REPORT OF THE WORKING GROUP ON FERTILIZER INDUSTRY

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                 REPORT

                    OF

          THE WORKING GROUP
         ON FERTILIZER INDUSTRY

                   FOR

           THE ELEVENTH PLAN

            (2007-08 TO 2012-13)




     DEP ARTMENT OF FERTILIZERS
MINISTRY OF CHEMICALS & FERTILIZERS
        GOVERNMENT OF INDIA
       Chapters to be covered under the WG Report for the
              Eleventh Plan on Fertilizers Industry

               S
       _________ u~ject.          .          .       ~             ..!lI.~e"10.

I.      [ntroduction                                                  2-10

        Executive Summary                                             11 <23

,
.1.     Perl"rmance of Fertili/LT Industry
        during Tenth Five Year Plan

4.      Review of Fertilizer Policies                                 38-54

5.      Global Demand and Supply Scenarip                             55-61

6.      Assessment of Fertilizer Demand                               62-70
        during Eleventh Five Year Plan

7.       Fertilizer Availability, Movement                            71-89
         Distribution and infrastructure required

8        Capacity Addition and Production                             90-97
         Planning (Renovation, Modemization
        and Expansion) for Eleventh Five Year Plan.

9.       Requirement & Availability of Feedstock,                     98-116
         Raw Materials and Intermediates
         for Eleventh Five Year Plan

 10.     Issues of Revival of Sick and Closed                        117-119
         Fertilizer Companies

 II.     Integrated Nutrient Management                              120-126
         and Balance Fertilization

 12.     Subsidy on Fertilizers - Various Projcctions and issues     127-143

 13.     R&D and Technicallssues      in Fertilizer Industry         144-167

 14.     Professionalisation of manpower for Fertilizer Sector.      168-170

 IS.     Recommendations                                             171-188
                                                    CHAPTER-I


1.0        INTRODljCTlON


1.1      Agriculture       continues      to he mainstay            for livelihood         "I' rural peopk.         Fcrtili/ers

have heen considered           as an essential         input te) Indian agriculture                 t"r meeting          the I(JOe!

~rdin requirements        of the growing          population        of the country.         Chemical       tertili/ers      hedr d

direct relationship       with food gram production                 al()llg    with   3. :llImher      nf supponing        Ll.CIOrS

like High Yielding         Varieties     (lIYVs).      irrigation.       aeee"        to credit. enhanced        total I"clms

'.>1 productivity.     the tenurial     conditions.      si/e of the product market and prices thc\                           I"l':

both for inputs and the outputs                 etc. Studies    have "howu \hdt arl)LlIld 50 to hOOD(ll the-

enhanced         "'od production      during 1960-77 could be attributed to fenil i/crs.



1.2       In thc context of the Eleventh Five Year Plan (2007-2012).                                Planning Commission

set up a Working           Group      on Fertilizers      Industrv            under the Chairmanship             of Sccrctarv

(fertilizers)     with its Terms of Reference           and composition               indicated below:



i.3       TERMS OF RKFERENCE


1.3.1     To review the status of the industry up to and during the Tenth Plan period along

with an analysis           of growth        in demand.          demand-supply                   gap.     raw   materials       and

infrastructurallimitations,           level of energy etIiciency                in production       compared      to hest units

in the intemationallevc\           and impact of policy changes made during the period.



 1.3.2     To review and suggest mea~urcs on the tallowing                            issues:

           i)         efficient use of fertilizers;

           ii)        agronomical       importance      oflow        analysis fertilizers: specially SSP

           iii)       deficiencies     of soil in nutrients other than \lPK:

           iv)        production      and use ofbio-fertilizers;

           v)         production      of slow-release      fel1ilizers; and

           vi)        declining      response     ratio oftbe       soil to the krtilise,. application.




                                                                )
1.3.3   To assess the region-wise/state-wise       fertilizer demand-supply for the Eleventh
        Plan and beyond (in the perspective of 15 veah);


1.3.4   To suggest the manner in which to mcet the fel1ilizcts demand. total and reg;on-
        wise based on a critical techno-economic ana:vsis of buy-versus-make options or
        strategic rcasons and to suggcst optimulll levcI of indigenous capacity addition,
        after assessing the possible joint vcnturcs by cOlllpanies in countries having
        comparatively   cheaper feedstock.'cnergy,<,urces:      Jnd tv) examine the need to
        proactivcl)' pursue joint wnlurcs of Indian ,"'I'I;es abmad.


1.3.5   To assess the requirement of various inputs and infiastructual facilities requircd
        during the next five ycars to till the gap between demand and supply as far        ,b

        possible and in the perspectivc of 15 ycars.         lhis should also throw light on
        strength and weakness of our domestic industry that need strengthening;


1.3.6   Feedstock limitations in general and measures to sustain the pace of gro\\1h 111
        domestic production of fertilizers;


1.3.7   To assess the health of the fertilizer industry particularly PSEs and to suggest
        measures for improvements and mobilize the required investment.


1.3.8   To assess the need for revival of e10sed PST]s, particularly with reference to the
        need for having production capacities in the eastern part of the country. To assess
        the year-wise investment required to be made by the public sector, cooperative
        and the private sector fertilizer units for augmenting their production capacity or
        modernization including investments for change-over by the existing naphtha/FO
        (Fuel Oil)/Low Sulphur Heavy Stock (LSHS) units into gas based production.


1.3.9   (i)To assess the current status of research and development in the fertilizer sector
        and areas of strength and weakness includll1g industry· s linkages with institutions



                                               3
            {Clr R&D and to identify new thrust areas for R&D; (ii)to quantify                      fund
            requirement fClrR&D and means to source them and (iii) also suggest measures
            for iinproving the industry-institulionallinkage           for R&D.


1.3.1010        assess the need for a regulatory body under FCO for fast track approval oj
            new products.


1..,.11      fo review the present status of various taxes/duties. state-wise. on fertilizers,.,,,,
            materials and suggest   me':lSUfl:S   f(,f   their rationali7ation.


1.3.12       10 make any other recommcndations                 that ma) be considered appropriate    1,,,

            increasing elliciency. reducing cost and import. etc.


1.4         COMPOSITION OF THE WORKING GROl]1'


      1.       Secretary. Department of Fertilizers                                  Chairman
               Dr. Arvind Vinnani. Principal Adviser. Planning                       Member
      2.
               Commission

      ,        Joint Secretary (Fertilizers). Deptt. of Agriculture                  Member
      -'.
                & Cooperation
                Executive Director, Member Fertilizer Industry                       Member
      4.
                Coordination Committee
      5         Joint Secretary. Ministry of Petroleum & Natural Gas                 Member
      6.        Representative of Ministry of Railway                                Member
                Representative of Ministry of Shipping & Road &                      Membcr
      7.
                Highways




                                                           4
  8.        Joint Secretary,     (A&Ml, Dol'                                            Memher

  9.        Joint Secretary,     Plan Finance -II                                       '-.1emher

10.         Adviser (1& YSL), Planning Commission                                       Memher

            Representative      of Planning Commission                                  Mc'mber
11.
            (Agriculture      Division)

11.         Representative      of Planning Commission          (PPD)                   \kmher
13.         Representative      of Planning Commission          (I' AMD)                \lcmher

 14.        Director-Clen~raL       l:ertiJizer Associatio!l   of India                 ,\'1t2'mbL'r

 15.        Chairman       & \lanaging      Director. PDII.                             'vfcmher

 16.         Managing      Director, lFFCO                                              \kmher
 17.         Managing      Director, KRIHIICO                                           Memher

             Managing      Director.                                                    \·1emher
 ] 8.
             Indo-Gulf      Fenilizer     Complex, Jagdishpur

 19.         Representative      Of ONGC, Dehradun                                      'vlember

20.          Representative      Of GAIL      New Delhi                                 Member

 21.         Chairman      & Managing       Director, NIT                               Member

 22.         Chairman      & Managing       Director. RCI·                              Member

 23.         Chairman      & Managing       Director, GSFC, Baroda                      Member
 24.         Executive     Director,    Flee. DoC'                                      Member

             Shri Suman Bcry, DU. National Council of Applied                           Member
 25.
             Research,     New Delhi

 26.         Dr. Ahmad Masood. !,)rmer Adviser PAMD                                     ;v1ember

 27.         Shri B.K. Tiwari. FB-25, Lajapatnagar,            Sahibabad                 rvlember

             Joint Secretary (Fertilizers),       DoF                                    1\·lember-
 28.
                                                                                         Secretary



          Subsequently,       to give a proper      representation      of private   sector   in the above

Working     Group.   it was decided          to co-opt   the followings     as member     in the Working
Group:
           1. Shri Ajay S. Shrirarn.

                Vice C'haimlan & Sr. Managing            Director

                Shriram lel1ilizer:i     /( Chemicals

                Nc\\ Delhi


           2.   Shri P.R. \1cnoll.

                J'v1anaging Directur

                Tata chem icais Limited,

                MUlllhai.



           3.   Shri VK. Punshi.

                Managing     Director.

                DMCC



 1.5    To have expel1 opinion on specific emerging              issucs with regard to formulation          uj

 Eleventh Five Year Plan, the Working Group constituted              the following Sub·Groups:



Suh-Group - I      -   Demand     Projections   and movement        of fertilizers to end user, and the

                       use of new fertlizer      practices       under the Chairmanship        of the Shr;

                       Vijay Chhibber,       Joint Secretary (A&M)). Department           of Fertilizcrs



 Sub Group - II - Assessing          the demand of raw materials to mect the projectcd                 demand

                       requirements       of Urea and to suggest technological            upgradation        of

                       current    industry    to international      level with the end objective             O!

                       reducing    subsidy levels also under the Chairmanship             of Shri Deepak

                       Singhal, Joint Secretary (Fertilizers),        Department     of fertilizers.



 Suh Group - III -Assessing        the demand     of raw material> to meet the projected               demand

                       requirements       of Phosphatic      and Potassic   fertilizers    and to suggest

                       technological      upgradation     of current industry      to international       levei

                       \vith the end objective of reducing concession              kvcl\.i alsu undcr the




                                                     6
                            Chairmanship           of Shri Vijay         Chhihhcr . .Ioint Secretary                (A&M)I.

                            Dcpartment        of Fcnilizcrs.



Sub Group         - IV -Tcchnological             and R & !l Isslies relatin:,; to Fertililer               indllSlI\     IInder

                            the     Chainnanship          of     Shri     II. D      Slllha.     \1anaging          !lirector.

                              KRlBIICO.



Reports of the Sub groups have extensive!:.'                   bl'cn    used    (Pf l~i~,CllSsi()tl   and    finilll/dllOll     01


Ih,' working Group Rep".'1



1.6       FERTILIZER              SECTOR: ELFVE'\'TH PLVi PERSPECTIVE


1.6.1     The importancc           of the fertili/er     sector in India need hardly he emphasized                            as ;,

provides a very vital input for the gro\\-1h               Dr Indian      agriculture     and is an ine\'itahL~ factPf

that has to be reckoned              within     the attainmcnt                "oal of self-suffieiencv
                                                                       of the ~                                    .    in t()od

grains. The fertilizer sector would covcr not merely the ICrtilizer industry hut also certain

activities     in the agricultural      sector. whic'h are very intimately                linked with the production

and distribution        of fertilizers.       The fertilizer        industry    has to cater to the necds of the

Eumers who are the most important consumers                         of the fertilizer industry.



1.6.2        Accurate    forecasting       of fertilizer       demand          is essential,      both      tor    companies

producing,        importing       and marketing        fertilizer     and for governments              in their efforts          to

monitor       the development        of agriculture.       Because fertilizer demand depends                      on a variety

of agro-economie            factors it is not stable nor is it amenable                  to accurate        prediction.        The

choice       of forecasting       methodologies        is thus particularly         important.        both for sllccessful

operation        of fertilizer     companies        and lor the formulation              of appropriate           policies       by

governments.         To arrange        timely      supplies    of the right ferti'izer          types in thousands               or

villages, it is necessary          to have an assessment            of the likely demand I()r each fertilizer type

at numerous         locations      at different     times in hoth the short and medium                      tern IS. Hfcctive

demand        forecasting      can enahle importers            to take full advantage           of world market               price

 lluctuations.      Re4uired      st<.)rage, transpul1. staffing. creJit.           linancla! and t{-)rclgll L'\chaligc



                                                                7
                     Chairmanship     of Shri Vijay Chhibber. Joint Secretary (A&M)i.
                     Department of Fei1ilizers.


Sub Group - IV -Technological and R & D Issues relating to Fertilizer indus!r\ under

                     the    Chainnanship       of       Shri   B.D    Sinha.   'V1anaging Director.
                     KR18IICO.



Report'; of the Sub groups have cxlensilcly been used for discussion and flnalizalion o(
[he \lorking (;roup Report


1.6     FERTILIZER         SECTOR: ELEVENTH                PLAN PERSPECTIVE



1.6.1   The importance of the fertilizer sector in India need hardly he emphasized as "
provides a very vital input for the' gro\\1h   Dr Indian       agriculture and is an inevitahlc factor
that has to be reckoned within the attainment of the goal of selfsutfieieney                  in t()od
grains. The fertilizer see tor would cover not merely the fertilizer industry but also certain
activities in the agricultural sector. which are very intimately linked with the production
and distrihution of fertilizers. The fertilizer industry has to cater to the needs of the
farmers who are the most important consumers of the fertilizer industry.


1.6.2   Accurate   t()recasling of fertilizer demand is essential, both for compames
producing, importing and marketing fertilizer and for governments in their etforts to
monitor the development of agriculture.        Because fertilizer demand depends on a variety
of agro-economic    factors it is not stahle nor is it amenable to accurate prediction. The
choice of forecasting methodologies is thus particularly important, both for slIccessful
operation of fertilizer companies and for the formulation of appropriate policies by
governments. To arrange timely supplies of the right fertilizer types in thousands of
villages, it is necessary to have an assessmcnt of the likely demand for each fertilizer type
at numerous locations at different times in both the short and medium terms. Effective
demand forecasting can cnable importers to take full advantage of world market price
Iluctualions. Required storage. transport. stat1lng. credit. linancial and foreign cxchange



                                                    7
arrangements      are depcndem on demand. [f actual fertilizer demand is kss than the
fertilizer produced in or imp0l1cd into a country. heav} financing costs and product losses
                                                         but
will bc the rcsu[t. Considering that fcrtilizcr [1rocUI"cd not sold m~.y have to be kept
Illr a year before it linds a buyer and that a storage duration of a year can cause high
quantity and quality losses. the importance of demand !'lrecasting can be readily
appreciated. If the actual demand is larger than !'lrecclSt. this leads to shortages. lower
agricultural production and. otten, political implications. Demand t,m~casts have special
significance for developing countries like India which 2r,' substanl1ally dependcnt                        0:1

krtilizcr/rm,v    tl1aterial imports.   The forecast   can   rwrmit   a reduction   of thL' time   bCl\\i.:.'Cn

vessel arrival and fertili/er application II' \essels ,lrri\c during or just before the season.
it is possible to move fertilizer direct ti-om the I",n to kid siores inlhe consuming wellS.
This avoids the costs of extra handling and stora~e in moving stocks to primary points t,n
onward sale to wholesalers.             In countries where the private sector dominates                    the
marketing system this procedure is practised with a high degree of success.


1.6.3    There was a slow increase in fertilizer production in absolute terms during Tenth
Five Year Plan. There was a shortfall in actual production vis-it-vis the target projected in
the Working Group on Fertilizers for the Tenth Plan. The shortfall was on account of
non-implementation         of a number of projects. \\hich were envisaged I expected to be
implemented during the Tenth Plan. This included IHCO-Nellore,                        KRIBIlCO-lIazira
third stream, KRIBHCO-Gorakhpur,               RCF-Thal third stream and revamp of FCI-Sindri.
The joint venture project, Oman-India Fertiliser Co (OI\1IFCO), which was expected to
start production by 1999-2000, was delayed and was completed only during the course of
Tenth Plan. In view of the growing demand of fertilizers, all eff0l1s need to be made to
 achieve selt~sufticiency        through de-bottlenecking.        Brownfield / Greenfield projects.
 However, keeping in view the expected surplus 3vailability of urea at global level,
 Government should enter into negotiations or encourage Indian fertilizer companies for
 tying up for long term supplies of urea from the countries which will have surplus urca
 capacitics      after commissioning       of the urca projects. which are at present                   under
 construction.      Option lor setting up of Joint vcnture projects in the countries abroad with
 cheaper sources of natural gas needs to be explured. To ensure sufficient suppiies of raw
materials       and intemlediates           relating        to phosphatic         sector over a sustained             period.        thc

Indian companies             need to invest outside               in the resource           rich countries     by way of joint
ventures       in rnining.     productiun       of phClsphoric            acid. production        of tini:-;hed    fertilizers      cti.'.

This will not only providcd                 some cuntroi over the world resources.                      \\ rich arc '" vital [()

our agriculture.         but will also help in stablising the international                      priLl'S in what is primarih

a seller's     market.



1.6.4        The consumpliol'        (lr    l'crtI!izcrs      i', as inlportant     a 1~-tCtoras their prodw..:tioll.            Thi..:n.:

should       bc appropriate        bal,mcc       in the Cllnsumption              of difl<:relll fcnili/et         nulricnh,         Ih,'

appropriate        \:PK ralio umler Indian soil conditions                        is stated to he 4:2: I. In 1991-')2. tlk

year immediately             pleced!n!" the decontrol             of phosphatic        and potassic fenlli;",.s.          thc ,\Pk

ratio was 5.9:2.4: I, Consc4uent                   on decontrol           of phosphatic         and pota,,;;c      l;"niliILTs. thv'

NI'K ratio got dist0l1ed            [0   'l.6g:2.94: I in 1993-94. The same hds considerably                             impro\ cd

to 5.3:2.2:1 in 2005-06, The farmcrs have to be educated in the malleI' of nutrient babllc,'

which is of great long tenn significance                         for the Indian agricultural           economy.        Apart fron

the need for increase in the consumption                         of fertilizers     in appropriate       ratio. th~re is a n~cd

to evenly        spread      the consumption               of fertilizers    all over the countrv.             The studies         hay e

shown that lack of irrigation                 and lack of credit were thc two main stumbling                           blpcks th,,'

came in the way of maximizing                       the consumption            of fertilizcl'.      further.      tlte emphasis          i,

shifting in favour of water-shed                  concept. In order to encourage                  consumption         ,'I' fe11ilizcrs

in rainfed areas, it would be useful to have a national project for fertilizer use.



