Aditya Birla Nuvo and Tata Chemicals may lead $9 billion (Rs50,000 crore) of spending to increase India’s urea capacity by almost 50%, spurred by a government policy guaranteeing returns on investments.
State-owned fertiliser companies and co-operatives may add 10 million tonne (mt) of capacity over the next five years, said S C Sharma, an officer at the Planning Commission. The government will assure new urea units a profit margin 12% to 20%, Union food minister K V Thomas said.
“As much as Rs50,000 crore of investments could come,” Sharma said. “They’ll start flowing in after this policy change.” An increase in urea capacity will also boost agricultural productivity.
Kumar Mangalam Birla may spend as much as $1 billion to double Aditya Birla Nuvo’s urea capacity after the government approves the new policy, managing director Rakesh Jain said earlier.
Tata Chemicals planned to double urea capacity at its unit in Uttar Pradesh at an estimated cost of Rs3,500 crore. The company was waiting for government assurances on supplies of natural gas, the main fuel used to produce urea.
Other planned urea projects include Rashtriya Chemicals & Fertilizers’ 1.15 mt unit in Maharashtra.
Chambal Fertilisers & Chemicals plans to build a similar-sized factory in Rajasthan.
GAIL India, Coal India and Rashtriya Chemicals have planned a venture to build a coal gasification and fertiliser project in Odisha at an estimated cost of Rs8,000 crore, while ONGC is seeking a partner to build a urea factory in the eastern part of the country.
India imports about 33% of the 28 mt of urea it needs and the quantity is increasing by about 1 mt each year. Supply shortages may widen to 12 mt by March 2017 should new capacities fail to be added, the commission said.
The government’s subsidy burden increased as urea prices surged to a 3 1/2-year high of $515 (Rs28,325) in April. Urea imports are estimated to have risen to about 7 mt in the year ended March 31, inflating the subsidy 21% to Rs29,400 crore from a year earlier, according to the report.
The new policy will save Rs4,760 crore of subsidies and reimburse producers the cost of natural gas, which comprises about 80% of the input cost.
Plans to expand the nation’s urea capacity by 50% to 34 mt have been held back by companies, pending a well-defined state policy. The reopening of a unit in Assam was the only major urea project to come on stream since 1999.
Aditya Birla Nuvo plans to sell the increased urea output in the eastern states of Bihar, Jharkhand, West Bengal, the eastern region of Uttar Pradesh and in Chhattisgarh. “At current prices, it is better to import LNG and produce urea locally,” Planning Commission’s Sharma said. “There should be higher activity in this industry that has not seen much interest.”