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Strengthening the Bottomline
Favourable policy and firm availability of the feedstock are pre-requisites in the fertiliser sector. With the new Urea Policy, more investment is expected to be made in fertiliser industry which has been stagnant for more than a decade for want of capacity addition, says R G Rajan, CMD, Rashtriya Chemicals and Fertilizers Ltd.

By 2020, the fertiliser demand in country is expected to touch 41.6 million tonnes. In your view, to what extent will we be able to meet this demand through indigenous production? And what are the challenges that need to be addressed to reach self-sufficiency?
Currently in the country, overall urea requirement is around 30 million tonnes of which 23 million tonnes are manufactured indigenously and balance requirement of 7 million tonnes is met through the imports. With the recent announcement of the new Urea investment policy several green field and brown field projects are taking off throughout the country and with their success we can hope to become self-sufficient to fulfil our fertiliser requirement.
Some of the key areas of concern that are affecting the performance of the company include uncertainty in the gas supply, stringent terms in gas supply and transportation contracts and their operability, rising cost of gas etc.

What is the status of the Thal II project? Has the plant been completely revamped? Please apprise us about the progress on Thal III project.
RCF has successfully completed the Thal II project i.e., revamp of Ammonia plants in three phases at a cost of 489 crore which has increased its Urea capacity from 17 lakh MT to 20 lakh MT per annum. The revamped plants have been commissioned and have already achieved the day to day high capacity and low energy consumption targets. Company will be able to reap benefits under the IPP (Import Parity Price) based pricing mechanism for the extra production beyond the cut-off capacity in the current fiscal.
RCF has now embarked on a major expansion Thal III project to set up additional streams of Ammonia and Urea which will add 12.7 lakh MT per annum of Urea capacity at a cost of 4112.5 crore. The Company, through global bidding process has already selected the contractor who will set up the plant on Lump Sum Turnkey Basis (LSTK). The proposal falls under the New Investment Policy-2012 which has recently been notified by the Govt. The project has been cleared by pre-PIB (Public Investment Board) recently and Company is seeking PIB approval. Upon clearance by PIB the proposal needs to be cleared by the Cabinet Committee on Economic Affairs (CCEA) for construction to begin. Company is in the process of lining up other construction and project management consultancy contracts and expects to start process design and construction work on the project in May 2013.

Has RCF received financial closure of the Talcher project in Orissa and how is it going?
RCF is actively pursuing the revival of the Talcher project. For this, following actions are underway.
• Enquiry has been issued on the BOO (Build, Own and Operate) basis for Coal gasification part.
• Enquiries for Urea-Ammonia complex on LSTK basis will be issued shortly.
• Enquiries for Nitric Acid and AN Melt on LSTK basis will also be issued soon.
PDIL has been engaged for preparation of DFR and EIA. Financial closure will be after DFR.

RCF had signed MoUs with Indonesia for coal based facility & gas based facility in Ghana. What is the progress on RCF’s international projects?
As of now, there is not much progress in the Indonesia project. RCF is actively pursuing to set up gas based Ammonia–Urea plants to produce about 1.27 million TPA at Ghana under the MOU signed between Govt of India and Ghanaian Govt. Pre-feasibility report for the project has been prepared by M/s PDIL. Project site has been identified and pre-project activities such as Topographical survey and Geotechnical study have commenced. Various other project related documents and Agreements are under preparation. Activities for preparation of DFR have also commenced.

May we have your comments on RCF’s plan to expand in phosphatic fertilisers and the talks that were on with Saudi Arabia for Joint ventures two years back? How has this initiative progressed?
As of now RCF is not pursuing this project in Saudi Arabia. The Company is planning to set up a SSP plant of 5 lakh TPA capacity at Thal at an approximate cost of ` 300 crore. Offers have been invited for setting up of Sulphuric Acid plant on LSTK basis and the same are under evaluation. Draft EIA report has been submitted to MPCB for public hearing.

What is your take on the recent move by the finance minister to marginal reduction in subsidy for the crop nutrients (from 65974 crore to 65971 crore) in the next fiscal. How will this impact fertiliser industry and RCF?
The provision for subsidy during 2013-14 is planned to be 65974 crore. This in my view is short as quite a large amount of subsidy pertaining to 2012-13 will be carried forward into the next year and paid against the budget provision of 2013-14. We feel that, during 2013-14, the P&K imports would be substantially lower owing to heavy stocks. This along with the proposed reduction in NBS rates for 2013-14 would bring down subsidy burden of the Government. Nevertheless the industry feels that subsidy provision will fall short of the actual requirement.