 1,6.5       Bio-fertilizers      arc cheap,           renewable          and eco-friendly,          with great       potential          jn


 supplement         plant nutrients          if applied         properly;      however.        they arc not a substitute                 (n

 chemical       fertilizers.    They improve health of the soil. Since it provides nutrients to soil ill

 a small and steady             marneI'.       its immediate           effects     are not very visible.             Sales of hi"

 fertilizers     in the country          has nol picked up because                  of lack of knowledge              and its sl,m

 impact on thc productivity                of the soil.         Lse of bio fertilizers          is necessary       to rnainwin         the'

 soil health       as more and more use of chemical                           fertilizers     kills ~11the micro organisnh

 available       in the soil, which are so essential                  for maintain          the soil health.       Supplementarv




                                                                      9
use of bio fertilizers       with chemical       fertilizers can help maintain          the soil fcltility        over a
long period.



1.6.6     Concerns       also arc growing about the long-tenn          sustainabil it) of agriculture.              Both

the over and under-application               of fertilizer    and po(,r management              of resources        have

damaged       the environment.       The overall strategy for increasing ereI' yields and sustaining

them at a high level must include                an integrated      approach       tll the mamigcmcnt             of soil

nutrients, along with other complementary                measures. An integrat~:d :"!rproach recognizes

that sods arc the storehouse nf Dlost of the planl nutrients cssenti,tl for plant                       gnl\\ith     anJ

that the way in which nutricnts              Me managed will k"e            Q   major i"'pael     on pLlllt grcm1h.

soil    fertility.    and agricultural   sustainability.          Fanne".        researchers.     institutions.      and

(;overnment          all have an important    role to play in sustaining agricultural            producti,·ity.




                                                             10
                                                 CHAPTrcR-1I



                                       EXECUTIVE           SLMMARY


2.1      PERFORMA'ICE     OF THE:                    FERTILIZER              Il\DlfSTRY         DliRING           Tin:
         TFNTH FIVI<: YEAR PLAN


2 I. I     During the termll]al vcar or xth hve- Year Pl:tn ie.               J   996-97. the installed capacit\

oj lerlilizer     WctS 94.t,g    IJkh MI s or nitrot(l'n      Jnd 'W 27 lakh \!Ts           of phosphate.          This

improved      during thc ternillal     year or 9th Five Year Pl:tn. to 121.661akh               MTs or nitrogen

and 51.\2       lakh \11 s to phosphate.      The growth      III   tertiliJLT indust!)   remained      stagmmt h.,
and large during 10\11 hv,:-Ycaf         Plan period.



2.1.2      As j'Jr as urea i, e(lI1cemcd. the report of the Working Group on Fertilizers                      for the

I   (r Plan   had envisaged"       urea demand of 242.14 LMTP.\               hy the year cnding 2006-07.                It

had envisaged       that infer alia. RCF-Thal        Expansion       Project, KRlBflCO-Hazira            Expansion

Pftlject. Revamp or Namrup paint of IIrC and Rcmap of Sindri Plant of FCIL will take

placc in the loth Five Ycar Plan. The Joint Venturc Indo-Oman                         Project in Oman was also

targeted to he commissioned           during the 10") Plan.



2. U       However.      the actual     domestic      production        in 2005-06        has   been    201       LMT.

Besides,      OM1FCO       plant was commissioned             in July 2005.           Therefore,     presently,      the

indigenous        urea capacity      of 28 functional      units       is 197.003      LMT besides        OMIFCO

capacity      of 16.52 LMTPA.         Therefore,     the target envisaged           in ] oth Plan period have not

been fully achieved.            While BVFCL Revamp            Project stands commissioned              in November

200S. FCI- Sindri has not been rcvamped                 consequent         upon the closure of FCIL by the

Govemment          in Septemher       2002.      As far as RCF- Thai          (1]   .55 LMT) and KRIBHCO-

 Ilazira expansion       Projects (10.56 LMT) are eoncemed.                the projects have not made further

progress due to uncertainty          regarding     supply of NG/LNG to them.




                                                         11
2.2          REVIEW           OF PRICINC:               POLICY



2.2.1        INTRODliCTION                  OF NI'S



I inul :II .\.200,.          the suhsidy to urea manufacturers                    "as hcing. reg.ul:lted              III   terms of the

I'r, J\!Sions of the unit spelitic                and cost plus Retention              Price Scheme. :\ group bascd Nt'"

Pr',cing,      Sch~rnc (\iPS)            for     urca     units   for    replacing       the     RPS     has introduced                 from
] ,·.j..2()()3. It aims at inducing               the urca unit;.; to achic\-c          ;j-Jtnnatwnal!y                       k'vels
                                                                                                               cl)l1lpeti~i\'l~

ill     c(!icicncy.       hesides      hringing         in greater      transparency        HIll.!   simplilica1iun            in subsid;.

~~d1l11nislration .


.,I'S
'          is hcing implemented                in stag.es. Stage-I       WCIS   or one year dew)lion. from I A.20()'                       h)

.11.\.20()4.            Stage-II      was of two years duratioll.                    from      I A.200-l to 'i .\.2006.                   rhe

mudalities            of suhsequcnt      stages \vere to be after review of implemcntation                              uf Stage-I and

Slage-II.


      Under NPS. pre-set energy                  nonns for urea units during Stage-II of NPS were notified

with a view to tix nonns for specific energy consumption                                       and encourage            efficiency        and

discourage             indficiency.      Similarly.        reduction         in rates uf concession            during          Stage-II    of

NPS for urea units on account ofreduetion                            in capital related charges were also notified.


 Phased        decontrol       of urea distribution/movement                     was also undertaken               under the 1\PS.

 Until 31.3.20()3, urea was under total distribution                            and movement            control.       During Stage· I

 of NPS, while 25% of production                           capacity      was outside           rCA allocation               durin~    Kharif

 20m and it was increased to 50% durin~ Rahi 2003-04. During Stage-II. urea distribution
 was to be totally decontrolled                   after having evaluated             the Stage-I and with the concurrence

 of the Ministry             of Agriculture.              After evaluation           of Stage-!        in consultation               with the

  Ministry of Agriculture,               it was decided to defer the total decontrol                       of distribution            of urea

  hy six months initially which was later deferred upto \ 1.3 .2006.




                                                                        12
2.2.2       CONSTITliTlON OF WORKING                            GROCP         FOR        FORMULATION                    OF
            POLlCY FOR STAGE-III OF NPS


Stage-Ill     WCiSto commence           I'rom 1.4211116     alter rniL"       ,/ Stage-I        and II. A Working

(iroup      was constituted      under the chairn1anship          of Dr. Y.K. Alagh               ("I'    revil'" in[.' the

effectiveness     of Stage-! ilnd !I of N!'S and for formulating"                  p"licv for urea units bt.,vollCl

Slage-II      i.e, from      1.4.2006    onwards.      I hc WorkiEg         Group     submitted            its repnrt     ,)11


26.12,2005,            The Working Group has given its rccl>mmendations                   Ull    various issues such

as pricing puliey for Stage-Ill          comrnene1l1g Ii-um 1.4.211116, li,lure demand and "'pph                          ,<I

urea, joint     venture      projects   abroad,     ma~imum      retail     price of urea,         feedstuck         related

issues. taxation        related issues. distributiun      and movcment         of urea. subsidy related issues

and policy lor fertilizer usage. The Working Group has cl>nsidered the pussibili!\                                uf towl

decontrol      of the urea pricing and has found that this would affect the interest                                 of the

farmers      in a significant      negative    manner.       I lence. the Working          Group           has ruled out

decontrol      of urea pricing in the near future. The Working Group has felt that the logical

progression      would be to move over to a single producer                 price with a provision             for energ:.

pass through       and grant of capital subsidy           to existing     fenilizer   units to convert to gas              ,b

the feedstock.             However,     considcring       the risks     involved      at the present           stage.     the

sensitiveness      of the agrarian question         and the heterogeneity          of the fertilizer industry.            the

Working       Group has also recommended              what it has called a second best strategy (SBS). in

which there would be one group for gas based units and one for FO/LSHS                                       based units.

The first group of units would include                units which have been designed                     and are working

on gas as a feed stock.         It will also include two other groups viz. units which have alread)

converted       to gas in the recent phase and had yet to complete                    the initial period of large

debt servicing         in terms of repayment        of loan and interest payments and units which havc

plans or possibilities         of conversion      to gas based units.         SBS also provides              for grant of

capital      subsidy     for the Naphtha/FO/LSHS             and Mixed         reed      units which          have      made

significant     investments      in revamp and for units converting             to gas


The Working            Group has further stated that if SBS is not acceptable                     to the Gov-ernmCnl

 for fiscal or any other reasons,             then the NPS may be cominued                      into the next pricing




                                                           13
period with some updating and corrections                    of anomalIes.    This recommendation           is ~ased

(lfl   the premise that any policy necds time and continuity                 to bear fruition.


The Department           has favoured the third option recoJlll1lended by the \Vorkill~ (;roup                       I('r

continuation       of NPS. which aims to carry torward the trends of et1iciencJ.                      transparenc\

and uniformity        introduced       during Stage I & 1I of NPS without any sudden changes                        of a

baSiC nature. The Department               is now in the process of f,mnulating           a plllicy j"r Stage~111

u( '\iPS \\'hich will emphaslze             conversion       of non gas hased units to gas. inCl'nti\'isil1~

additiollaluH.'3      production. rationali/ing           n-eight reimbursement. rationalizing         Jistrihlitjn)1

and movement          of urea in all pans of the count"y and cncourag'ng                 i"int lentllrl'    knili/cr

pr"Jeets abroad.


2.2.3       I'OLICY FOR ~EW AND EXPANSION PROJECTS                                     ()f'   UREA
 l',,1 icy for new and expansion            projects      of urea was announced        in .January 2004,       \1   hieh

 pr"vides       that the new/expansion           projects    will be based only on natural             gasTNG           as

 Iccdstock.      KRIFlHCO-I-lazira.        Indo Gulf~.lagdishpur       and RCF~Thal have been su~mitted

 proposals      for setting up expansion        projects, which if approved, would result in creation of

 additional     capacity of 33.5 LMT.


 2.2.4      POLICY FOR INCENTIVISING UREA PRODUCTION


   Policy    for de~bottleneckinglrevamp/modcrnization                 was also notified         .lanuary   2004 for

 creation of additional       capacity by existing urea units. Policy for de-bottlenecking                   is being

 reviewed       as part of the policy provisions            for Stage~III of NPS being formulated.             Policy

  ror incentivizing       additional     urea production        by existing     urea companies        is also undcr

 consideration      of the Departmcnt.



  2.2.5     POLICY FOR CONVERSION OF NON-GAS BASED UNITS TO NG/LNG


  Policy for conversion       of non~gas based units to NG/LNG                 was announced       in .January 2004

  with a view to encourage             an early conversion        of naphtha and FO/LSHS             based units to

  natural     gas/l.NG     so that      they    acquire     a competitive       edge   in the deregulated            and

  liheralizcd     economic     scenario.       The policy for conversion         of the non~gas based units to



                                                             14
.'\G/LNG       is under review as part of the polin                     provisions        Ic)r Stage-Ill          of NPS being
I(Jrmulated.



Consequent        10   the policy    antlOllncel11t..'nL    naplnh.: '::J~cd urea         L1Ilih    situJtcd      IJ1 the     vicinity

of Hill pipeline         have already stal1cd taking st'T'               I()r C(,r,\':rs;on to ncltural gas/R-LN(j.

(jadcpan-II      unit of Chambal          Chemicals        & Icni.Jccs         Limited ICFCL) and Phulpur-I                          8:.

I'hulpur-II      units of IFFC()         hav,c alrcalh       co"'c~cd         tl' ,\(jll.\(;.              Shriram      l"eI1i1i/L'r's

naphtha       hased urea uni~. al Kota i~~
                                         cxpcckd                    ~   )\\'itc;;I)\(:r    by      thi.;    ..:nJ t)(   the   CUrn,?IH

t:nancial     \ ear.



2.3         TAXES A:\[) DUTIES ON FFRTlLIZER.S/RA                                 \V MATERIALS


,\11 local taxes levied by various State GO\ trnIl1C;~~Smay be withdntwil as thc) affect the

viability     of the urea units or increase the krtilile;                subsidy burden of the Government                            of

India. 1\s far as. the rate of sales lax on raw marcr:"ls and inputs on hydnlcarbons                                          (natural

gas/LNG.        naphtha.     and fuel niIlLSHS)             is concerned.        the Department                 has argued         that

either they be reduced              to 4 per cent or less b\ all the Stdtes or in the alternative.                                  the

hvdrocarbons           (natural gas. naphtha.        fuel oWISHS         I   used in manufacture                 of fertilizers      he

deelared      as 'goods or special importance'               under Section 14 of the Central Sales Tax Act.

1956.       This would bring in uni!(lrmity.                or at Ic,,,!. a ceiling in the rate of sales tax on

these raw materials         and inputs.


2.4         {;LOBAL DEMAND - SUPPLY SITL\ nON


As per IFA. the world demand                  for urea is cxpecred to grow by ] 2.3 million tonnes (5.7

million tonnes N). from a total quantum                    of 13 J; million tonnes ( 60.4 million tonnes N)

during 2006 to 143.6 million tonnes ( 66.J mil;',,"                          lonnes N ) during 20JO. As against

this. the total supply is expected               to increase     I" :<18 million tonnes (13.7 million tonnes
;\). hom a total quantum              of 134.4 million tonne, '6:'8 million tonnes '" ) during 2006 to

 164.1 million tonnes (755 million tonnes "ll durirg 2010. Thc global supply situation                                                   in

respect of 'N'.         '1" and 'K' is expected            to he eOIl'turtablc in comparison                     to their demand

during the period 2005-06 to 2009-10.



                                                               15
2.5        DEMA~J) PHOJECTIO\


Keeping      in view the recent trenu in the cnn~llmption                              of feniliscrs.            the t..''-;\illlatc;-, of
demand     for kniliser           nulriel\h    and products have been worked out in L·\II()r the II'h Phil

reriod    hased      on the multiple           regression    model.       Among        a large     I1tll1lh.:.'r    or     !;lCturs,      till..:'

('ollowing      \ariabks           \\ere    finally    considered        in the model        based        ('11     tbeir      'Iatislical

significance      and stahility uf the ;'unuiunal              relationship       to e';tilllatc      <.kTliJnd       1'(\1' lhl'   JllTiod

21)1)6-07 to 2011-12:


(]) lrrigzned     arl'~L    (~)    Ar~a under HYV, (3) Fertiliser nutrient                 prlCl's.     (-+)     RalI1fall      (<IS   U~n   (d

long term average value). (5) Lagged dependent                             \ariahle     tFer1iliscr       cunslll1lptiu!l              in thl'
previous     year)


Demand        !()fe,:ast of '\i'. 'P' and 'K' are estimated                   at 163.10 LMT. 72.9() L\1I                            and 33

LMT respeetivdy             in the terminal year of the Eleventh five year plan. I his corresponds                                             to

a IJrea demand of287.55                    LMT, 95.10 LMT ofDAP,               37.40 L\1T of\10P.                    93.30          uvn       of

complex       fertilizers     and 36.45 LMT of SSP.



2.6        PLANNING OF CAPACITY AND PHODliCTION                                              FOR THE ELEVENTH
           FIVE YEAR PLAN


2.6.1        In the context          of rapidly increasing          food-grain        production       in the countlY to 320

million tones by the year 2011-12,                      planning     for availability       of     300 L\lTPA                 of urea or

 more is required.                It is expected       that over and above the present                   installed          capacity            of

 213.52      LMTPA          of urea (197              LMT from       28 domestic          units       plus 16.52 LMT                     from

 OMI1'CO).        additional         capacity is expected to come in the next Plan Period as                               ((lI!OWS:



 a)          25. I 86 LMT from additional                 production      from existing units

 b)          33.50 LMT from 3 brown tield expansion                         projects

 c)          About 50 LMT from revival of seven urea units of HFC and Fel in r'astel'l1 India

           based on natural ga;;/LNG/CBM/Coal                        Gas as feedstock.




                                                                    16
d)       About 20 LN1T from JV projects abroad based on cheap gas/ LNG, which m~)
         come up in the countries which have abundant l\:scrves of gas with a buy back
         arrangement for urea so produced by these .IV projects.


2,7      RAW MATERIALS              AND    INTERMEDIARIES          fOR    FERTILIZER
         PRODllCnON


2.7.1    The production of urea bsed on n~tur~1 gas as reCastocK is energy efficient and
;:heaper.! he present ferlilizer policy is aimed at greater usage of "'G.'LNG. This is not
(mil because '\G.I.'\G is cleana, cheaper and rnor~ energy d1ieient, but would also hch
in bringing uniforn1it\ in the industry and help to move to\\ards a single urea price dnd
decontrol.   '\ceordingly,   the policy stresses the need for cunversion of naphtha and
FO/LSHS based units to gas-based units, and also that the creation of new capacity
through expansion, new projects (including revival of closed units), de-bottlenecking!
revamp/ modernisation, should be based on NG/R-LNG.


 2.7.2   However, due to the dwindling supplies of natural gas, even the existing gas
based units have been facing shortage of natural gas. Against the total requirement of
33.01 MMSCMD of gas for the existing gas based units, the actual average supply during
2004-0-5 was 23.79 MMSCMD only. With the commissioning of LNG terminal of
Petronet LNG Ltd. and commencement            of supplies of RLNG to consumers w.e.r
 1.4.2005, the gas based urea units along the HBJ pipeline received 7.775 MMSCMD of
R-LNG during 2005-06 and the average actual supply of gas to urea units during 2005-
06 increased to 28.483 MMSCMD. With the supply ofR-LNG, the supply position of gas
to urea units along the HBJ pipeline has improved and the extent of usage of costlier
substitute has come down, but the shortfall in the case of gas based units in Kakinada and
 Uran region continues to be acute.


