Rashtriya Chemicals & Fertilizers Ltd., India’s biggest state-run urea maker, plans to invest $1 billion to set up a facility in Ghana, a government official with direct knowledge of the matter said.
The plant will have the capacity to produce 1 million metric tons of the soil nutrient, the official said in New Delhi, declining to be identified as the information isn’t public.
A shortage of natural gas, the main feedstock for making urea, is forcing companies including Indian Farmers Fertilizer Cooperative Ltd., the nation’s largest producer, to build plants overseas. India’s cabinet on May 19 more than doubled the price of gas sold to makers of fertilizer, which is used to grow crops including wheat, sugar, rice and edible oils.
“It makes eminent sense for Indian companies to set up plants overseas as it helps them sidestep the numerous regulations and gain easy access to feedstock,” Anup Ranadive, an analyst at Tower Capital & Securities Ltd. said. “Imported fertilizer is also eligible for government subsidy.”
By setting up overseas plants, Indian companies can reduce reliance on global sellers including International Potash Co., Agrium Inc and Potash Corp. of Saskatchewan. India, the world’s biggest buyer of potash, imported 5.67 million tons of urea, 6.63 million tons of diammonium phosphate and 4.35 million tons of potash in the year ended March 31, 2009, according to the fertilizer ministry.
Rashtriya Chemicals declined 2.8 percent to 75.3 rupees at 10:17 a.m. in Mumbai. The BSE500 Index fell 1.5 percent, in line with a global sell off in equities.
The fertilizer maker, based in Mumbai, plans to secure fuel for the project from Ghana Oil Co., the official said yesterday. The fertilizer ministry has approved the investment proposal, the official said.
U.S. Jha, chairman and managing director, declined to comment on the company’s investment plans. Cyril Oppong, spokesman for Accra-based Ghana Oil, declined to comment.
India’s government fixes the price at which fertilizer is sold to farmers, pays companies the difference between the costs and selling price and guarantees a post-tax return. The average subsidy on a ton of urea makes up about three-quarters of the total cost, according to the fertilizer ministry.
Starting April 1, the government’s share of the subsidy on nutrients like nitrogen, phosphorus, potash and sulfur, will be fixed, and farm gate rates will fluctuate with global levels, Information and Broadcasting Minister Ambika Soni said Feb. 19.
As many as six Indian fertilizer companies have asked the government for more gas to increase their production capacities. A panel of ministers headed by Finance Minister Pranab Mukherjee sets prices and allocates gas.
Demand for gas in the next three years may climb to about 360 million cubic meters a day from 260 million cubic meters a day, B.C. Tripathi, chairman and managing director of GAIL India Ltd., said March 12. Supply may increase to about 230 million cubic meters a day from about 170 million cubic meters now, he said. GAIL is the country’s monopoly natural gas distributor.
Power stations and fertilizer plants in India are shifting to the cleaner-burning fuel after Reliance Industries Ltd. started production from the nation’s biggest gas field in April. Demand may rise after new pipelines are built to connect more factories, Tripathi said.
Explorers including Oil & Natural Gas Corp., India’s largest, can increase the price of gas to 6,818 rupees per thousand cubic meters from 3,200 rupees, minister Soni told reporters in New Delhi on May 19.