Government plans to revive sick units to double urea market share.

HYDERABAD: The Indian urea industry may witness a major transformation where the government could attain a major share by 2020, on the back of a series of steps to revive several state-owned sick industrial units.

Industry experts and analysts said the government steps could result in the stabilisation of urea prices — due to rising local production and cheaper imports from overseas facilities partly owned by India — and enable the government to take its share in the urea market to around 50% from the current 25%.

According to a senior fertiliser ministry bureaucrat, the government hopes to commission five to six fertiliser plants in Iran, Congo and Algeria and the domestic market by 2020, substantially bringing down the dependency on foreign producers who currently constitute a fourth of domestic consumption.

The move comes at a strategic time when private sector companies are shying away from the urea market due to excessive government regulation. Tata Chemicals sold its urea business to Yara Chemicals, while the Aditya Birla group is reportedly in talks with IIFCO to sell its urea arm.

India, which consumes around 32 million tonnes of urea a year, produces some 25 million tonnes and imports the balance, say experts.

Sushil Kumar Lohani, joint secretary at the Department of Fertilizers and Chemicals, told ET: “Public sector units are likely to command a major share in the urea market with commissioning of new plants and the revival of the existing ones.”

Lohani said the Indian government is currently in talks with certain countries that have large gas reserves for the production of urea. “We are in advance stage talks with Iran and a delegation is currently pursuing the matter. We are also in talks with Algeria, Congo and Brunei and expect to commission around five-six plants world over by 2020 that will help us significantly bring down the import costs.”

The government is also reviving the defunct units of Fertilizer Corporation of India at Sindri in Jharkhand and Gorakhpur in Uttar Pradesh along with Hindustan Fertilizer Corporation’s Barauni unit in Bihar.

According to the Economic Survey 2015-16, the government had budgeted Rs 73,000 crore — about 0.5% of GDP — on fertiliser subsidies. Nearly 70% of this amount was allocated to urea, the most commonly used fertiliser, making it the largest subsidy after food. While internationally urea is sold at Rs 970 per 50 kg bag, it costs around Rs 270 in India, enjoying a subsidy of over Rs 700per bag.

K Ravichandran, senior vice-president at ratings firm ICRA, said the revival and commissioning of new plants was expected to almost double the share of state-run producers in the urea market from the current around 25%. “This move would in years to come help control the subsidy outgo as the prices might not increase from the current level despite increase in gas prices,” he said.

Source : economictimes.indiatimes.com