2.7.3    Apart from the requirements for the existing gas based units, NG/LNG will also
 be required in the near future for other purposes as well sueh as conversion of naphtha
 and FO/LSHS based units to NG/LNG, de-bottlenecking of existing urea units, setting up
 \If new and expansion urea units and revival of closed urea units of HFC and FC!. Based
 \·n the proposals reCeived for de-hottleneeking     and expamion projects and if all the


                                               17
     proposals       for revival of closed urea units fructify and all non-gas based urea units comert

     to NO/LNG,          then the total requirement           of gas for the fertilizer sector by the cnd of XI

     Plan Period would be 76.269 MMSCM!J.                        As far as the issue of gas pipeline connectivity

     t,) fertilizer plants located in various parts of the cOunlry is ~oncerned, it is envisaged                                thelt

     all the urea plants in the country barring three plants in South India will have connectivity

     by the year 2009-10


     2.7.4      As per the available            inf(m1l<llion, the availabilit\            of AI'\l        gas supplied          hv
     ON(iC/GAII.           shall     progressively        decline     i'rom    :is \1\1';( \11) in          21)1):i-1)()   (0     ,8

     MMSCMD             in 2011-12.1       he supply from domestic               loim \'(ntures       and private suppl iers

     will rISC from 20 MMSCMD                  to 67 M'vlSCMD.             The \1" I'&?\G has also indicatcd                    thul

     by 2011-12,         the supply      of LNG Irom suppliers                such a, Qatar. Shell and Iran ele.. is

     expected        to increase     from the present       level of 18 MMSC\lr)                (0   arnund 54 MMSCMD.

     The supply of JV gas/private              gas/r-LNG       will be at market-detemlined               rates.     Overall, the

     M/o P&NG has projected                that the availability         or gas and RLNG both horn domestic                     and

     overseas       suppliers      shall increase    from the present 93 M\lSC\1D                    to 159 MMSCMD                by

     2011-12.


     2.7.5         As regards the question          of availability      of gas for fertilizer industry,            although     the

     sector has been treated as priority sector along with powcr in the context of allocation                                      of

     APM       gas, the proportionate            amount      of gas for fcrtilizer         sector       has been declining.

     Further,       in discussions      as regards     allocation      of gas, the requiremcnt            of fertilizer     scctor

     does not appear to be generally                adequately      reflccted.      The only way in which increasing

      fertilizer     production      and managing         the subsidy burden can be reconciled                     is by ensuring

      availability      of gas for the existing           and proposed           requirements        in the fertilizer     sector.

      Besides, the production            of fertilizers    (urea) involves the most efficient USe of gas since it

      uses both its heat value and the chemical components.


      2.8          SICKNESS         IN FERTILIZER             INDUSTRY


      2.8.1         Keeping     in view the need for gencrating                \'arious   L'ptions for revival of closed

      units of IIl-T, FCI and PPCL in keeping                         with the I13ti"nal commitment                  of thc UP/\




                                                                    IX




()
Government     and the requircm,'nt           01 fertilizer productiull in Eastern Rcgion ,)1 the
country. which does not hay,' any urea production capacity at prcsent. the Departmcnt                            IS

examining    the revival uf closed                 urea units of Hh        and FCI based on natu,,"
gas/LNG/coal bed methanc,coal gas, Ihere is the likel,hood of new gas Grid eor!lin~ up
with a potential source of gas hy the year 2009-10, Must of the units of thcse cOIllI'anics
have excellent existin~ intra:itructurc in the shape of residential colonics, C\)ai and
electricity tie-ups. railway sidin,cs '!lid a very sizahle area of Lml               fhis infrastruclc'rc "
ideal Ie" hrown tield pr:'i,'c\s, Some of these units are Illcakd ll'cai COJI pit-healk                  \\l1i,'\]

ensure availability   of   Chl>tp   l'O(j~ feJl'   feedstock   and rucl. furthermc'le.    revi\aJ   of   lk\~('j

urca units, \vhich an: located in Eastern Region ofth(" .:nulltry \\ill result in somc pUlit'.
in creation of production capacily of urea in States of Bihar. West Bengal, Chhattis~arL.
Jharkhand and Orissa. which do not have any urea plant al present,                       It is envisa~ed Ihill
revival of these closed urea units in Eastern India will add an additional urea capacity or
50 LMTP A.


2.8.2 . As regards MfL and FACT. which have been declare,] sick, the Departmem ha'i
or is contemplating various measures for their financial rcvival and restructurin~, The
reasons for sickness of FACT are mainly on account of outdated technology of the plant.
high energy consumption !lonns, large manpower, high 1!xed cost of new ammonia plant
(900 MTPD). Phosphoric acid plant suffers from low production and low efficiency


2.8.3   The reasons for losses of MFL are due to the fact that                     Ammonia plant is not
operating at full capacity due to low capacity utilization, NPK plant is operating at low
capacity due to high cost and non-availability of phosphoric acid, Cost of production is
higher than the price received by the company through MRP and concession. the energy
consumption for urea is higher than present day plants and high feedslock naphtha prices,
High depreciation charges compared to group norms.


2.9     INFRASTRUCTURAL                       REQUIREMENTS                 OF     THE        FERTILIZER
        SECTOR

2.9.1    Most ports are severely constrained to handle high volumes on sustained ha,is,
Excepting Mundra pOlio no other port. currently is able to deal "ith panamax yc;sels,


                                                          19
With the sea movement from CIS countries and US gulf increasingly being taken up
through these large vessels. accepting and handling them at India:, ports has beCl'lllC a
severc limitation.        With increasing pressure on dcmandsidc                and faced with a static
indigenous production capacity. it is only natural that thl" imports WOLiidassume a
significant role and as such there is an urgeilt need to rC\le\\ infrastructure capacities at
ports for discharge and evacuation of fertilizers.


2.9.2    There is a pressing need for upgrading and moder!lizin~ the shore support (,'r
uchic\"ing     higher   discharge     rates through   mcchanical   UnltHding     ~ti1d   hagt;iJlg LlCi!itics.
raising the number and quality of barges at the anchClrage I'Clrts and an increase ,n
godown capacities. There is also an imperative need for creating facilities                     for handling
panamax vessds at selected ports.


2.9.3    To supplement the efforts of major ports that handle 60-70% of the finished
fertilizers.    improvement         in the existing minor ports will be more economical                  than
creating new ports. The existing minor ports are well connected with mil and road
facilities. and can be upgraded with little investments.


2.9.4 The development and maintenance of road transport wiil ha\'e to be substantially
increased by way of widening and proper matting of road to withstand increasing load on
the national and State highways.


2.9.5 Port Railways           facilities   and port-rail    connectivity       need to be strengthened
significantly during the Plan period if timely availability of fertilizers has to be ensured.


2.9.6 There is a need to provide a thrust to the development of Inland Waterways and
Costal Shipping for movement of fertilizers.


2.9.7 In view of competing demands for a number of agro-products. it will be desirable to
strengthen the warehousing infrastructure to meet the requirement during the Eleventh
Five- Ycar Plan. This is more so because fertilizer demand has a definite peak and non
peak distribution of demand and is not amenable to 'just in time' inventory planning.




                                                       20
2.10       R&D TECHNICAL                    ISSllES


2.10.1 Fcrtilizer       polic\   in the past 20 \·,·~c, is maiL' .. focuc;cd on pricing and distribution

Issues.    Technology        rdated         issues     had c.cetl neglect"d          BLcause of the linkage             of the

industry     with agriculture         and issue         "t : ',od SeeLll:::-. suly,idy on k11ilizers               is likely   10

rcnwin in some form or the other. Con:,c_Jcntlv ~sr,;c'C kind of eOlll,',,1 "ill also remain
                                         .
                                                                                                                               Oil


the industry.    It is :ecommended              that thec, "hould bt.,,:II-dciined               policy for the R&D anJ

its implementation         mcchanism           a~,pan I?· O"-e gcnl'L~_       ~dl.i.cy (If   the fertilizer sect/Jr.



2.10.2       D,'pa!1J11ent of leliil izcrs neeL:                     k strCIC.:'iCned technically         as it can play all

impol1ant role          In prumotion           oj' lh('    r-   .Juctivit\     r, the    nc\-\ ~c()nornic c..:nvirnnrncnl

through R&D e;"tim,



2.10.3      Industry     may contribute              1% of      LS    protits t,' nodal agency which           shall take up

R&D projects           of interest     \0    kniliza       ir<!ustry. CJ,,\ 1. of India may also give matching

funds for R&D from the subsidy funds.



2.10.4        Proper recognition             and reward policy need to be adopted to encourage                            young

talents to opt for carrier in industrial                resciCch and de\dopment.



2.10.5        The incentive          like custom          dut: .. free imJXlfts for pollution            related    technology

and machinery           might be allowed             till the time indigenous           capabilities      catch up wi1h the
 world standards.



 2.10.6      Industry     has reached          a stage "~."re it is necessary                to keep in mind long-term

 VISIOIL It is recommended                  to develop          "orid-c1ass     indigenous        process     technology       for

 Ammonia        and Urea production              (represer:s          85% of nutrient produced            in the country)        in

 next      10 years,     Thc     target       should       be :0 achine          specitic       energy      consumption        for

 manufacturing         ammonia        at energy level,," 6.0 Gca! \IT from the current level of 6.7-7.0
 GcallMT.




                                                                      21
2.10.7     Industry must prepare itsdf to he able to use indigenous raw Illateri~;s. Suitahle
technology/metho<.ls need to be developed so as to use Indigenous rock-phosphate and
coal to reduce dependence on imports of feedstock


2.10.8     New and cost effeelive alternate products like hio·fertilizers.            slow reiea,e
fertilizers should be developed which can replace cunvent;"·,,,1 product \\ith (~ase


2.10.9          Pollution standard may also include the method .. mcasurement to be adoplcd
llnrealistic and unaehievabk        standards should not he set.


2.10.lO         R&D cfT0I1s in all pollution related areas arc ,c('.:irc·d to ct,,,elop indi~enul"
technologies taking carc of not onlv the current requir""',cilt but also likely emerging
requirement in next IO years.


2.10.11 It is recommended that proper regulations may be hrrnulated for the sale of new
products like plant gro'W1hregulators.


2.11 PROFESSIONALISA TION OF MANPOWER FOR FERTILIZER                                    SECTOR


2.1 t.l   The fertilizer industry employs sophisticated            technologies in production    of
 fertilizers.     The operating     conditions   are hazardous       both in tenils   of chemical
cnvironment, high pressure and temperature. The operation and maintenance of fertilizer
plants require skills of the highest order. Further, farmers being consumers of the
 fertilizers, they need to be imparted knowledge regarding appropriate use of fertilizers
 and other farm inputs for optimum farm productivity.


 2.11.2 In view of the GDP growth of more than 8%, there is competing demand for
 trained manpower from all sectors of the economy.                 Fenilizer companies are already
 having difficulty in retaining the trained manpower.               In view of high turn over of
 employees, need for training becomes even more important. Therefore, there is a need
 for centralized institute for training of new entrants as well as refresher courses/retraining
 of existing employees. A training and manpower development institute can be established
 for the purpose. The institute may he established under tht Clcgisof FA!. An allocation
of funds     from the lllh   I:ive Y,"ar Plan should   be made f(Jr estahlishment   of such an

institute.
                                          CHAPTER -III


              PERFORMANCE            OF FERTILIZER           INDUSTRY IlURJi\G
                                  TE:\TH     FI\'E YEAR PLAN


:U        INTRODUCTION


()ptimaluse   of fertilizers plays a key role in impro\ ing the productivit] of \ a,-iuus CP,'I'"
Successive    Five-Year   Plans    have    laid stress   on self-sufficiency   III   food   graill~   ~lild


cuneertcd efforts in this direction have resulted in substantial increase in agriculturd!
production and productivity,       From a vcry modest level of 52 million toncs in 1951-':',
the food grain production rose to above :'08 million tonnes in 2005-06. Sel!~sllt1ieicne\
in food grains and improved agri-outputs are the key dctenninanls of the degree of
success of Indian economy,         It is felt that increase in consumption of fe!1ilizers wou,d
largely be responsible for bringing about progressive improvement in the production or
food grains and other agriculture out-puts in thl' country, The averagc per hectare
consumption of fertilizer nutrients has increased from less th31l1kg, in 1951-52 to about
106.7 kgs, per hectare in 2005-06,


3.2       CONSUMPTION         OF FERTILIZER              NUTRIENTS IN THE COUNTRY


3.2.1     As against the projected consumption of 222.64 lakh MTs of fertilizer nutrients
by the end of 2005-06, the estimated consumption is 203.40 lakh MTs which is lowcr b]
about 8.6%. due to stretched supplies. While macro-level availability of fertilizers has
been satisfactory    during the Tenth Plan period shortages have been experienced                       in
pockets due to inadequacy of some of the states to ensure proper distrihution within the
stat~s.


3.2.2     Average annual growth of 13.2% of fertilizer consumption achieved at the end of
V Plan period for all fertilizer nutrients has gradually deelined to 2.1% at the end of VIII
plan and stood at 4% at the end of the of IX plan period. Average annual growth in the X



                                                   24
r1an (Ur to the penultimate            year) had heen about 4"/0. "hieh                   indicates        a signitlcantly

buoyant state.



:1.2.3    The eountr:.      had he en almost          sdf-sufficient      in urea rroduction               ur t(l 2(J()4-(J5.

H(lwever.    a steer      growth     in con.sumrtion         of urea thereafter          has exrosed              a huge gar

bctween     the indigenous     c'apacitv and demand.               While the illst~lllcd capacity ur flAP in thc

country 1l1atches the requirel1lent.         actual production          ha~ b.:cn lagging hehind significanll:



3.2""     Trends in productirnl,        cOLsumption        cll1d   import'S ('1' l ITa   ~itld   j):\p     <irc prl'~cntLd    ill


Annexurcs        3.1, 3.2. Trl'nu,; ·in thl'        C()lhlwlption      of cumpk\         fertilizt:fS. SSP ~lnd j\1<)P

may he seen in Annexure             3.:1.



3.2.5     Increasing      trend in the consumption           of phosphatic        and potassic fertilizers            has led

to the improvemern         of N:P:K raU,) "hich           had deteriorated        consequent         to decontrol.       This

ratio    which    stood    at 6/):2.4:1       in 1991 deteriorated              to 9.5::1.2:1       in 1992-93          which

coincided    with decontrol        of fertil'zers     other than urea.      The ratio had been 6.8:2.6: I at the

end of IX Plan in 2001-02 which further improved                        to 5.:1:2.2:1 in 2005-06.              during the X

Plan. The year-wise         trend is indicated        in Annexure        3.4.



:I.J      STATEWISE/ZONEWISE COl'lSliMPTlO:\'


3.3.1     The 101hPlan began with a countrywide                     drought during 2002-03. causing a fall in

All-India    consumption       of total fertilizer       nutrients by about 7.3 per cent over the previous

year. This was followed by a modest growth in consumption                            of 44 per cent during 2003-

04. During the successive           two years. the gtll\\th          in the consumption           of total nutrients         was

9.5 per cent and 10.6 per cent. respectively.                 The per annum              growth          during     the Tenth

 Plan was only 4% O\er the terminal year of the Ninth Plan.
3.3.1      ,\t     t!", zonal     level.     dur;ng      2fJr)2-03,     as a result       of countrywide           drought.      the

(or1sumrtion          of fertilisers       recorded       ncgative     growlh in all the zones except                Ilorth-east.

\\ hich "itnes,cd         positive gl\l\vth during Ihe period



3..1.3     (jenerally.      the growth           in c@sumption              ut fcr1iiiss'r takes       li'1:e in picking          up
inllnedinlL'l.v      follo\vin~     the drought }car as the farmers are left v,ith lil11it~d rL',sourct:", for

the purchase         of inpuls ClOer tilcing the drought in the' previous year. During .200,··0.1. e:ht

and south /oncs           rl'gi~)tl'rcd marginal           n~gative grnv,'ln o\·e;' the prevIous            :-c,!]. I he :-.tatl'.'-'

which      r"eCorded negative              gro\\th     during     2003-IJ.1 Include.        Kerala.     I alllil    N;.du. \h·-;t

Bengal.          Hihar. Karnataka.         Chhattisgarh.         and ~v1aharashtra Uther !'Jaj"" stat,", \\ ilnc·s.scd

positiH: grovv"th during the ptflod.



 3..1,4     During       2004-05.       the consumption              of fertil;sers    recorded      an impressive         grCl\vth

over the previous            year. All the zones recorded                   positive      gmwth     ;n consumption         e'\eept

north-cast.         Most of the major                states recorded        positive   growth       in consumpt'on            cxcert

Assam. Ill', J&K. Uttaranchal                   and Rajasthan.



3.3.5       During       2005-06,          all the       zones    recorded       robu,t     grov.lh     in consumption              of

 fenilisers       over the previous          year as a result of good weather. At the state level. onl! W

 Bengal and Madhya Pradesh recorded negative gro\\1h during 2005-06 over 2004-05



 3.3.6      North      zone is comprised               of high fertilizer        consuming         states. Uttar     Pradesh.       in

 north zone is the highest                  fertilizer     consuming         state in thc country.        The total nutrient

 consumption          was 34.64 lakh tonnes in Uttar Pradesh during 2005-06.                              Punjab      showed an

 increasing         trend in the consumption               of fertilizer     nutrients throughout        the first four years

 of the Tenth Plan. Per hectare consumption                            of total fertilizer nutrients        in Punjab during

 2005-06 was 2]2.7 kg, about 99.3% higher than the National Average. This was followed

 by      Haryana        176.7     kg,      nearly        65.6%     higher      than    all-India      average.       Per      hectare

 consumption           in Uttar Pradesh was 134.4 kg, 26% higher than the all-India average. North

 zone as a whole witnessed                  a steady grov.1h during the period                2003-04 to 2005-06




                                                                      26
3.3.7      ]n thc Eastcm          lone.     Orissa recorded high increase                     in consumption           (llllsistently

during     the period         2003·04      to 2005·06.        Similar was the sitllGlliln in JhGrkhand.                         While

Bihar showed         an illcrease          in cllJ1sumption during 2002·0.1.                   20()..I-0< and 200')-06.             W

Bengal recorded         increase        in consumption          only in one year. i.c.             ~(}()-+-(J)   and   111   the ()th~:r

years.     of the      lOth     Plan,      the slate       Shl)\"\Td    marginal         ncgali\,~· gn1\\·th. Pcr              hectale?

Cilnsumplion     of total nUlric'nts in \Vest Bengal during 211/ ·lih
                                                               "                                II ,"   126.X kg. ahout         1~. 7""

higher than the National Average. In Bihar. the pef hect~.n:CO!L1.,i11ph)!1                                      ortoui nutricnls
was 11 h.4 kg. nearl\ 9" 0 higher than the J\~tional i\\'er",,-c.



