for
phosphoric acid in Senegal, Jordan and Morocco some more projects and
expansions are being contemplated by the Indian companies.





Distribution Network of Industry

Fertilizer distribution of urea and its interstate movement is under
Government control and is regulated under the Essential Commodity Act
(ECA). Under ECA, supply plan for urea is formulated by the Government
in consultation with the State Departments of Agriculture and Fertilizer
Industry during "Zonal Conferences" held twice a year. The objectives of
such exercises has been to minimise transportation cost by avoiding
criss-cross movement of material and to ensure availability as per
requirement all over the country.

Removal of distribution control on urea under ECA is proposed in
the phase I of the long term policy for the fertilizer sector. Apart from
fixing ex-factory price based on High Power Committee (HPC) formula,
Government will continue to regulate the MRP till 2004-05. The
distribution cost has to come out of the ex-factory uniform Normative
Retention Price (NRP) which may impair the viability of domestic
producers.

Phosphatic and Potassic fertilizers were decontrolled since August,
1992 and their distribution is taken over by the manufacturer importers.
Government is, however, still fixing the MRP and giving an adhoc
concession on per ton of product sold.


General Health of the Industry


It is feared that several fertilizer units will be closed down in the
process of switch over from the present administered pricing mechanism
to a market based regime. This would mean substantial loss of domestic
fertilizer production and corresponding increase in import of urea to meet
the demand. Even under the present circumstances health of industry is
not good and several units have become loss making.

According to Expenditure Reform Committee (ERC)
recommendation, instead of unit-wise retention price there will be a
group-wise lump sum concession per ton of urea based on feed stock
which will harm some units and benefit others and there will be wide
spread sickness in the urea industry