The National Chemical Policy aims to offer funding support for capital intensive technologies such as coal gasification and also secure feedstock supplies, and has recently announced the much awaited Urea Policy as well. To what extent can this bring respite to the country’s fertiliser industry?
RCF is pursuing several projects such as Coal gasification project at Talcher, JV at Ghana etc. Company is using its own internal resources to meet the capital requirement of these projects.
Favourable policy and firm availability of the feedstock are pre-requisites in the fertiliser sector. With the new Urea Policy, more investment is expected to be made in fertiliser industry which has been stagnant for more than a decade for want of capacity addition.

How promising is the New Urea Policy announced by the government in 2012 which intends to give boost to the country’s urea production and what is the downside of policy? To what extent the policy will be able to address the issues of fertiliser industry?
The NIP 2012 is highly encouraging. The policy takes care of the entire gas price variation which we feel is the most important change in the policy. The down side is that at high gas prices you are assured of making only 12 per cent post tax return on equity.
The industry expects priority allocation of the available domestic gas in favour of fertiliser sector at a reasonable price. In future, when shale gas is available at cheap price in India also, the Indian fertiliser sector will be much more comfortable.
Hence we expect the following to happen over next three-four years.
• Once all existing units are converted to gas, it would pave way for NBS in urea which will fix the subsidy burden for the GoI and help correct the NPK consumption ratio for better productivity and soil health.
• GoI is also pursuing the direct payment of subsidy mechanism. It is likely that this may also be achieved in a three year time frame. This will bring down the subsidy burden substantially.

In the current budget, Indian Government has announced clearing the NELP blocks, revising natural gas pricing policy and it also intends to encourage the PPP model for coal mining along with Coal India. In addition, the Government has envisaged setting up LNG facilities. Together, how can these developments actually bolster the growth of the Indian fertiliser sector?
There is an urgent need for accelerating agricultural growth in India which is the second most populated country in the world. Our population may cross even that of China by 2030. With growth in population and increase in per capita income, the demand for food grains will continue to increase in coming years. About two third of our population is still dependent on agriculture. To attain food security for the country, getting maximum output from available land is vital. For this, land has to be productive enough which is possible provided soil is given adequate fertilisers.
Fertiliser industry is highly energy intensive and requires constant inflow of raw materials like natural gas which is getting dearer day by day. A realistic estimate shows that India would require about 41 MMSCMD of additional gas by end of 12th Five Year Plan as compared to the existing supply of about 46 MMSCMD. This includes about 22 MMSCMD for additional capacity of 10 million tonnes, 11 MMSCMD for conversion of existing non-gas based plants and another 8 MMSCMD for replacement of existing use of LNG. This requirement needs to be met on priority through domestic gas from the cheapest source. New urea plants based entirely on imported LNG are not likely to be viable. Thus, priority allocation, reasonable pricing and recognition of delivered cost of gas are required. With the improved raw material scenario and more investment in oil and gas sector, fertiliser sector is poised for growth in the coming years.

Tell us about the plans of RCF in the current year and the 12th Five Year Plan.
Our most recent thrust areas include the revamping of the existing plants to bring down energy consumption, improve production of fertilisers and achieve reliability in operations and safety. All the plants, in fact have been revamped. Ammonia-I, Ammonia-V, Urea and all the plants have been debottlenecked and today though the plants are low capacity and old vintage, the energy efficiency is still quite good. The energy consumption of Trombay Plant is about 7.09 GCal/MT, which is quite commendable for a 1000 MTPD old plant. Similarly, we have completed the revamping of our Thal plant (by spending about 490 crore) which will augment the production of urea from 1.7 million MT to 2.0 million MT per year. This will increase the Company’s turnover by approximately 300 crore and also lead to energy savings which will ultimately boost the bottomline. The Thal plant energy consumption was 6.36 GCal/MT last year and today we are getting to around 6 GCal/MT and very shortly it will become around 5.8 GCal/MT. As our production resources are already maximised, the Company is also resorting to trading of imported fertilisers like DAP, MOP, NPK, etc in a big way to increase both topline and bottomline.
Besides, RCF has ambitious capex plans and is planning to embark on a handful of new projects within as well as outside the country which if fructify would catapult it into a mega status. Our aim is to have a turnover of ` 15000 crore by the end of the 12th Five Year Plan.
RCF is planning capital investment of around 6300 crore over the next five years for setting up new plants and expanding the existing units. The Company is pursuing a number of projects within as well as outside the country viz. Thal III expansion project to produce 1.27 million TPA urea, a SSP plant to produce 5 lakh TPA SSP at Thal, a project to produce 1.27 million TPA urea at Talcher in consortium with CIL and FCIL, a JV project to produce about 1 million TPA urea in Ghana etc.
RCF is also exploring possibilities of entering into long term off-take agreements for potash with suppliers in Canada. All these initiatives would lead to substantial increase in turnover and strengthen bottomline of the Company.