~.J.S      In the Easten1 lone.              Orissa recorded           high   incrL'(1::;C    in   Cdl1>iUlli[1tion    c()Jlsistcntl~
during     the period         2003-04       to 2005-06.        Similar was the ';iiuat;.)11 in Jharkh"nd.                       Whik
Bihar showed           an increase         in consumption          during 20(12-0',_ 2iJ')·j-0,) and :WO.'i·06. \\.

Bengal recorded          increase       in consumption          onl} in onc )car. i.e. 21104-05 and in the othu

years.     of the      lOt" Plan.          the    state    showed       marginal         negati\c        growth.       Pcr     hectare

consumption         oftotal     nutlients        in West Bengal during 2005-06 was 127.7 kg. ahout I C). 7%

higher than the National               Average.      In Bihar. the per hectare consumption                       of total nutrients

\\as ] 16.6 kg, nearly 9.3% higher than the National Average.



3.3.9      In the North          [astern     Zone. Tripura have sho\\                G   the fastest growth             in fertilizer

consumption         during       the major         part of Tenth Plan. During 2005-06.                           the states      which

showed      positive     gro\\1h        in fertilizer      consumption        were Assam, Tripura.                    Nagaland      and

Mizoram.      Per hectare         consumption             of all the states in the zone are below the National

average.



3.3.10     In the South zone, Andhra Pradesh recorded sizcahlc increasc during 2003-04                                                  to

2005-06.      Karnataka         and Tamil Nadu recorded robust growth during 2004-05                                         and 2005-

06. On the other               hand,      Kerala     recorded      positive      gro\\1h        in 2002-03         with       marginal

 increase in 2004-05 and 2005-06. Per heetare consumption                                    of total fertilizer nutrients          was

 206.4     kg in Andhra           Pradesh         during    2005-06.      This was 93.4%                higher     than All-India

average.     The per hectare              consumption        in Kamataka         and Tamil Nadu was lJ32                        kg and

 200.8 kg . respectively           during 2005-06 which were higher than the All-India                                  a\crage.        On



                                                                  27
the other hand, the              per hectare consumption            in Kerala at 68.) kg during 2005-06                   was

lower than the All-India               average.



3.3.11 In the West zone. Gujarat                      recorded     high growth        in consumption            consistcntil
between       2003-04       and 2005-0(,. Chhattisgarh             and \laharashtra          reclJrdcd positive       gro\\ 111

1Il the consumption              ()f   fel1ilizer during 2004-05           and 2005-0(,. Other states in the ZLlnc

registered       pattem        of growth.     s')lIlewhat   different      (rom the general trend in the country.

\11' rec()rdcd positive            growth in 2003-04 and 200-l-05 and Rajasthan                       during 2003-0-l an ..1

200S-0('. Lxccpt Gujara1. the per h~ctare consumptiull                          oftuLtinutrients         is lo\\e( tha:1 AII-

lndia average in oth~r states of the zone. lhe consun1pli(1I1 o(                          tOlal    nutrient':' r~r hcctar(O III

(il~arat dUring 2005-lI6 was I 11.2 kg. db()ut 6.] "J"highcr than the All-India average.



3.4       RA W MATERIAL                     L1i\1ITATlOi'iS


3.4.1'    Of the three main soil nutrk11ls. namely nitrogen. phosphate                                and potash, required

for various           crops,     indigenous        raw material        is available     mainly        for nitrogen.       The

Government's             policy has been aimed at achieving                 the lTldximum possible degree of self-

sufficiency          in the production        of nitrogenous      fertilizers based on utilization            of indigenous

feedstock.           This is de"irable       in view of strategic          considerations         as the international    urea

market is highly sensiti I'e to demand-supply                     ratio.



3.4.2     In case          of phosphates,           the paucity     of domestic        raw material          constrains        the

attainment           of self~sufficicncy.         Limited availabil ity of rock phosphate                and sulphur in the

international          market is also a major impediment                in this regard.

 Domestic demand               is serviced by a mix offollowing              threc options:

          (i)            Domestic produclion            based on indigenous/imported                  rock phosphates      and
                         imported sulphur;


          (ii)           domestic production based on imported                     intermediates.         namely ammonia
                         and phosphoric acid; and


             (iii)       imported       finished fertilizer




                                                                  28
3.4.3      It was estimated       hy the woeking group that during tcmlinal year of IX Plan 2001-
2002 the country" may not import any iarge quantity                                [\1' this fertili/cr.      Ho\vc\"cr.            Il)\\


capacity     utilisation    of lhl; indigenous        plants had necessitated               suh,talHial     ir.lports or !J.\I'

of about 24.38 lakh M f during 2005-06. The same trend is expected                                     dU'ing the tcnnimd

year of the X Plan.



3.4 ...• There arc no          kn<)\,Vll comf11\.:rcii.t1i)'    I..'xploitahlc   rCSI.:r\ c.'"   \'t p(l('-lsh in   lhL'   ('lUllt!".\


and per fence the ~Tltirc fL'quiITllll:nl of potas<..:ic nutriujl:-, t()r dir~'d a~lr'l;cati()ll                      J~    \\cll      <Ie;

f\Jr productlon       of cdIl:plc\     fcniJii.crs is mct through            lmpnrt:-;




3.4.5       During      19611s and 1970s. naphlha               dominated       ", ledsl()ek         j;'c the ilrea indllslIy.

During the period of 1980s and the tlrst half of 1990s. there \\'as a detinite move towards

using gas as fecdstockbKilitated                   hy the discovery            and l'xr1oit:1tion         cd- gas r12~er\'es in

Bombay        High and by the technological                    advantages        of gas as feeds1l'ck.              The energy

consumption          in gas based plants is less than naphtha based plants and much less than fuel

oil based plants.          The capital imestnent           for a gas based ['lam is also less Ihan for naphtha

based and fuel oil based plants.



3.4.6 At present.           the total installed       capacity        of urea based on natura! gas kedstoek                              is

67%.       followed        by naphtha       23%      and fuel         oil   10%.         Keeping      in view        the energy

 consumption         and capital cost of new fertilizer plant. it seems appropriate                          to put up plants

 based on natural gas instead of naphtha and fuel oil. However. there is huge gap between

 projected     demand         and supply       of gas.         Sector-wise       daily average          supply      of gas is at

 Annexure-       3.5.



 3.4.7                  During the terminal          year of 8lh Five-Year               Plan i.e. 1996-97. the installed

 capacity     of fertilizer    was 94.68 lakh MTs of nitrogen                    and 30.27 lakl1 MIs of phosphate.

 This improved           during the terminal          year of 9lh Five Year Plan. to 12 1.66 lakh MTs of

 nitrogen     and 51.12 lakh MTs to phosphate.                        The gro\\1h in fertilizer            industry        remained

 slagnant     by and large during             X Five- Year Plan period.                  Present".      there are 56 major



                                                                 29
fertilizer plants in the cnuntrv manufacturing                  a wide range ofni\rogenous,                phosphatic            and

complex        fertilizers.    Of these. 29 units produce urea.           <)   umt,; produce ammonium                     sulphate

as a by-product.              Calcium       Ammonium        NitrCltc and .Ammonium                   chloride       are      heing

produced       by one plant each. Besides. there are about 72 medium and small scalc' units,

which     produce        singlc     slIper phuspMte        (SSP). There are about 4 urea plants                              and ~

Calcium      Ammonium             Ni,ccrte plants. in which productioll              had been sllSJ'lended 1,,1' re"Sl'r:s

of feedstock        limitation       linanc;,,1 non-viability    etc"



3.4.8      The details nt' the projcct:-; irnpicmcnted/c()lllml.'is:(l:l~~J dUring the                          ((\t:L~:_'    oj \.

Five- Year Plan is in Allflc:l.ure 3.6.



3.5        PERFORMANn~                     OF lREA         UNITS l:!'iDER "EW PRICING                              SCHD1F
FOR liREA UNITS


3.5.1                  In order      \0   arrive at a fair assessment          of :\PS, it is necessary           \c' make all

evaluation        of thc pcrformance               of the units in terms of paramcters                 such      3,' •.   capacity

utilization.      energy efficiency,         etc, some of which are discussed below,



           (A)         Capacity        Utilisation



3.5.2 . Utilisation           of capacity by plants is the first and thc foremost parameter                         for judging

the efficiency           and      effectiveness       of the policy.           The     re-assessed       capacity          and    the

percentage         of capacity       utilisation     group wise during the period 2001-02, 2002-03. 2003-

04 and 2004-05 are given in the table below:


                                          Group-wise      Average       Capacity       Utilisation


 ,-------r-:o-----;                       --------.------------~-----                                             -----
                              Capacity

  Sl No,                      (MT)                                   Capacity Utilisation            %                                  ,

                                              ~200 J -02                       2002-03]        2003-04          ! 2004-0;'---
   Pre-l992 C~                    4638000: --           89.86o/~ __                    __
                                                                                 ~~~i~9970%1IO~~'Ic;i

                                                                30
I~>ost 19~~~~asj __ 5~1_7~~OJ __
" Total- Gas      10155600 i
                           L'
                                                                      ~~:~~o
                                                                        1
                                                                          95.1 I~'" j"
                                                                                                     9001%   100.67%.
                                                                                                                - - --1---
                                                                                                             100.22%:
                                                                                                                           108.63%
                                                                                                                           106.14%,
                                                                                                                                                    'I




                                                                                                                               .                     ,
~_.---
     ---.-----.------,               ,..
                                       --" ---------       -1----------      "-"--.--        -                    -----I
                                                                                        I
, Pre-I 991
!   Naphtha
'I;~~t~-199-i--1 - -..
             .~
                          1             2816550'
                                                       u
                                                            .


                                                                 .-   -
                                                                          88.30%!
                                                                           --t
                                                                                                              94.01'!o
                                                                                                                       ----1




" Naphtha                       I        1719200                          99.16%                              'i8.6:J%·                10 1.70""
     ------     -' ----i- --------..,.----.---                                   --     'f"-                                       r

    Total·                      I,                          1
                                                            I
                                                                                                                                   I



     Naphtha                    i       4545750                           9143%                               05.T.TO/o            i



                                r-
i                                                           i

                                                                                                                    - - -I
I    I()/J~SJ{S          --              2138400            l'            99 38%         1                   Jll(l.O I '!-o ,
'\Ii~\(:(j"(eed-         T'              2621987 i---~-7()9o/;-                                               ')4 j()~~r !OU96""
                                                                                                                                       --   ---"




    , ------~·----(·-·-------t' ------' -----
    , Urand T"tal  I 19461737          93.88%                                                                 98jio/~ r                I04.1 I",.
                             !
                __ "     ..--L_.          .   ....__        ~                                   __
                                                                                         i .._ ..




3.5.3         It would be seen from the above that the capacil\ utilisati('Jl of all the groups has
risen substantially from the level in the year 2001·01.1 alking of the industry as a whole
the capacity utilisation was 93.88% in 2001 -02, 95.89'u in 2002·03, 98.33% in 2003-04
and 104.11% in 2004-05.                                    These figures denote signitieantly improved perfomlance
during the two years ofNPS as compared to the preceding two years under RPS.


              (8)         ENERGY PERFORMANCE


3.5.4         The specific energy consumed to produce one metric tonne of urea is the major
    indicator of the operating efficiency of the plant as the cost of energy constitutes 60 to
    70% of the total cost of production.                                   NPS had set store on reducing energy consumption
    and bringing it up to the international standards. There are in-built incentiyes                                                               for
    improvement of energy consumption.                                         Essentially, units have been permitted to make
    investments for improvement in energy efficiency and have been allowed to retain the
    gains arising from such investments.                                     the table below indicates the energy consumption
    norms for the 8th Pricing Period, actual energy consumption in the years 2002-03 and
    1003-04 and the pre-set norms for Stage-II effective from 1.4.2004 and the actual en erg,
    consumption during the year 2004-05 .




                                                                                      31
'sl:lGr;-;~p-LJni-t-                                        - -p~riSti~;;8Ihl-F";;-~~g;-!j,~~;r~~~r                                                                                -Stage-~iiT-Encr!O-:-'-

: :'1\01                                                          I        Pricing                  ieonsumpt;o! consump :.Norms a.' Iconsumption
           I                                                      .                                 I                                       I                              I
           "                                                               Norms as                 '1\                 achievcd            i              tion            1   announced,                                  achieved
                                                                                                    I                                       ,
                                                                           per FICC                                     during                           achieved                              by [)OF                      during
                                                                                                                    2002-03                              during                                 \V.e.r.       i            2004-05
                                                                                                                                            I, 2003-04                                         01.04.04       I
t·                                                              --,---.--!-.                                                                i
                                                                                                                                           -r---"              --·-1                       -     -.--         i' '
                                                                   ( Fst. GGd):                                         «Ical)              1             ((;call                               ,ncal)        ,              (tical)
           Lu  ,
                                                       -. __1                                  .,                        ..                 l_                           ~ __                               .. ~.

                                               )
               ,
                                                                                 55!                                                                           7                                                                     9
,--'---                                   --   ----    --   -      L         -                --I               -                  ----    --r-' --- - --., -                                             ---1-
Group-! : Gas (Pre 1992)                                                                            'I                                                                                                        I
                                    ---. --           - -                            -              + ...                      '--:1                      ..--       -         -                         . - '--'                                      ,
               iB\TCI· Narnrup                                                      'J264',                                   i 6.2931                         12 '56                               9.264,                               14.1      h.~,
                                                                                                                                                                       '
      ---l                                                       --1             ----;.-(-:,--+                          ----"            ---T--              --------t----                       -- - ---~--                       ------     _._---~
      2I1H.O·Aonla                                                                  ). i.,S,                                   5.694                               '688                            5.938'                                    57)     '",
               ,                                                                                .J __ .__                            ,.-1--.--- __ i~.                                            ______1_
, 3 1!1\'DOGliLl·                                                                   5K14i                                      5.5331'                             5.345,                          5.874',                                   5.-\15,
    I                                                                                                                              .                                   '                                          1




                   'Jagorshpur                                        1                                 I                                       I                              1                               I                                       '
                   I

      ..i-IKRlflili.                           ()-lh~/l7a-~ -
                                                                      I
                                                                                   6:'19:,1-- - Oil;    I
                                                                                                                                          'i;2~-
                                                                                                                                            ;t-
                                                                                                                                                                   5~8561
                                                                                                                                                                               t--
                                                                                                                                                                                -1
                                                                                                                                                                        '-'5.952[--                                           -              5~S-:;81
                                                                                                                                                                                                                                                       I




 ~ 5:~~~~V~~~llr
            ~~~ --.-
 iCroup-1I : Cas (Post 1992)!
                                                                                          -
                                                                                    '6_i~~- _6.165                                                        -        6.0301-
                                                                                                                                                                               i
                                                                                                                                                                                                -5~9~----=-=5                                   802\
                                                                                                                                                                                                                                                       '




 "                     "I                                                                                                                                                          1
 i9rOC~~L-----
             --1-5.7111-                                                                                                             ----5.8-66j'-s:n2
                                                                                                                              -5-.8-7--+4                                                                                      '---s--:982j

 !!O]NFCL-Kakinada                                               t'--6.217                                                         5.846                           5.686                             5.712                                   5.702\
                       I                                                                                                                                                                                                                                   ,
 II                                                                                                                                                                                                                                                        I
                       lexp.

 [~r~~~~~exp. -=---=-d-~_11
 ~~                    INFL-Vijaipur
                                                              t-~2(~L
                                                            FXP.l~__ __
                                                                       i



                                                                                     5~0
                                                                                                                                   5.7~81                          5.618
                                                                                                                                                                                                     5.660
                                                                                                                                                                                                     5.712
                                                                                                                                                                                                                            =-_              5.53~
                                                                                                                                                                                                                                             5:4581
 iCroup-IIlA-I:                                       Naphtha & Coal (Pre 1992)- Sub,                                                                                              \                                                                       I
 iGroup I                                                                                                                                       I                                  I                                                                       '
 :-13 iSIC~-K-O-la-'--.±-r-80731 '--7.946                                                                                                                  -7':-778                                  7.84t·~i8~
 r
                                                                                                                                                                                           1


       4[IFFCO-Phutpur                                                             - 8.026                                         7.604                           7.4581                            7.847                                   7.598!
                                                                                                            1
     IGroup-IHA-lI : Naphtha (Pre 1992)-Sub-Group                                                                                                                                                                      I          --.--;
     :Il                                                                                                                                            I                                  !
                                                                                                                                                                                       •                               1




                                                                                                                                                                                                                       I
                                                                                                                                                                                                                                                           I
                                                                                                                                                    I.                                 Ii:
                            •   -   .-,                                                  On                         •          •    __      .J .__ .__                     --'-                                       .1.....- __            .-----..J
           ~----                               ------,--                  - -~-                                               ~-----r-                         -~-~T··---                          -------


         , r.\C1-CO_~1~                                         ~              I                                                  J-                  L          9.529,
                                                                                                                                                                     --1---                              --
        I' \lCFL-Mangalorc                                                      7356j                                     7.477j             7.360'                  7.3561                          6.8%
! 1(, \1FL:i\.i~d;~;~
c- -...-..- ------
117SPIC-Tuticorin
                             -839~-·-8.352T----~0141
                      --,-------+- ----t-          1
                                                                l--
                                                                I                7.475\                                   7.372,             -; I01j
                                                                                                                                                                     831  1-_
                                                                                                                                                                     "7.4 75,
                                                                                                                                                                                                   ~7-~601
                                                                                                                                                                                                     7.(P7'.
                                                                                                                                                                               ,



!
,
        IX       :!IC-(;oa
                 ~----             ---
                                                   ----T-
                                                    -    --~"
                                                                          -759if -7.3nr---'IH
                                                                                     •            n            -     --      --l---
                                                                                                                                                L

                                                                                                                                                      t
                                                                                                                                                                     758S'
                                                                                                                                                                             ~
                                                                                                                                                                                                     7.206

i(;roup-IV:                        Naphtha (Post                        1992)                                                     I                    I

        .        --'---
r . - -:-~-_-------- ---;-----                                            --"'----,---r                        --     -'--"--'-   1      _

. I';              If-FCO-PhulpurExp.l,                                          (d67                                     5.973\             '99/'i
                                                                                                                                                                                                              -,
    . 21 l FCL-Il------j-                                                        5J;7t- - 5~679i                                             i{)~     I;                                             5._-:;()()
                                    .                           ,           .    -       -   _~           __                       I


    , (;roup-V:                          FO/LSIIS               ,
          -- -----------+- - -- -"--
                 -
    _:' !\<'\VFC-Hharuch'
    :                         7.989'                                                                                       79851             ~ :' I                  79S9:                           78118
                                               .                    I

             n           -   --          ---            ----i---          --,-:;! ---                                      __
                                                                                                                            un.          -
        ,-. ""FL-Nangai                                             I            9.)17;                                   9Jn6i,             \i.59~:;i               (}'5]7        __                9.5_~2i,
                                                                                                                                                                           j
    1 :'   ;';[-I-:B11~tind.;---r                                         . ] ()-:23t                                     1-(2211)6'1:,                          10221                               ()7~]1

    124:\ICr;~~iPat -                                     --T                   --9.836(--                          -IO:1~t-_-_ l)~32                          -.-   9:6S:t .                        9681!

