While the Government of India is all the time stressing that the pace of industrial and economic growth in the country should be accelerated, it is shocking that the inaction of the Government of India have forced the three important urea fertilizer units in South India namely – Madras Fertilizers Ltd, (Chennai) Southern Petrochemical Industries Corporation (Tuticorin) and Mangalore Chemicals and Fertilizers Ltd (Mangalore) to remain closed since October 2014.
As the cost of production of urea from naphtha is higher compared to that of natural gas as feed stock, Government of India insisted that subsidy would not be made available to the units that use naphtha as feedstock beyond September,2014. Out of 33 fertilizers units in India, the three naphtha-based urea manufacturers in south India do not have linkage to gas grid and hence have to depend on naphtha for production of urea and ammonia. Therefore, the three units in South India were forced to stop operations, as they have no access to natural gas.
Helplessness of the units
These three urea fertilizer units have already made considerable investment to convert their facilities for using natural gas as feedstock instead of naphtha. Now, the units are in a position to switch over to production of urea based on natural gas as feedstock.
However, due to delay in the completion of natural gas pipeline and non availability of natural gas, these units are unable to switch over to natural gas as feedstock. While the rest of the fertilizer firms in the country have access to natural gas, these three firms in South India are unlikely to get natural gas till 2018.
What is particularly surprising is the fact that inspite of knowing very well that there is no feasibility for getting natural gas by these units in the immediate future, the Government of India has given a time bound schedule to switch over to natural gas, particularly when the situation is beyond the control of these units.
In the case of Madras Fertilisers and SPIC Ltd in Tamil Nadu, there is no way of getting natural gas in the next few years. Krishna Godavari basin in Andhra Pradesh is unable to step up the production of natural gas. Pipeline for transporting natural gas to Tamil Nadu from Andhra Pradesh are also not ready. Kochi LNG terminal is now remaining stranded due to suspension of gas pipeline project in Tamil Nadu by GAIL authorities. Proposed Ennore LNG terminal in Tamil Nadu remains only in the preliminary stage. In this situation, insisting that these South India based urea fertilizer units should switch over to natural gas as feedstock is unreal and ironical.
Price of naphtha and government’s advice
The export price of naphtha had dipped to Rs.39,000 per metric tonne from Rs.57,000 per metric tonne due to crude price fall. The import parity price is about Rs.45,000 per metric tonne.
Urea fertiliser units in south India have been paying around Rs.60,000 per metric tonne of naphtha earlier. Due to the price fall of naphtha, there is scope for reducing the price of naphtha supplied to the fertiliser units by naphtha producing companies in India.
Even as the price of naphtha has come down, the Petroleum Ministry appears to be moving at snail’s pace and reported to have sent a communication to these three firms in South India to finalise the naphtha price and other terms and conditions with the naphtha producers, to enable the units to avail subsidy and restart the operations It is also reported to be insisting on new conditions such that the state government should forego VAT for naphtha. Even as the government of India is endlessly deliberating about the matter, the units remain closed causing loss of several crores of rupees of production. The lack of sense of urgency on the part of government of India in solving this issue is too conspicuous to be ignored.
It is sad that instead of enabling the units to continue operations without closure earlier by not withdrawing the subsidy, the government of India has done nothing to help these units beyond advising them now. Such closures have become costly both for the units and the country and Government of India is solely responsible for this.
Indian urea scenario :
Indian demand for urea: Around 30 million metric tonne per annum
Indian production: Around 22 million metric tonne
||Million metric tonne
India is a large consumer of urea and Indian import of urea is around 8 million metric tonne per annum. Realising the need to increase the production capacity of urea in the country, the Government of India is taking special steps to bring back Talcher urea plant of Fertiliser Corporation of India back into operation, with the proposed investment of around Rs. 8000 crores
At the same time, paradoxically, Government of India appears to be unconcerned as for as the three fertilizer units in South India are concerned which are now remaining closed.
It takes three to four years to conceive, design, install and commission a new urea project. While it takes such a long time to implement a new project, closing down the existing fertilizer units can be done by a stroke of pen, simply by a bureaucratic decision , as has happened in the case of the three urea units in south India.
The damage has been done.
Installed Capacity of the units not in operation in south India
|Name of the unit
|Mangalore Chemicals & Fertilisers
The damage has already been done, as the three urea units remain shut down for over three months now. Workers are remaining idle and thousands of tonne of urea production from these three units have been lost, even as the country is spending millions of dollars in importing large volume of urea year after year.
While the fact is that the cost of production of urea from naphtha is higher than that of natural gas as feed stock and the subsidy expenses to the government of India payable to the naphtha based units are higher, the overall cost to the country due to the closure of the well run urea units in south India is very high. Obviously, the government of India had withdrawn the subsidy support to the naphtha based units without conducting an adequate cost benefit analysis. The present government of India has erred by creating a situation where the urea units in south India had to remain closed for over three months now and even at present there is no firm indication as to when they would be restarted and what would be the subsidy policy of the government of India towards them.
Better late than never and without allowing the units to remain closed for more period , that would cause the units to become sick making the revival difficult, the government should act without losing a day more.