Industry Awaits Positive G overnment Policies

K Rahul Raju,
Managing Director, Nagarjuna Fertilzers and Chemicals Limited (NFCL)
Non-availability of gas and lack of alternate gas supplies have been affecting the industry to a great extent , says K Rahul Raju, Managing Director, Nagarjuna Fertilzers and Chemicals Limited (NFCL). In an exclusive interview with Mittravinda Ranjan, he further talks about why there is lesser interest in investments from gas producers in the country, CCEA's decision to increase domestic gas prices, decontrolling urea segment and more. Raju also shares insights into the latest developments within the company, including the status of refinery in Cuddalore.

Though the government has prioritised the fertiliser sector in allocating natural gas, the low production of natural gas within the country remains a big challenge. What is the pressure fertiliser manufacturers are facing in the current situation in terms of sourcing the gas to keep the plants running?
In terms of gas availability, the fertiliser industry is under tremendous pressure due to steep drop in KG D6 gas that was supposed to be available. Due to lack of RLNG terminal on the east coast, fertiliser manufacturers are already facing a drop of 20 per cent in urea production, which has adversely affected the profitability of NFCL during the year 2013-14.

How has the drop in gas production in KG D6 impacted the urea production at NFCL in Kakinada? Is NFCL's Kakinada facility relying only on the gas from KG basin or it has established gas linkages with other sources as well?
As I mentioned earlier, our profitability has dropped due to non -availability of gas and there is also lack of alternate gas supplies. Historically, NFCL has been getting gas from ONGC wells through GAIL. However, since 2009, we started procuring 60 per cent of gas requirement from RIL and continued supplies through GAIL where also productivity has gone down. As a result, the urea production at NFCL has gone down by approximately 800 - 1000 MT/day than its capacity of 4600 MT/day. Currently , we are getting landed gas at the rate of USD 5.8 per MMBTU which are likely to get doubled after the directive on new pricing that is soon to be given by the Government of India.

Lack of implementing market driven gas prices in country have resulted in lesser interest in investments from the gas producers in country , and it is one of the key reasons behind India not being able to realise the available gas potential in the country. In this scenario, how justified it is to not to revise the gas prices in country?
There is lesser interest in investments from gas producers in the country primarily because of slow decision making process and bureaucratic delays, and the second reason is not offering market driven prices to the gas producers. Though gas prices must be revised to incentivise the producers to implement the projects in order to step up gas production, the prices for the fertiliser industry could be maintained at the levels to keep the indigenous manufacturers competitive against the imports. This is a very important as India relies on 30 per cent of urea supplies from the overseas market to meet the domestic demand.

What is your take on the decision of the Cabinet Committee on Economic Affairs (CCEA) decision to increase domestic gas prices which is still nominal as compared to the imported gas prices? Once the revised prices are implemented, what are the various strategies, that fertiliser manufacturers will have to adopt to balance the company’s top and bottom lines?
The CCEA's decision to increase domestic gas prices is fair and the gas produced within the country cannot be compared with the imported RLNG. No country does that for survival of its end users.

Once, the revised prices are implemented by the Department of Fertilizers (DoF), Government of India, and ensured that the Fertiliser Manufacturers are competitive by imposing extra customs duty for imported urea; the Industry will become efficient to survive against the global manufactures .

What is your outlook for the price trends in ammonia and phosphates, which are again critical for fertiliser production, over the next couple of years? How do you plan to balance the profit margins in the times of volatile feedstock prices and increasing subsidies?
Ammonia and phosphate prices seem to be stable in the next couple of years, though there are some seasonal fluctuations in the same. We are banking on the Indian government to decontrol urea segment as they have done for the phosphate and potash segments. The subsidies by the government have to be decreased by increasing the price of urea which is currently very low and is being misused.

To what extent the feedstock diversification from natural gas to coal gasification, which is capital intensive, be realised in Indian context by the fertiliser industry? What kind of support would fertiliser sector need from the government in context to coal technologies?
The technology for coal gasification for production of ammonia is available today in countries like China and few other European countries, and they are producing ammonia by using this technology. However, high ash content continues to be a major problem with Indian coal and using this would incur high capital cost and sizeable maintenance cost. Currently, the availability of coal from Coal India is also an issue and gas seems to be the best option for production of ammonia and urea for the Indian Industry.

What is the future outlook for the fertiliser business? What are the current projects and growth targets for NFCL and what are the future expansion plans of the company?
The requirement of fertilisers in Indian agriculture would always exist. Currently, India imports approximately 30 per cent of its urea requirement and is completely dependent upon imports for intermediates or finished goods for phosphates and potash. "N" is the only sector where import dependency can be reduced by providing sufficient gas availability locally. The business outlook for the fertiliser sector will improve if the policies of the Government of India support the domestic Production by decontrolling and de-canalising the "N" segment as well.

Please apprise us of the status of refinery in Cuddalore in the proposed PCPIR.
The 6 MMTPA Refinery at Cuddalore is about 58 per cent complete. This Refinery has been identified as the "anchor tenant" in the PCPIR approved by CCEA for the state of Tamil Nadu for the Cuddalore-Nagapattinam belt. The Refinery will have a Nelson Complexity Index (NCI) of about 8.7 and will be capable of producing E-IV grades of gasoline & diesel. Owing to its location , the refinery can evacuate products through road (trucks), rail (wagons), sea (ships) and pipeline (IOCL's CTM pipeline) in domestic market. IOC's Chennai - Trichy - Madurai (CTM) product pipeline runs close to NOCL site. NOCL's products can be evacuated by connecting to this pipeline; however, we intend to initiate the discussions with IOCL closer to commissioning of refinery, which is targeted during the financial year 2016-17. We also plan to ship the products to international markets through sea route.

Please update us on the ongoing projects, expansion plans, growth target in the next five years.
We have ambitious growth plans and want NFCL to become one of the top 3 companies in the plant nutrition business in the next 5 years. These plans are dependent upon market related policies by the government of India, especially for the 'N' segment. The projects would be implemented in the country as well as outside India depending upon the merits and returns that they will generate for the company. We have a couple of projects on the drawing board for the production of additional urea and phosphates for NFCL and are waiting for the announcement of policies for the next 5-8 years to take a final decision on the same.