    I-(;I~~~P-Vl: ix;d:-i-
                M                                                           ---I                                                   i                -ii                                                            I



    I                        Feedstock                              I                                 i                            Ii!                                                                             I

    r2S~GS];c-Bar~da -                                     =1~--         _~-6.           93·st ...=~i5f-=- ~~j_~-~-6~~I--                                                                            6j2~
        !
    ~.2~..IFF~~:Ka~I
    l~7_RO-Thal
                                                                .t__             6.836L __ ~~II_
                                                                                 7061L_6~93
                                                                                                                                             658.::j,5'_. _.
                                                                                                                                             ('S50l __
                                                                                                                                                                 _.6~3~_.
                                                                                                                                                                 7.004
                                                                                                                                                                       i
                                                                                                                                                                                        _u   __
                                                                                                                                                                                                  _, .6~32j,
                                                                                                                                                                                                    (,A~i

             3.5.5                It would be seen from the above that the actual energy consumption was better in
             respect of ]7 urea units during 2003-04 (Stage-] of l\PS) as compared to energy norms
           allowed to urea units during 8th pricing period of erstwhile RPS. Tighter pre-set energy
           norms were prescribed for ]5 urea units during Stage-II of NPS as compared to encrgy
             numlS of the 8th pricing period. 22 urea units improved their actual energy consumption
             during 2004-05 as compared to pre-set norms of Stage-II ofNPS.




                                                                                                                           31
                                                                                                                                                     Annexure           J. I

                               Trends in Production, Consumption                                            and Import of Vrea
         ----- -.--     ---.--~._-'       -" -     -           --                                      ------    -                                     --        -

    Year                             Prnduction                Consumption                                           !r'1flOI1                         lrnport       !~--(j   (d
                                                             I ---------------->
                              <---------.-- ---(Iakh tonne, ._~--_.
                         ---_."-_.--  -.- ..      -~--                     ._---            __                                                              i n
                                                                                                                                                     (~(~~~~Uf!lrt        <: :



    2000-01                                 )96.24                      ! 9l.87                                                     (I

    2001-02                                  1')(1.0.\                  J 99. 17                                              2._~O
    2002-03                                            ISil21                                 184.93                          1.19                                       \)      '.
    2003-04                                            i')(UX                                 197.67                          1.4.'                                      I',


    2004-05                                                  ~9
                                                       :2(j_~.                                206,65                          (1.~I
    200S··06                                           lllIIX"                                222(}1'                        20.::;7

                                                                                                                                                     Annexure             ~.2
c·-          ·   ·_ ~                 ._~._   --                    ',.-"_.    _     .         .                        -.    _.



                                   Trends in l'rodudion,                       Consumption                      and Import of nAP
~            0'_-              .        _
                                       .. _ ._.            .            .            ._.~          .               ~.
                                                                                                                 .__               _
I     Year                              Prouuc1io11                           Consumption                                    !mpon                     hnport r~-Di\l'
12000~oi--                         <-:.=-:::-.:-:~~I~~h ----------;~:~~::.
                                                    tlmne.s)                                                      . -.~-      8.61-                              -
                                                                                                                                                      COI"UIT~r:~)~~
; 2001-02                                               50.91                  6L81                                            9.33                                     15.1
12002-03                                                52.36                   54.73                                          3.83                                      7')
i 2003-04                                               4709                    56.25                                          7.34                                     131)


l  2004-05
  2005-06
  ---------.---
                                                        5172                    6256
                                                                                67.64
                                                        45:'4 --,,----_._--_.-,-'--'--------
                                                          --
                                                                                                                               6.44
                                                                                                                              24.38        -----~-
                                                                                                                                                              10.'
                                                                                                                                                             36u
                                                                                                                                                     --~-~-------

                                                                                                                                                      Annexure 33

                 Trends in Consumptioll                             of NPINPK Complex Fertilisers, SSP and MOP
    I-----               ~             .                                                           .       (lakh.Jonesl_
                                                                             NC-=-PIN~pc=K'--'-----~
      Year                                                                         complex Felt                                     SSP                                MOP
      2000-01                                                                             47.&1                                    28.60                                18.29
      2001-02                                                                             49.66                                    26.05                                19.92
      2002-03                                                                             48.16                                    24.99                                19.12
      2003-04                                                                             47.59                                    25.44                                18.41
      2004-05                                                                             55.08                                    25.49                               24.06
      2005-06                                                                             66.94                                    27.56                               27.31




                                                                                         34
                                                                                                                                                                   Annc,\U1-e 3.4



                                           NI'K ('onsumpti'lR                                     Halio since 19()()-91

        -       -    --       ,           -----       .. -----       ..   --   -
     SI. No.                                               YC;ir                                                     :--;PK Ratl"
                                      -     --       .-    --------'--
                              I                                                                                      7.0' ! ! . 1
                              I                           1'185-8(,
        )
                              I             -----------

                                                          In('-87
                                                                          --~- -

                                                                                                                     ('.7 2.4:
                              ,
                              I
                                                      -~-----

                                                                                                                     ().5 . 2.5 .         1
        \                                                 1l)87-8~
                                                 -        ---   ..   ----

        ~                                                 1988-89                                                    6.8 ::2.0;           I
        ,                                         -



                                                 -------.-
                                                          -------

                                                          1'18'1-90       -
                                                                                           -- i -
                                                                                                                     (L:l .2,()
                                                                                                                                          -

                                                                                                                                          J

                                                          1990-91                                                    h,):         2.4:        i
        ,                                                 1'191-92                                                   ).9 . '::.4 : 1
                                                          --------                 ----
        ,   )                                             1992-9:;                                                   l) . .:' .   1.2 :
                                             ----                         --
                              I
                              ,
        -I                                                1993·94                                                    CJ7          2.9.        1
                                                      ~-'----'---                           -,--
        ""'                                               1994-95                             I                      8.4: 2.6: ]
        (,1----1995-96
        ---- r------------
                           --- -, -
                               ,-
                                                                                                                     85.2.5:
                                                                                                                     --------
                                                                                                                                1
     7    '1996-97                                                                                                   10.0'.2.9:  1
  -------j--------------                                                                     -1                  -----             ---
, __ L__ lJJf7-9~ __              t                                                         -u-           .          7_9: 2.8 :1
•    9    !        1998-99.                                                                                          8.5:3.1:1
'-'--.               -t--------------+------                                                                  ---- -------
i      JQ.                        ~--.!J99-20gg---+                                                                  6~_: .'i~1
                                                                                                                        2                         __

,---f~r- 2~~~~~~~I----+------'-;':~-~~~i--
     -- -1'
                                       ,


     = --=l-~~
:,~-:~f---~~~+-
                                          -----------l------                                                              ----
                                                                                                                 -------------                                 ,
                                                                                                                                                               !




                      -~=~-~~:'_t~:-}-=
                                  --
            --- - -+- ---- H:~i--
i- --i~- ~~~t~~- ~.~.
,
I-          •             ~                                                                   l       .              ~.                                _


! Note:             Optimum                          consumption                          Ra_tio is 4_0:2.1) : 1.0                                         _




                                                                                                                35
                                                                                                                                                                     Annnure        3.5

.   C""I     -----------------.-----.---------~-----·i                                                                                                                                                               ..
    I                                                                       ~
                                                                          c.• \lJppl)   posiiion   Iii   ft'rlHiler umt~ Jurillr   ~nfl:u~
                                                                                                                                                                                   QII;l,ll;l~ 'Ifl \l\IS(\\"!J      I

           SI.    \aml' (Jflhe ('ompall~   ,Existing      ,t'ontractel Contract;> Contrllctr Cor.tracle
                                                                                                         l
                                                                                                                                   \flllal ~n~raff uPJ,h at' nn~ 2f)U<"'(j~
                                                                                                                                                 ~                                  ~IHlI1f:Jil     ". nf            I
           \i."                                                                                               P\l
                                            requirement o( d quantity rl quanfjt~ d qu~nli!.I d (Iu:'.n\i~· .•.•          (;;1-      J\' gr'     R-LI\(;     Ofher        I'JlJ!    In ';::1;       ,h I)rt ~a ! I
                                           ICas              for Af'\1 :for J\ C.:l~ for RL'iC fmlO ulher                                                    ;,<JUfre\              \urph           ".Ih
                                                                ~as                                                                                                                 ~ICi            rc/en·lll."·

                                                                                                                                                                                     Itfne~;((      \I




                                                                                                            36
                                                                                                                             Anncxure                J.(,

           --~   -   ---   --   ----   -----~,   ------   -          ---------------                  -

               _~'Illjo~F~rtilj,~l'rojcets                     Commission~ddUl'~g ~hcTenth Plan PcdotJ
             Name               I Localiol~                    ! Sec!o;  P)roducl'-;\ddCii~~ll:11-!  \ ,'Y ,,11
                                                                                       I              i       capacity                  I ,-\-'j'iilll:Y·'I\.l::lr-l:.-

                                                                                       I              I
                                                                                                      (Iakh lonne,;
                                                                I                      '              per annum)
                                                                                                          '
                                                              ,------                  -t---,-----~""----- ""
           i Brahmaputra            . "amrllp.       , Puolic                            Crea       \      4,00
              Valley FertilizCf I ,\ssam                                               I
             ('orl'n. l.td,
             J{CVal1'Pl'I;ojccl -"-                --r---                                  '-,

1-1
,   "         Oecpak Fcrtilisers      !aloia,        ! Prjqite
                                                                                       I'
                                                                                          \;1'                     0,70
              & Petrochemical         'v1aharashlra                                    I  2:1-2J-()
              ('orl'n .. F\pansion
             IJrlJjcct                   "__,,_                 !                                                                       I

i   ,-,
             Gujaral State               ' Sikb,               ~ j)ri~;;-ic---TbAP- ---                            J.96
                                                                                                                         -   - -   --   1--


                                                                                                                                              t     '
                                                                                                                                                  h..l'-Iher   2G()_~
             Fertilizers &               " G-ujarat             I,
                                                                I
                                                                                       ,
                                                                                       •
                                                                                           NP/NPK
                                                                I                      I
            Chcmicals Ltd.                                      I

          _ il'h aSl:JJJ                                      _.1                                         L__




                                                                              :17
                                                           CHAPTER                - IV



                                         REVIEW           OF FERTIIZER                   POLICIES



4.1           PRICT\G           POLICY            FOR lJRL\



4.1.1         thea is at present           lhL:   only   fenili/l.'J     \\h!ch      is under      statL:Inr~-   pr:cc.    llh'\C;lll'1l1    and

Jistribution        LTl/ltro!    under      the [s:~ellti;:il    C()llltlloJili:...'s      Acl. : '~h5. ""Jnk             tDe !"HjU-;,sic and

phosphatic         E.:rt;1izcrs         \\l~rC dl'L'ul1lroik'd         \\.C.t     2".X.l(P,j).      till.' :,~\\ ~uuj.\.';is ll]tr\\~enou";

k,rtilizers      yji.     \..:Jkiulll    ammO!lillTl1 mtr;.jl,-'. ~UJll1l()!ljum             (hl:'\ridcllh.J      amnHHlillrll        :-,u!phat·,:

\\crc    decnntf()ik          i
                             .... and bou~ht         under      control         -'ie, c:ral tinlc~; in !llL' J_last. Th;..'>L' l'crtilizl-'r"

were last decc"Hlllled                  w.c.r IO.h. ] 994.



4.1.2         Until 31 ~.2003. the sub,,;dJ to urea rnanLl!actur~rs was being regulated                                               in term,

of the provisions               of tbe Retclttilln            Price Scheme               (RPS).        Lnd,r       RPS. the differcncc

between retention price (Cllst of prodllction                            as assessed by tbe Ge)\ cnUllcnt plus 12% post

tax return on net\\onh)                   and thc MRP \\as paid as subsidy to the u,ea units.                                      Retention

price used to be determined                       uhi! wise. which differed from unit to unit depending                                      upon

the teclmology.              feedstock        used, the le\'cJ of capacity                       utilization.     energy      consumption.

distance from the source ofteedstock;                           raw materials.            etc. fhou"h           the RPS did achieve             its

ohjeetive        of increasing             invcstment         in the feniliLer             industry      and thereby          crcating        ne\\

capacitics         and enhanced              fertilizer      production            along     with illcreasing             use of chemical

fertiliLers, the scheme had been criticized                             lor being cost plus in nature and not providing

strong ineenti\es              for encouraging            efticicncy.



 4.1.3        Given thc importance                  of JertiIiLer pricing and subsidisation                        in the overall policy

 environment             impinging         on the grcm1h and dcvclopment                          of the fenilizer         industry     as well

 as well of agriculture,                  the need !,)r streamlining                  the subsidy disbursement                 to urea units

 had becn          felt for a long time.                     A High         Powered          Fenilizer          Pricing     Policy      Review

 Committee              (HPC) was cllnstitutcd.               under the chairmanship                     of Prof. C.H. Ilanumantha

 Ran. to review the existing system of suhsidizatioJ1 of urea. suggest an altcrnal1\"c                                                      broad-



                                                                          38
based.     scientific     and transparenl                methodology.         and recommend          measures            ti,r greater
cohesiveness       in the policies applicabk                  to different segments oCthe indus,,"y. The IlI'e in

its repon submilled             10   the (;,'\c'mment            on 3'" April 1999, inter-alia.            rccornnlcndcd               that

       w
unit ... ise RPS Cor urea ma:- he discontinued.                            It recommended        that insi~ad          (If   unit-\\       i:<l'

RPS. a unifimn           ~·.jrll1ative Referral Pricc                be lixcd li,r existing gas ha,cd urca lIni" :Iild

also fo!' DAP ilnd a j'ceclstock                 Differcntial        Cost Reimhursell1ent         IFDCRI           bc ~i\cll f('!' a

period of five ycars for n()n-gas based urea units.



4.1.4        F\pl'l'Jillirc      Refonm              l"'ll1mission    (ERC) headed by Shr; K f'. (;celk"!',,!,,,:]!)

had also cx~,nlir1L'd the            isslie    (If    rai:ionalizing fertilizer '-)uhsid:I:'"      The 1-1<..('SUhI:L:tk'd                  Ii:,

report     on 20~:1 S,..
                       'ptemhr.:'r .2000. in which                        it recommended,       intcr<llia.       di_;.;nunt!ill~~ u(

existing     RPS and in its place.: introduction                     of a Conces~ion          Scheme for urea            w,::-..;   l':IScd

on feedstclk       lhed and the vintage of plants.



4.1.5      The recommendations                   of ERC were examined                  in consultation     \I   ith 1he l'Ilt1CeITIt.'d

Ministries!Depanments.                        The        views       of    the   fertilizer     industry         and         tilC     ~t:'ll<:

Governments!!           'nion territories,            and economists/research             institutes were also obtaincd                     on

the ERC repon.                After due examination              of all these views, a New Pricing Scheme                           ('S:   PS)

 for urea units Ii)!' replacing               the RPS was formulated              and notified on 30.1.200.3.                  The new

 scheme      has taken effect from 1.4.2003.                         It aims at inducing         the urea units to aehiew

 internationally        competitive           levels of efficiency,           besides bringing      in greater transparency

 and simplification            in subsidy administration.



 4.1.6      NPS is being implemented                        in stages.       Stage-!     was of one year duration.                     from

 1.4.2003 to 31.3.2004.                Stagc-lI         was of two years duration.             from 1.4.2004 to 31.3.2006.

 The modalities          of subsequent           stages were to be after review of implementation                            of Stage-I

 and Stage-II.          Under NPS, the existing urea units have been divided into six groups based

 on vintage and feedstock                for determining             the group based concession.                These groups arc:

 Pre-1992      gas based units, p05t-1992 gas based units, pre-I 992 naphtha based units, post-

 1992 naphtha           based units. fuel oil/low sulphur heavy stock (FO/LSHS)                                   based units and

 mixed energy based units.!                     he mixed energy based group shall include such gas based



                                                                      39
units that use alternativt·          tCedstock/fuel     to the ext~l1t o! morc' linn ~:i"" as admissible                                    ,·n

J   A.2002.



-1.1.7      lhe objectives      of Stage .. 1& IIl'fNPS               were as :,,Jlc\\s:

(i)    Encourage       efticiency    parameters     ofintcl11atilH1al         :--;l~,.;ldarJsa"l"ij
                                                                                            h                  ',1:1 t:1C   usage ortf:.·

       most efficient feedstock. Slate of the Art Tcchl101oc\

i il i Ensurc viable rate of return to the units

(iiI/Partial       decontrol of distribution      and movement                        i(~JJin;
                                                                           ()r;,'r:_'~~                t,""          kculltrnl
                                                                                                                 ui ...

(i\lCrCalion         of additional     Lrea .:apacity       ba~cd      UTl C1JL',ir"   ~    lc,--'d   'i,,'~'k     c. gas       thn)u.~..'.i'

        pulicy of de-bottlcnccking'/          revamp       I'   nlodernisnt:\)'l       .P1l1 or,      \'-11    :-!..:"idl'XpanSli..Hl'-.        ,

        e:,;sting Urea Units

(\ I COI1\'ersioll of non-gas based Urea Units to ga) thfl1ugh                             lllc('nL-''-c_~




-1.1.8 Under NPS. pre-set               encrgy     norms        for urea unit" during                  StagL-ll         of NPS           wer(

 1l0lified     with a view to tlx norms                for specific          enelp         consumrtiun                 and encour"gc

 erticicncy        and discourage     in-efficiency,    Similarly.         rcduction         in rates <Jfconcession                   during

    Stage-II ofNPS       for urea units on account of reduction                    in cap'.tal relatc;d charges were als<'

    notificd vide the Department's          letter dated 6.8.2003.



    4.1.9     Phased decontrol        of urea distribution/movcmcnt                    \\as also undertaken                      under the

    NPS .. Until 3!.3 .2003, urea was under total distribution                         and mo\ ement c<JntroL During

    Stage-! of NPS, while 25% of production                       capacity     was outside ECA allocation                               durin,;

    Kharif 2003 and it was increascd               to 50% during             Rabi 2003-04.                    During        Stage-II.     urea

    distribution     was to be totally decontrolled             after having evaluated the Stage-! and with the

    concurrence       of the Ministry of Agriculture.                 After cvaluation           of Swge-J in consultation
    with the Ministry of Agriculture.            it was decided to defer the total decontrol of distribution

    of urea by six months initially which was later deferred upto 31.3.2006.




                                                                 40
4.2        CONSTITUTION                      OF    WORKING             GROUP         FOR    FORMlILATlO:\'                      OF

POLICY         FOR STAGE-III                 OF NPS



4.2.1    Stage-Ill        was to commence              from    1.4.20U6 aflcr review         clf Stage-I         anJ   II       lhe

IkpUl1ment        of r:er1ilizers (DOF) constituted               a Working Group under the chain11arhhl['                       01'

llr     Y.K.     ;\Iagh     I{)r reviewing         the effectiveness         of Stage-r    an.]    [j   oC   \P' ,:!lci I,"'
fonnulating        a policy        Cor urea units beyond            Stage-I~ i.e. Jrom 1·-1.200(, ol1\urd                       I he

WC1fking Group suhmitted                 its report 01126.12.2U1I5.



-L!.2      The       \Vorking        Ciroup       adurl~d      a compositr;      mdhod()ln~)            of   mi.:crlll:-'.~     a/hi

di-.;cu~siuns. It constitukd                 6 Sub-Committees          comprising     of subject        matter     ~p\.'l-:Jlists,

SChl)L.1.[:) f emincnce,
           o                        represclltalivcs        of the industry, and Government             orficial~.     ;_i-'   ~o in
depth into the selected               issues assigned         to them and make rceomm.,nda(ions                      in rC'!1Cct

thereof.          lhe      urea     companies          and    Fertilizer     Association     of     rndia        (1'.\[ i ",a,k
presentations        beF.1fe the Working Group giving their views on the impact of St~g,,-I &                                     [j

(If NPS ,)n perf{)rmance of urea units and their suggestions                         for the policy in Stage-;! I.



4.2.3      ["he Working            Group       has given its recommendations               on varIOUS issues such a.i

pricing     policy        for Stage-[J]       commencing         from 1.4.2006,       future demand          and supply           of

urea. joint        venture        projects     abroad.      maximum        retail price of urea,         ft'cdstoek        related

 issues, taxation related issues, distribution                   and movement        of urea. subsidy rei at cd issues

 and policy for fertilizer usagc.



 4.2.4     The Working             Group has considered            the possibility    of total decontrol           of the- urea

 pricing and has found that this would alTect the interest of the farmers                                    in a signiticanl

 negative manner.             lienee.     the Working         Group has ruled out decontrol              of urea pricing              in

 the near future.



 4.2.5     The Working             Group has considered           the positive consequences             to the economy                of

 moving away Ii-om unit level administered                         pricing strategies      and observed           that reforms

 under the N PS have led to cost reduction                        and energy savings        from the levels achi·cved



                                                                  41
earlier. Based on this, the Working                      C",Jr       has felt that the logic~l pro~p"sion                              "ould         be
to mo\-c over to a single                 producer       f·:-::";:: with ~).provisic::-1          for energy           ra~s through                <.11'.0

grant of carita I suhsidy             to existinQ ~-::-- jer             unit·· to corn(~ to gas as thl~ tl:cJstock.



4.2.8      II(j\\evcr.         (onsijJ~rin~ th'~ r.~~,- ',\'ohcJ                  at the   pl,-'~,'ilt:,tagc.       the s~nsjlil.icness              of"

th.: agrarian            question   and the hCH:::r,:--~ :.::t:: nf the fel1i\ji~':- inJd:-;try. the \\'orking                               (iruup

has als0 rccommended                   what it h3' ,~ :d u sCc'(1nd best 't'Jteg\                                (SI3SI.      ill which thcre

would h-: one group ti.u gas based                     I~"'.·    ::-;d(jlh:   flIT   rO,'I.'r!~ ba"l'd units. llh.: fir~t gn'ur

of unit:-. '.\ould include            unit:> \\h;,~h               :-:ecn   '-;'l'''lg~Jcd .t ,,: JTe    \\drkin~          \~n   ~":;IS a
                                                                                                                                      ~lS          ke..!

stock.      j;    "ill     also include two "II'                   .Jp~'. j         uni:s ':, ...:h hJ\c ah ..:ady               l·litl\    Tkd t"
                                                                                                                                           ••..


gas in tk recent rhasl' and had y~11'                             '!pkt,-~ ',hc initi,ll ;,·;.:riod (\f large deht servicing                          ill


terms      l\~-   repaym'~nt oj' ]oa:1 ~~n'\.J -_--:','l pJ.~rnents                         J~-.-':   ullit') wnich           hUH: plans              or

possibilities                                           __
                         of conv,::rsinn to gas r-";:;"~- .:'lib.             The     Jatkr   ;:uup ...:umpriscs narhtha                          based

units Jnd Cjujarat \annada                  Valley f,- ::lcr C'rporJti,)c                      "';",VFC),           Bhanlch          which wili

convert      from FO to gas and ha\ c :,;:.:: ;..:,r gas 5upplics.                            ~t)S also provides                   for grant of

capital     subsidy           for the Naphtha'H}                , "flS      Jnd      Mixed      F~ed units which                    have made

significant         investments       in revamp ar:i f,_~ units converting                      !Cl   gas



4.2.9       The Working              Group      has fere""               slated    that if ~BS              IS   not acceptahle               to the

Government               for fiscal or any other '''",-'''ns, then the NPS Ciay be continued                                     info thc next

pricing period with some updating                       arc.i ,,)rreclions           of anonnlies.           This recommendation                       is

based on the premise that any policy ne;;,], time and continuity to bear fruition. The NPS

is hardly three years' old and some                        0; 'he positives such as increased energy efficiency
and emphasis               on conversion      to gas basd           fecdswck          are already in evidence.                   though these

processcs          have not reached           their lo>:id' conclusion                     as en\isaged            earlier.       Secn in this

light it could be said that more tin:e i, necded                                    if all the' 'lbjectives            of NPS are to be

realized         in a meaningful         and lasting r1:CJ1er. It is in this cl'nlext that the Working                                        Group

has suggested               under this option tha'. ::e policy based on feedstock                                   and vintage             may be

continued          in Stage-llI       of NPS.        Be\l",~ ,hat time, it is exr':cted                          that the stage would be

set for a single producer price and dec':':c:'ol of urea which is the ultimate objective                                                          of the
long term urea policy.                 flaving said this. it has abc, heen stated that the issue of NG LN(i

would. however,              ha';c to be appropriately            addressed



4.2.10 The recommendations                       under the fir~t        t\\'O ('ptll'f!."     ~lppcartu stern froHl the :.;ll'all.:~~:

-envisaged in the repurt of the b;penditur,'                            Rct(>nlis i'''CI1illisslon (FIll)                 \111   which           the'

ro1ici,'s     ·.ldopted I()r Slage-I              & II of the NPS                 ',·cre s:,rslanlial!)            hase'd.        i·.R(         had

envisaged          the Ncw PoLey in stages. The Third Phd~e                                  (\f   the policy was         ~i', t'on1;~h_llCc'



\\.t:.f I 4.2(0)           whc'rt.:'in all plants wcre expeCled                   tu CO['\,:rl I,! 1'-J(i,"I \(J. ;In--1 the                  tin;t,

\vhich LlileJ        III   do   S~) \\'l.lldd   only be entitkd         tn   conc\.~,,:::;iiY--:.h    if ihey had :-,\\ilchL'l!         l\\   cr   t

L~(   I.    Fn:< tilL' l"ourth Phase beginning               from        1.42t)()t,.        :: ';~~hcll\isagl~d      thaI    t!lL'     IlhLstr:        1




would be Jcco.ntrolled.                 Simultaneousl),          it   \'I;a~,u1"o       en iSJ.g(:J th:1t maximum                retail f1ril'':

(~.'lRP) \\ouid            be illCIcas(:d by 7~/o per annum from 1.-+.=>).)1 onwards anJ \\oulJ                                         rC:h.J1 ~t
I~\cl "J Rs. 6903i1\·ktric                  Tonne ('vIT) by 1..t.200~.                   Bascd "n thes,         assumptions.              :t \Ie"

feit that there would be a reasonable                      convergence                 bd\leen       the cost "I' production.                 'vIR!'

and the price of imported                       urea which.           it had been en\ isiuncc\ \loul,!                    be around                Rs

7000/M        r.    Thus,       nu concessions          would be necessary                   fur the units except            the' nCiphtha

based       units     converting          to NG/LNG.         These           units would             be entitled     10    the feedstock

differential        between Administered                Priee Mecha.rlism (AP'v!) NO and LNG at a rate of Rs.

 1900/MT.           This policy projection              is bascd on a set of assumptions·                           /,Pi"l       gas    \1;[1      bc

available at the levels of supply obtaining                           in 2000-01: the shortfalls in AP'vl \lill be made

up by LNG which will be available on demand at stable prices; the price of naphtha                                                              wili

remain        stable;       the international           prices of urea will continue                      to be stable           around            Rs.

7000/MT;            and annual            increase      in the MRP              of urea by 7% is t;oeio-eco:1Omicalh

acceptable,          However,          in practice, none of these assumptions                          haw stood the tcsl of time.

The supplies            of APM gas have dwindled                      and are likely to decline fUI1her, and there are

 uncertainties          about the availability           and supply and pricing of both Joint Venture (JV) gas

 and LNG            in the medium               teml.   The hydrocarbon                   market       is still in the midst                  of an

 upheaval          as a consequence               of which the proeuremelll                        companies       lind it dil1ieult                   to

 arrange supplies on a sustainable                      basis. Hence, the units have tound it dinicult                             to COIl\'Cr!

 due to unavailability                 of '\JG/LNG.        lhe        prices of naphtha               have skyrocketed                 from        Rs.

 12000/MT            to Rs. 30000/MT.              The total intemati,mall)                  traded quantity         nf urea is limited



                                                                        43
and any presence         of India in the market              signab      a rise in prices disproportionate                    to th·c

demand.       The average import parity price (IPP) (If urea dur;,,!,: 2005 was Rs                                 J    1533/\1i          .

This situation      and emir;lnment          would need to be taken nt';c of for any realistic                               p(llic\

I()rmulation exercise.



4.2.11        In view ofabcJ\c.      the Department          l1a:. I,!\()urcd    \J1C   'hird [)ption rec(llmnendcd                  ';

the Working        Group for continuation            of NPS. \\hich          aliI" t"     C:1ITY      lorward the trcmh _'c'

cflicieney.      transparency      and uniformity           introJuccd      dU"i:~~ ~1.lge i 8: II of :\PS with

any    sudden changes of a h:.1Sic n3lurc.                    The       !kpc:n;l1cn       I'     illJ\"   in the       PUH:t'.'''


formulating       a policy for Stage-IliaI'         I';PS.


4.2.12        As the introdueJ:on        of group based :\PS in pl:Jce ot unil-specific                       Retenti(ln         1': "

Schemc        has encouraged       the efficiency       and cost competlti\             eneSS in manufacturc                of      U:Cd

during Stage-I & [] of:\PS.              it is recommended            that trends c>;'efficiency.           transparency            :.ne!

unifomlity        introduced     during     Stage     I & II of NPS should                  be carried        f(m\ard         duneg

Stage-Ill       of NPS     and     the future        urea     pricing     policy        should       pursue    the fe,llo\\          In~

objectives:

      (i)        Achieve sc!fsufficiency            in urea at the end of 111h Five Year Plan

      (ii)       Promote       further     investment         in   the    urea     sectof        including      technological

                 upgradation

      (iii)      Conversion      of non-gas based units to gas through a credible plan of action

      (iv)       Ineentivisc    additional    urea production

      (v)        Encourage      investment     in Joint Venture Projects abroad

      (vi)       Urea distribution       to be increasingly           guidcd by markct mechanism

      (vii)      Ensuring availability        of urea in the remotest corners of the country.



4.3           POLICY FOR NEW AND EXPANSION                                 PROJECTS OF UREA


4.3.1          A pricing policy was announced                in January 2004 fN setting up new Ufea projects

and expansion         of existing urea projects             for augmenting         the domestic           production        capacit]

of urea to meet the b'Towing demand                      for enhancing           the agricultural           production           in the




                                                               44
countn.       As per this policy, the new/expansion projects will be based only on natural
gas.'! Sei as feedstock, which is th~             mOsT                   ~osl etfective and least polluting feedstock In
the fertilizer sector today. Policy for ncw and expansioll projects is under rcvicw as 1""1
of the i'olicy provisions for stagc-1lI being fomJulatcd.


43,2      Ib" t()lIowing companies are considering for setting up of ,'xpansion projeeh.

                                                              ------                  .. -   -------"-         -    -_.---_    .....-    -j

                                                                                 , Proposed                        capacit~·

                                                                                  (D1TPA)1
                   _ I " . _.'                                                   L_._ ...
                     i      KRIRllCO·l-Ll/irJ                                    I    1(J.5()                                                 I

                    _"n'.          --   --   ••   , ••    "            -,-----                            -'                   ---'-     1
                      1     Indo Gulf· Jagdishpur                                . 11.385                                                     I

                   ,-1-. _      . __ ._.          ... __ . ..l                                                     ..         _. __           j
           ~.         ; RCF, Thal                                                111.55                                                       I

              "~.·t· ... =_. __
                  =_=_                                   -~~~3.~O                                        ..,       -=.=-~J
4.4       POLICY FOR OE-BOTTLENECKING/REV                                                                          AMP/MODERNIZA                         nON


4.4.1     Further. recognizing the need for policy for treatment of additional urea capaCil\
arlSmg     from     de·bottlenecking/revamp/modemization                                                                of       existing         urea    units,   the
 Government has announced a policy for this purpose in January 2004.                                                                                 Realising the
 efficiency        and            environment                      friendliness                                         of              natural          gas,      de·
 bottlenecking/revamp/modernization                      would be allowed only if the additional production
 comes from using the natural gas/LNG as feedstock. Policy for de-bottlcnecking is being
 reviewed as part of the policy provisions for Stage-III of NPS being formulated. Polin
 for incentivizing additional urea production by existing urea companies is also under
 consideration of the Depaltment.


 4.4.2    The followi'lg companies are considering creation of additional capacity by way
 of de-bottleneeking/revarnp/modemization                                    of their existing urea units:




                                                                                 45
        rs.~~~~
             r:"'a~~ofthelJ~it-
                                            I
                                                                                                            r Proposed                e-~pacitY
                                                                                                              ! (LMTPA)
                                __1                                                                _
        II.
        ,
                                            . Indo Gulj~ Jagdi,hpur
        ~   ..   -
                                            I
                                           -1 __     "               .                        _
                 )
        ,

        I -.                                , CITL-Uadepan-I                                                       2.9(J                             ,
                                           _1                            _
        I~                                  , CFCl.-(;adepan-[I                                            -; :224~ --
        I -                                                      -

        , -1.                               !     IC 1- Babrala                                                    2.911
        i --              __    ~    --0                                                            _

                                                                                                                       -

                                                                                                                   2_(,(J
                 ~-                         , NITI.-Kakinada-1
        ~-           --                                                                                      1              -
        'I,                                       N rCI.-Kakinada,IJ                                          I    2_6(J
            i --
              I.                                  IITCO-Aonla-l                                                    I .~S3
                                                                                                           - 1---
                                                  !\onia-[I                                                   , 1.2 :'-~
                                            -r-      --    ..            -


                 9,                         :.IFFCO-I'hutpur-I                                                        ,:'4
                     -- ---                 t-      ----             -       -     ------
                 I (J_                            IFFCO-Phulpur-Il                                                 1254
                                            I

        ri-!.- --~S-FCKot;-                                                                                   IOAI5

        [-jT ----T!{-CF- Thai-! &: 11-                                                                    - !~()7
            f-------                       + __                                   ---+----                                            -
        l   _____
                                            :Total
                                            J.
                                                            u_




                                                                                        .u._ ... __ .
                                                                                                                  : 25.186
                                                                                                            --..1-_




4.5          POLICY                               FOR CONVERSION                                         OF NON-GAS                   BASED lJl\ITS TO NGiLNG



4.5.1            Some orthe                         fertilizer companie,                                have been u,ing costlier kedstoek                         and have been

rendered                       un-remunerative                                    In   the              changed              scenariO_            Lhe    plants       based      on

naphthaiFO/LSHS                                    are less energy efficient and have a higher production                                                     cost.    Realising.

this, a policy for switeho\er                                                    of the existing            naph!haf}O/LSHS                      hased urea units to natural

gas/LNG                   as feedstock                      was fornllliated                            in January              2004. The policy encourages             an carl\

conversion                     to natural gas/LNG                                   so that they acquire a competitive                              edge in the deregulated

and liberalized                            economic                  scenario.              The policy for conwrsion                             of the non-gas based units

to NG/LNG                           is under review as part of the policy provisions                                                          for Stage-Ill       of '\iPS being
fommlated.



4.5.2        Consequent                             to lhe policy announcement.                                             naphtha       based uP,'a w',;ls situated         in the

vicinity ofHBJ                             pipeline have already started taking steps (llr                                                   CO!WeNOJ1lo          natural gas!J<'-

LNG.                 Gadepan-I1                           unit of ('h:tlnloal                           Chemicals                &. lenil,/,'"       I illli:ed    (CFCLI       and



                                                                                                            46
Phulpur-J       & Phulpur··II               units oj' IFFCO have already converted                          to NCi/LNG.        Shriram

Fertilizer's        naphtha       hased llrea unil at Kota is expected                     to swird10ver         by tbe end of thc

current financial year


4.5.3      The progrl's:-,          (It     ,,:onversi(in    uf non-gas       based     urea unib t,1 natural         gas/R-L"<i.r          :-:,

to a larg~ extent              dq:~"1dcrH          on rhl' availability          and pricin:!- o!" nc.:turai gdsiR-L~(              , ~md

creation of spur line,                 ck      In lhi, context.        meetings       have been held betl\ecn             thl' ,':'lie;,,!s

of DOF <lnd M/P&~(                     j    :lIeludill,' ktwcen         Secretary      (Fertili/er",llll!       Seerl"ar\      r 1':( ',\,:

f()f   preparation          of' a c:l'J',hk       plar. ,)1' action for connectivily :.md ~:\ :~i!al)i!lt) 01' ~J:-- [i\ un_-~:
units and it is agreed :i:d~~H_h:qualcgas supply to these planh                                   \\-t1uld be <.l\'ai]abl.:    t~:~~U07'
09.      1m     the three           I I) iSHS          hased      NFL      plants      ill Nonh        i~Jia     31,<, thl'     flipei"L·

connectivity           and 3\i:,I"hililv             is e'pected         bv 200X·09.          Fe'r L\CI·Cochin              :tn,.i \11,[·

Chennai.        gas is expecred               to be available        by 2008-09 Or 2009·1 () hut for /IL-(i,,,t. SPJ(·,

Tuticorin       and MCl'L··\langalore.                      tll'cre is no definite' gas conneer;,ity             and s'.•ppl\ 1':'''' in

sight.     For these           units         it is suggested         to explore        the possibi!it\         of using allcfmli,,:

feedstock       like CBM unci coal gas.



4,6           POLICY FOR PHOSPHATIC                                  & POTASSIC FERTILIZERS



 4.6.1        All     the     major          fertilizers      were     covered        under      Retention       Price    Scheme          tiil

 24.8,1992.           These       fenilizers         were      under     statutory      price,     movement         and     distribution

 control with Fertilizer                   Industry Coordination           Committee          determining       the product       wise &

 unit wise retention               price. Government                 of India decontrolled           all phosphatic         & Potassic

 fertilizers        w.e.(25.8.]            992 on the recommendations                 of the Joint Parliamentary            Committee

 Presently,         Urea is the only fertilizer under statutory                        price & panial movement                control oj

 the Government.



 4.6.2        After decontrol               of P&K fertilizers,         Government         annOl:nced the ad-hoc C 'oncession

 Scheme        from Rabi 1992·93 to cushion the impact of steep hike in the farm gate prices of

 these fertilizers             as well as to promote                   balance    nutrient       application      of fertilizers.        The

 fertilizers        covered      under r'1e Concession               Scheme are DAP (B()th indi~enous                     & imported           I.




                                                                         47
\'101'. SSP and I) grades of Complex fertilizers. The concession for these fer,i!iieh                              "'IS

announced and paid on ad-hoc basis to the manufacturers! imp0l1ers on the ,,,ie, "f the,e
fenilizers made by them. after verification of the sales by State Government,                         \ laxi mum
Retail Prices (MRP's) ,)1' P&K fertilizers under the Schcme I'ere anno"i""',!                                l-"    !he
respective State Governments lar sale within their States. iill 1996-97,


.t.6.3      To ensure uniform price of these fenilizers throughout the cnuntry. ,                I'      ,.,:    :',1,,,,
of India start cd annnunecment         of indieat;I'e '.IRP·s        of the"      fertiliZl"·                       "1,'

COllcession Scheme (except le)r SSP) from 1.4.1997 oll"aId", The \IRP ": ,.1'                                      '"

h~ingannounccd hy the State (io\'cfnmcnts         and varies from Stall" to Stdtc



..J.(l.-l   At present Government i~\-\lorking   0lit   nOlmativc dcli\'cred r~rict' of c~_\..":,-'n:l!/;.:r

cOlered       under the scheme      (except   SSP) as per the recommendat;,"1'                          ,<       !Cl;;'t

Commission. The difference between normative delivered p.rice & the indican\,' \1RP                                     'i

                                                                                   "
paid as concession, The 1110wmcnt and sale of these fertilizers. however. C(1:H:;lUc , Dc
completely decontrolled.       The pre-sent MRP of OAP, MOP & I] grades                          III     con;pk\
fertilizers can be seen at Annexurt'-!.


.t.6.5      Freight support for transportation of ft'rtilizt'rs to hilly and diHie'!,; "r~a' ,,[
                                                                                 bJ
Jammu & Kashmir, Himachal Pradesh. North Ea~tt'rn Statt's is also being prll'. l•. under
the scht'me from I A,1997 onwards.            These special arrangements have he'rx·J ensure'
availability of fertilizers in these remote areas and may be continued tar tk i l'~' Plan
period also .


.t.6.6      To ensure adequatt' availability of phosphatic & potassic fertilizers in ell: parts 01'
the country during the peak demand period, the Government has pursued the 1',,!icy of
butTer stocking of OAP/MOP on Government account. in most of the state"                                      Ihis has
rninimised shortage of the main phosphatic fertilizer, i.e.. OAP from any "an pC the
country. Due to the uncertainty of imports by private players, this special a'T~ngcrn·:nt
has helped to cushion the imp<lctof sudden spurt in demand of these fertilizer,                        I•.   ~n\ part
,,1'   the country and may be continued lor the ] Ilh Plan period also. Till                    Sl. .. ~        timc s,



                                                   48
private enterprise        is able to full) meet the demand               of phosphatic        fertilizers   allover         the

country,       the buffer      stocking    operations        should   be continued           The state institutional

agencies       need     to he involved            in this operation          and    state   governmcnts      should         be

encouraged        to pro-actively       participate     in the gap-tilling         efLm b,;lween assessed          dcmand

and avaiJabil it) in each season



4.6.7      The main thrust (of the ('(nees.sion              Scheme has heen to pro \ ide an cmiromnent                      of
price stability for phosphatic            anJ rUla~sic fertilizers generally to lr)\v-income                or    fl'SUUrCC-

poor 1~rmer~ hy cushioning                 them <!gainst the full irnpact of the increases                   in    Cl)SlS    or
fertilizers.     This    hns delinitd)            contrihuted     to increase        in the consumption           of P&K

fertilizers.    which had \\ilnCSscd         CJ   ~;lLlJllpimmediatelv       after decontrol.




4.7        Taxes and duties on fertilizers/raw                   materials

4.7.1            Fertilizers    are crucial inputs to Indian agriculture               8nd the Government           oflndia

is subsidizing         fertilizers     to encourage      its consumption           for improving     crop productivity

and ensuring          food security of the country.



4.7.2          Imposition      of taxes and duties on fertilizer and/or its inputs increases the cost of

 fertilizers    which defeats the very purpose of providing                    subsidy with a view to reduce the

overall costs of fertilizcrs           to the hlmlers.



4.7.3          For keeping       the subsidy        burden      under control,       the Government         of India        has

already reduced the excise dwy and custom duty on naphtha etc. for use as feedstock                                           in

 manufacture        of fenilizers.      to zero.      Yet, the subsidy burden has kept mounting,                  primarily

 on account       of two factors. (a) increase               in the prices of feedstock          and (b) high level of

 State taxes on inputs.              The rates of sales tax on natural gas/LNG,                 naphtha and FO.'LSHS

 vary from state to state and range from 4 to 20 per cent. Such high rates of sales taxes

 neutralize      the operational       efficiency     of the industry, besides adding to the subsidy burden.




                                                                49
4.7.4      Apart Irom sales tax. there are other various types ofta,es                     such as additional        sak-

tax. surcharge      on sales tax, entrY tax. purchase            tax. turn o"er tax, octroi, etc. which are

levied     by the various        State    (;ovcrnments         on (be raw materials/inputs                used    in '."c

manufacture       of fertilizers.   SO!lle of these taxes such as purchase                  tax. turnover        tax ,"~"

additional      sales    tax arc not recognized           by FlCe      I"r reimburscrr:ent           10    urea      rW·.·

Nevertheless.      these taxes arc '1 hurden ''', the fe11iliLcr unit. h is further observed                           , ....

even V AT rates are not uniform             ;11   the States where V/\I' has heen adopted.                 In audit

Central GOyern01cnt has lc\-i('d 'Service lay'                  on nldn~; sCI'\'iccs including         the tran'",',-' -
sector which has impact on inpu·' price~, A compilation                   of   \]f10li'i    (axes and thl'ir      raIl"


on 1.4.2006 is given in Annexure,                 4.1 & 4.2.



4.7.5            \Vith a view to bring unil,)rmity             and in taxes    Oil   illi'uts. the [kpanment              ._

taken up the matter with the h1ter-State Council.                   At present. the Department              is pur'''1          _

the matter with the' Empowered             Committee      of State Finane~ Ministers on VA I.



4.7.6         The Department        has been of the opinion that all local taxes levied by vari",

State Governments            may be withdrawn          as they affect the viability            of the urea units

increase the fertilizer       subsidy burden of the Government             oflndia.         As far as. the ratc

sales tax on raw materials              and inputs on hydrocarbons            (natural gas'LNG,           naphtha.        d-,'

fuel oiIlLSHS)          is concerned,    the Department        has argued that either they he reduced                     I, ~

per cent or less by all the Statcs or in thc alternative,                      the hydrocarbons           (natural        g'-'.

 naphtha,      fuel oiIlLSHS)       used in manufacture           of fertilizers      be decb.red         as 'goods             <
special      importance'      under Section       14 of the Central     Sales Tax Act, 1956. This                    \\'OL\":


 bring in uniformity,        or at least, a ceiling in the rate of sales tax on thcse raw 1~1atcrial, irc

 inputs.




                                                           50
                                                                                                                                                                                                                                                                                                        ,\nllcxure 4,
---
                                                                                                                                                                                           ''''."   ,,<>!. , c "  -               -                      --- ..                                          j'""-,, rA~(' "."."                               --
                                                                                                                  U••, ••. fVAI
                                                                                                                                                                                                           ''<'''L V-,,,.,,                                                 ' ·"".,I,I~
        'J"

              ,
                   ',I'An:
                               ,
                                        u"nl
                                                          ,
                                                                           f',pplo'·"h.l.ty
                                                                                        ,             <':Sl
                                                                                                              ,                                  ',1"""1,1,,
                                                                                                                                                        ,
                                                                                                                                                                                                                   "                                                            "
                                                                                                                                                                                                                                                                                                                          N •• ,/"",,1,1,'
                                                                                                                                                                                                                                                                                                                             "

    ,              11!'"r I'",,!,,~h    11>'1""0       I\,\,,!..           W""lfl      ~I ••te       4"'"
                                                                                                                           "                                       ,- _u"        /'«;   'I~I.N',    ' I' ~~I -c   ~,-              ,.•• 1",.               'H)                                   ,           NC,/kU'H,Ko               '""          F()

                                                                           Uu,""rle     Sltl\<'
                                                                                                                                                                                                                          ""                                                               "         <>"                                      "0



                                        INn(;(lUIY-                        w,lI,,11    ~l ••   t'·    ,,"                                                          '-      "tl   N'l,    ,"   1«;, I'~II      ~,          ""
                                                                                                                                                                                                                                   rj,,,,"'1                1-',                           "         ',)11   ~'(I,   l-tL,"",,-.     'i"       ",   1'(>
                                        ,;".,Il,d ••• hr>LU·

                                                                           OU'."jcl~    SUlt"
                                       TATA                                Within      St.••te       4~'~                                                         .>"'" on l'o'(;/RLl'ot,/;>MT ,~. <',r,                  ""       N ""),",,,             I ~ I)                           4~" "n            NC/RLNG&                5"      .Oll   "-{'
                                                                          O"t"id", St.t"
                                       OCFL


                                       IFFCO_AonJa                 ""p.
                                                                          Within StMe
                                                                          Out,.id", State
                                                                          Within S~~                 .~,
                                                                                                     4%·                                                          5""001'1.




                                                                                                                                                                  5'1-.>   on
                                                                                                                                                                                 N(;/RLNG/


                                                                                                                                                                                 NG/RLN(j/l'!<.F.
                                                                                                                                                                                                      MTfo..      ,=:.~., ",- :I.>r>h:~..1,
                                                                                                                                                                                                            ~ 2.,;;"
                                                                                                                                                                                                                           "       N .ph'h ••
                                                                                                                                                                                                                                                            FC)


                                                                                                                                                                                                                                                           'J'()
                                                                                                                                                                                                                                                                                           4',~00




                                                                                                                                                                                                                                                                                           4"'"""
                                                                                                                                                                                                                                                                                                             NG/Rl,NG&


                                                                                                                                                                                                                                                                                                             NO .'1-1L:>I"& S~v
                                                                                                                                                                                                                                                                                                                                     sn."     "0




                                                                                                                                                                                                                                                                                                                                              ".'
                                                                                                                                                                                                                                                                                                                                                    '"
                                                                                                                                                                                                                                                                                                                                                    FU


                                                                          01..lt"id" StAt••
                                       Ir/o-CO-P,PUR                      Wid,;" St>ltto             4'<'D                                                                                                                                                                                 ""0       nn      '~G/R!,:>IG"',          ,j'e,
                                                                                                                                                                                                                                                                                                                                              ""    F<)

                                                                          OutoHd" Stut"
                                       WFCO_ P,PUR                 ":XP   V/Jth,n 5t""'e                                                                          5'%"" NG/HLNG/I'MT                        &     ,,,"    ""       ·'.n..       h'.I1"      cO




,                 T••mil Noldl'        MFI.        Mud,.."
                                                                          Quaid •• StAt"
                                                                          Within ~<a
                                                                                   ••t"                                                                           3')" N"[1I"lla/LSH:';,               ):~" li:;[>
                                                                                                                                                                                                                                                                                           • ""      n"       1'''Il~
                                                                          (.>utaid•. I'JI•t••
                                                                                        •                                                                         '"0  N••phth,,/L~HS
                                                                          O",t.ide      Statl'
                                       m'IC        T",tkonn               WJth,n ~lt.t<l                                                                          .3% N"ph\h ••/L::lH~;                25""       HSIJ

                                                                          Out.ide       S••~                                                                      04~\' N."htl ..••/I$II.'"
,                 R"j".Uu.n            CF"CL·Ko''''                       Within SUIt<'>                          1,4,;l00l.        <\h"U"
                                                                                                                                    NO/I.Nn
                                                                          Out.,d~,       ~~          4"
                                       SFCXol.a                           With,n State                                                                                                                                                                                                     Jo',·un           •.,l/LS[-lS.      4""         Cu,,1

                                                                          O",t"ide Stat",
                                       CF"CL_ll                           W'thinSt.ate
                                                                                                     :~l~~~
                                                                                                     aphtha
                                                                                                                                                                                                                                                                       3."~·p on
                                                                                                                                                                                                                                                                       RLNG      ,, "
                                                                                                                                                                                                                                                                            N,-'-f"-'c""
                                                                                                                                                                                                                                                                       ""
                                                                          Out.lde      St.t ••                        7(\06
                                                                                                                  "                 4°'"
                                                                                                                                    NG,'LNO
                                                                                                                                             •.•"


4                 l'uClj ••b           NF"LN""Il,,1                       Within Stare               4'."         1.4,,2UlJ',
                                                                          Outaid •• S~~                                                                           '2"" FCliLSIISI!-'•••. /"·"t"').
                                                                                                                                                                                       d                          1O,    .",      .~. '-'., .
                                       NFL-Bh •.tind ••                   WilhinState                04%          1.42005

                                                                          OutAide St.t.,                                                                          2"'" FO/LSI!SWn-d/f'".,II.                      I()/   m'"_',,
,                 M••h ••
                        raah'rft       HCF-ThaJ                           WithinSt.at.,                           1.04:200!:>       12.5"\'
                                                                                                                                                                                                                                         "
                                                                                                                                    N(i/Naphlhafl'
                                                                                                                                    "".1).8         :;0,,"   on
                                                                                                                                    r" ••1
                                                                          Out"id.,     Stau                                         ,   ;;'-/"     "n   (j.,,~

                                                                                                                                    r"ecl/:-""flhth"
                                                                                                                                    f" •.'


.----- -------                         L __,
                                           ____
                                                                          -------_._--                                         -- ---   ..   -------                          .-- ..,- ..-.-.- ... --              --         -                                    .             ~._--      ---.-                -------                  ---.------




                                                                                                                                                     :; 1
          ,,,,,,,I)'\",,                                                                                      ; ·1,.'OI")                                                                                                                                                                  .
                                                                                                                                                       1/,';'
                                                                                                                                                                                                                                                                       I
                           I"-;l(!<-.!I     ~'WI. \'.r'\I'                  W:rhin St.ltr'                                                                      .\'(;
    "                                                                                                                                                                                                                                                                        '"                   _\,,:'I'li:           I

                                                                            Outs,,::!!: State

                                            NF:"'V,f'ur          F..xp.     Within       Sla:l:               1,4,1006                                 12_5u,o NG                                                                                                            ,,;   ;<: N ~; '~.w:Hh.,
                                                                            Outside State
    7     Kamatalm                         MCF!,-Mangalore                  Within SIR'"                      1.4.200S       85"'" on FO               11.5%ot\ :-laphth;1,                40'~     on F()                                                             S'",,;]     H;
                                                                            Out!Jlde Statr.
    8    Harvana                           NFL-Panipat                      Within State                   1.4.2003                                4%on         rt)jLSHSWecd                   &. Fuel]
                                                                           Outside State             4%                                                                                                                                                                ~'oon FCJiLSHS(hedj,l"'o                 C'JJJ
                                                                                                                                                                                                                                                                       LO%Ofl      f-'('   i'A  ';IiS iFu~:'
9        Gujarot                           KRlBHCQ-Ilnzira                 Within        St~rf             1.4.2006                                12.S%on              NG/LNO,            16"'0 ~aphth~,             1:'·' " ;"1':1_--;;::-;


                                                                           Outside State
                                           GNFC-l3haruch                   WithinSt;1!C                   U2006                                    12.5',,;,    on NGiL;.lG                l('~,o ;"aphlh;.,            .,
                                                                                                                                                                                                                      ,.J" f-'~"I>;;i:-O


                                                                           Out~;de Srntl"
                                          c~n fj,lrorlll                   Wi'!!lfl      Slnl!'           1".j,)(JI)(,                             ,;    jO,o(W         )',(,':iSC,        ill"."    .\;.ph!:"",                       t   'i"·
                                                                                                                                                                                                                               "

                                                                           ()utSHJe       SteHr
                                          I[,TCO        K,'Jol             Wilhin S1"le                   1 4.2001,                                j   'l.:;o,~ or, N ( ~.' LN      (j .   : h~c     ~i;Hl>-t[ ~_,1   )'-,",       1   . ~':"


                                                                          Outsidl" Stnte
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                                                                                                                                              52
                                                                                                                                                                                                                                                                Annexure                    4.2
                                                                              TumO\'erTu°.-b        Purch~~    Tv %         Educal:OIIftJ   SCr\1~e la_                     AnyO;h~,     S~e,'.b, "
    S~(\        STATE             11\'TT                    Applicahil;1y     Vanable   Non-        \i3j[~bk   Non-         ce'l                           NlIl1e(,:' 1",        V,"!.it>l.     "",.,    " ,'lr~hl,                                                       R.",~ti ,

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                                                                                                                    --            --
                                               CHAPTER          - V


                             GLOBAl.     DFMAND & SUPPLY SCENARIO


    5.1       GLOBAL        DF'l.\~D    &: SL/'PLY        POSIT 10"" OF LREA


    5.1.1     The global producti'<1    ,'- ;~~reawas about j')2 lakil n,etric tonnes (LMf)             N durin,

    2005~Out of whid, 453 L\11 " Wel' meant for domeq,,,                       markets and about        136 LM [
    was exported~ The maj," C\:>~'<:1g regions include Russia and l;kraine                    in East Furope 6:

    Central Asia and Middle L:< "',mtries~          which account f"r ahout 60% of the world export

    of l;rea~ Other maior       c,p,mir~g    countries     include    German)        and ?\etherlands    in West

    Europe. Romania      in Ceneral t'L::ope. Canada. and U~S~A North America.
                                                               in                                   Trinidad     and

    Venezuela     in Latin ~"merica an':' China. Indonesia       and Bangladesh         in Asia~



    5.1.2.      As per IfA~ the worJj demand             for urea is expected to grow by 123 LMT (57

    LMT N). from a total quantum            of] 313 LMT ( 604 LMT]\)                 during 2006 to 1436 LMT

    (661 LMT N ) during 2010~As against this. the total supply is expected                         to increase    by

    298 LMT (137 LMT N). from a total quantum of 1344 LMT (618 LMT N ) during 2006
    to 1641 LMT (755 LMT Xl J'"ring 2010~Table below presents                            world supply     demand

    balance of urea during 2006 to 2010.



I                              World supply demand balance of Urea
1------- ------~----~-------
                      (LMTProdU~

             --~1-20-06--~---~2-0-()7---'-2-0-0-8-~--~1                       2009---         2010-     __~



~Demand               1312.~ _ ' 13.w~7-l                 ~~~~       --   i   I~~:                  __
                                                                                             , 1436.0

LSurpIU:             31.4              ~.t~__          _
                                                  =r89?~ _ J~~~
                                                              ~



                                                           55
5.I.J.        Among         thc major surpllls regions. Middle East will have a surplus of urea in

terms of nitrogen         of 11.2 million tonnes. East Europe & Central Asia 4.5 million tonnes

and Central Europe 0.3 million tonnes hy 2010. In socialist Asia. thc surplus of urea will

touch 1.3 million tonnt'S N. A statement                  of ammonia       urea projeeh   scheduled         for coming

up b\ 2015 world (wer is al Annexure                   - 5. L



5.1.5      Thc world urea capacity              is forecast to 1?r()\\ by an ",crall         28%. to 180 million
1<'L!leS "I' urea in 2010. In the year 2010 alonc, capacity                      '\(JuJd ",pand       I"        14 million

tUln('s. Close to 50 proj~cb are under \vay or heing cnn~ic.er('d Jurint! the f'cripd                                 from
2ifflA lp ~OI O. The          Blain additions   will rno:-;tly occur in \\''"cst \,,~a and China.



5.1.5.          Keeping        in view the surplus availability         of urea at c,lobaJIe\ eJ. it       IS   suggcsted

that Government             should cnter into ncgotiations          or cncourag'~ Indian tCl1i!izcr companies

for tving up for long term supplies                   of urea Ii-om the countric:. which will have sllrplu                 l
                                                                                                                            ,




urea capacities         after commissioning            of the urca projects.        \\ hich are at f'resent          under

construction.



:l._
- 7        lJSE PATTERN OF FERTILISER                           PRODUCTS IN THE WORLD


 5.2.1          Nitrol!:en



 5.2.1.1               Urea is the most popular fertiliser in the developing                 countries.         It accounts

 for 60.5% of nitrogen             consumption        in China and 82.1 % of N consllmplion                in India.       Its

 popularity     is due to various positive qualities               of urea e.g. the nutrient content             in llrea is

 higher      than     any      other    competing       products     available   resulting      in lowest          cost        of

 transpoJ1ation        per unit        of nutrient.      Its critical    humidity     is high compared               to the

 ammonium           nitrate    and calcium      ammonium        nitrat~ (CAN).       It can be easily stored and

 handled under the hot and humid conditions                     in India without any significant           detcrioration

 in quality.        On the other hand the critical              humidity    of ammonium         nitrate     is very       10\\

 requiring      storage       in controlled     atmospheric        condition.    It is also 3n explosive              being

 hazardolls     in storage. handling and application.
5.2.1.2                 In      developed        countries,        liquid       fertilisc"      (nitrogen      solutions)       have

significant         contribution      in consumption             of nitrogen,        For cxample,         the solutions     account

for 26.8%           nitrogen       in France and 25°/~) nitr0l::en                 consumption           in (JSJ\.     There     is a

significant         use of ammonia            in dircct applicdti, ,n In Canada (27.9% Df nitrogen)                        and IS\

(26.3%         of     nitrogen).          However,         the     Indian        cnnditions      with      respect    to    climate,

infrastructure.          land holdings.          etc. do not all,·\\          the direct application         of ammonia.         TilC

application         of Clltrogcn through compound                    knitisers       Il1 India is similar to that prC\ailinc

in France, Gennany.                Can;ida and LS:\.              Pll'   '-'()J,~umrt;(jn pattern of variuu~ products                ;;1

the: \vorld          sho\\'s     that India       shoulJ        di\ ('h;~'y    into I'lther ferti1iscrs         including      Jiq\l:--i

fertiliscrs,         The low analysis             fertilisers     1ik"lt:11110nium           sulphate,    ammonium          (hlond,:.

CAN       etc, do have             application         for specillc       crops.       However,          consumption        of thes,'

products        has been           eclipsed      due to withdr~,\\al             of suhsidy       on these       fertilizers     frun

!0.6.1994 when they were decontrolled                            and taken out from the purview of the Relent;o"

Price Scheme.



5.2.2      Phosphates



5.2.2.1                  In India,        DAP         is the major         product     contlibuting         62.7% of the total
phosphate           consumption.          The other products are NP, NPK and SSP. China and AustraliCl

 use    SSP         to meet        37.1%        and    Australia         24,5%     of their      respective      requirement            of

phosphates           compared        to 9.9% share of SSP in India.                   Single super phosphate           has its own

 unique qualities              induding       its sulphur and calcium content pointing to its usefulness                             for

 sulphur       deficient        areas and oil seed and pulses.                   Its use should be encouraged                in Indiz.

 The production              of SSP also does not need huge investment                          required for producing           D.·\I'

 and other complex               fertilisers.



 5.2.2.2 The data available                 does not bring out the micro picture in terms of the type and

 NP & NPK fertilisers                used in various countries.                  However, there is enough evidence                 that

 customized           compound         fertilisers      are widely llsed in developed                countries       which cater t<)

 the specific         set of conditions          of soiL crop and the climate.                  There is a need for a 'CIIOU,
consideration       to produce good quality customized              fen,ii,ers     in the country.        This can he

done using the commonly            available raw materials and 'emi finished fertilisers                   with small

investment        in plant and machinery.         However,       the pri~ing policy should encourage                     the

diversillcation      of products used in thc J ndian agriculture



5.2 ..'   Suggestion      for creation of a Technology             Mission on Fertilizers
5.2.3.1   The pattern        of usage of fertilizers         in India ,!Cay change         if tht, application             ,.

fcl1ilizers    is balanced     and according     to the soil and cree requirements.               ]1'   the pereenL ..

of usage of phosphatic           and potassic      fertilizcr    increa'c',      then the demand          of ure" ....:

undergo change.         It is therefore,   felt hy this Sub Grour ""at this aspect needs                  10   he   t,,(>, .• :
into 1'\ c'xperts.     It is therefore.    suggested      Ihat a techn( ..gy mission on fertilizers                 ma\ :',

constituted       comprising     (,I' ex pens   from agricultural       research     institutes    and agricultur,,[

universities      to study the changes      1I1 pattern   in usage of fertilizers in years         (0   come.




                                                            58
                                                                                                           A:1nCXII rt, -   5.1

iYeir----             Country        I Company--TLocatioD                 -T"p;:~j~t-£~dS

r
~Januar\'
 ---'
            2006
                       Kazakhstan     Kazazot
                                  -- Alexandria             Akatu
                                                                               status

                                                                             Ols
                                                                                             ,
                                                                                             I   Nat G'

j
    -}~~<:_---_._-
    June
                       Egypt
                       Egypt          Egyptian Fertilizer
                                                            Abu Oil'
                                                            Ain Sukhna
                                                                             ule
                                                                          - --=;:----
                                                                             ufe
                                                                                            l-----
                                                                                                 Nat C;,
                                                                                                 Nat G

b?ctobcr-----~
                                      Co (EFC2)
                                      NPC-Razi 2            B. Khomeini
                                                                           JI ufe       ~        __
                                                                                                 N.".!G
: October            : fran         , Ghadir Ammonia &      Bandar         i   u/e           ' Nut Go
                                     I
        r---                                                                                                                                -.----'1                                                        ..
                                                                                                                                                                                                      -----.~-              --.----------
                                                                                                                                                                                                                          -~i

        '']
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                                                                                                                                            ----I-N;;t
                                                                                                                                            nee                -rNatGaS-
                                                                                                                                                                                Gas     -,

                                                                                                                                                                                      ---t-------66
                                                                                                                                                                                                           --

                                                                                                                                                                                                                              0r--
                                                                                                                                                                                                                     200+----350-~-

                                                                                                                                                                                                                                                           -N-'o-n;r---66D1
                                                                                                                                                                                                                                                                                     ---          6l


          ~---.-.-'---~.an                                    --.              ~:~~hiraz          +M.1rvd;;Sht-~dll,g             -'r'la((;"                                           ----,         --              ('77-L                                r:07i'iI!-                             01
        I,
         1 JanIl3r)-------
                                                 ,
                                             'J:S-i\;;;b   ••--
                                                                               Pctrochem.
                                                                             I-Ma'aden .---
                                                                                                   I
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                                                                                                                                                                                                                                                                     --t
                                                                                                                                                                                                                                                                     (J                     66()
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                                                                                                                                                                                                                                                                                            -----j

                                                                                                                                                                                                                                                                                                  Il i
        ,                                       I                              Petroehcmlcal                          I
        i---.-. -----
        , Julv
                                                i
                                                I Trinidad
                                                                               Manufacturm&Lld---l
                                                                                                   I
                                                                                                                           --L_ -
                                                                               Flrsl UAN Tflllldad I UllIon Eslate I Probable        I 'htt Gas
                                                                                                                                                      -L--_. _                                 _.L__
                                                                                                                                                                                                                     (,';9                            840 LA'!                              3]0

        htl~9To~al----JI"-----'--                                             iIe.~fIndsL __.j_._n_+_n                                                         +_                               ,3:49~:--                                                                             -1,6501
    12010                                                                                ---1----"1- -- 1--                                                                           ----+         - --            ~:-----i                                                     I
                                                                                                                                                                                                                                                                                      '--1
                                                    aLGERJA                   Fertiberia/Asmidal
                                                                                                   1-7-
                                                                                                     Arze~w------                      Bidd-in-_-_·-_~a.tCi-'a-s                    --=~l                         1.089 '=-'!on~~                                                    ~ 1.0891
     JuL                                            qATAR                     QAFCO V                N/a                               pf(lbable                    i~al Gas                    I                J."(1)~9.:_Ii          ..   -   __        1'1   8(I"J', 1,'
                                                                                                                                                                                                                                                                   .)\-                     24_(0)
    ~~
     July                                           viETNAM                   Pctrovietnam           CaM au                            Finance                      i   Nat Ga':'                                        'i   1                               72          1

    I
                                                                              Fertilizer         &
                                                                                                   ,                  I                                             I
    ~
            1010 TOTAL
                                                i
                                                I
                                                                              Chemical Co. ___ i.__
                                                                                                         L.H __ -- -:=1--                                 -i---                            ..1_            --
                                                                                                                                                                                                                  L
                                                                                                                                                                                                            ___,623 -
                                                                                                                                                                                                                                  -1 -------------------
    t 2005-201 0 TOTAL                               POSSIBLE PROJECTS                                           --                    --             u   __    ~          __




                                                                                                                                                                                         u~·          __
                                                                                                                                                                                                              2
                                                                                                                                                                                                                14.056 I
                                                                                                                                                                                                                     ~
                                                                                                                                                                                                                                                      --------l---
                                                                                                                                                                                                                                                                     ~I---~  !
                                                                                                                                                                                                                                                                                        1,331_j
                                                                                                                                                                                                                                                                                        5,318 I


    ~oi I --                        I:~         :h3bi         ---             R~wais-Fertilizer-f~:'ais                -           rprobahlC~Nat(~,~~                                                               ri60 1                                   -1-"-"       r-           u_      0     i
I                              :                                              In-(~i1)----t----,i-~--
                                                                                               ---1
~                      .~ ,~Sau~ Arabia_
                        __
                         ___ .:1 S~~ldit\ra~ia _-                   _~
                                                                              Ma'aden
                                                                              St\f(O V
                                                                                              A~b~II
                                                                                                  I
                                                                                             ~\J J~ail
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                                                                                                                                                                        ~.:~S                                    r;;~;r
                                                                                                                                                                                                                _2:409j
                                   I                                     I                          I                              '
I                                  I,                                    i                          I,

                                   I                                     ,
        .20) I,TOL\L          u~        __               .-----.f-                                                          _-.1
                                                                                                                                   I             _I


            2012                                                                                                                                                                                                                                                   ____ -1
                                                                                                         l)arnjt't~1                                                                                                S(H!                               j   .:un l,'                         lOG




                                                                                                                      !)O
                                                                                       ----




                  Iran
                                Nitrogen Produc_~
                                Lavan or Pars 3B. _. +-"ssaluyah   ~abJJ!'-iat'Ga
                                                                                              -------J..----=J---- ·-:--j=-d I
                                                                                              s        i----           u t=:
                                                                                                                           6..60t-         858             163

 2012 TOTAL
 2013                                      ==+=                    It=                                  n-; .._._~        2.120_1---=_-+-=26~


                  Pakistan                   I
                               Engro Chemicals        Dharki        probabJ~a                 s                 .
                                                                                                                    ----t-------+---I
                                                                                                                1 ---      410 ,           726 U '             0 '
 2013 TOTAL
                                                                                                              -L---~--          T--~
 2014
              i   Oaw          OAFCO VI              N/a            Probable        Nat GaS        --   -   .-+ -
                                                                                                             -r.-1.089 !
                                                                                                                                 '


                                                                                                                          1155 U 1----·- 430
                                                                                                                                                  I




                                                                                                                                                  =-
                                                                                                                                      -=-=-~-.--=t...
                                                                                                                                                                 i

 2014 TOTAL
                                                                               +----                                 -----'1,089.+_                        ~3~1
f-=---.
                                                                                                   ___    -
                                                                                                      J~=~_                                      r---
 2015


--
                  [ran
                  Oman
                               NPC-Pars 4B
                               N/a               n':"'";~=~""J +__
                                                            ~,,~.
                                                 __ ~a              Probable___Nat Ga.
                                                                              i
                                                                                     5
                                                                                       _5         _n        ._.-+-
                                                                                                            -_-i._ - .
                                                                                                                           677+-
                                                                                                                                -I-~----
                                                                                                                                            None I
                                                                                                                         -~!!i----I~?U4---_.~
                                                                                                                          1,377 I
                                                                                                                                  ..
                                                                                                                                      __ ~ __
                                                                                                                                                           l
                                                                                                                                                        .677     I


 2015 TOTAL
 2005-2015 TOTAL POSSIBLE PROJECTS                -- ------r._.::J--                                         ___
                                                                                                               .1     . .21,42U
                                                                                                                                                -1.   __ .67~
                                                                                                                                                  1 __ 2,l~
                                                  CHAPTER - VI
                      ASSESS\1ENT          OF FERTILIZER              I>DIAND DURING
                                     ELEVENTH              FIVE YEAR PLA"I


6.\          ASSESS'IENT           OF REGION              WISE/STATE         WISE DEMAND              -Sl "Ply
FOR THE I1'h PLAN AND BEYOND


6.1.1        The production of fcrtiliser is continuous whereas the demand IllI                       knlth'       [,

s~J~l..)nal. Over the y"ears, it has been the endeavour               of the go\-crnmcnt    tlJ   mak(" a\:l~::d"'L'

tk: required quantity nffcrtilisers             to the farmers at right rlacc. in right timl'.f       () full;)) :hl'
!);l>;I-'   \lhjectin.'. th('rc is tht' need    f(Jf   proper estimation   or' demand   for krtill~("rs, hud]     (1",


Slll\n-tt'nll and iC>l'g-tclm basis, While, the short-term demand projections prepared Jt lh<'
ll\iUI      conferences on the eve of each season, viz.. kharif and rabi. have been !(lUnd to be
effective. the medium and long-ternl demand projections need greater attention                                     ),
realistic estimation of demand is essential for the whole gamut of actiVities In t'w
kniliser        sector. including planning for production, import, movement, warehousing. ctc
In addition. it is also essential for the planning for a\'ailability of feedstock and raw
materials for the manufacturc of t1nished fertilisers.


6.1.2         The WorkIng Group felt that nutrient dcmand should be worked out to mcet the
foodgrain target. This exercisc, howcver, involves many weak linkages bringing elemcnts
of uncertainty. The rate of agricultural output growth for the XI Plan Period has bcen
taken as 4% per annum. However, no reliable correlation could be obtained betwecn the
rate of agricultural             growth        and the corresponding          rate of gro\\1h        of fertilizer
consumption. While assessing the demand for different types of fertilizcrs. the emphasis
0n halanccd fertilization also has to bc considered. Shift towards balanced fcrtilization
might alter the ratio of demands for different chcmical fertilizers,


 6.1.3        Various modcls have bccn developed for projecting the fertilizer consumption
 during the Xl Plan period, Notwithstanding the best of the models/ tools/ techniques used
 for the medium to long tenn projcctions of demand by various national and intcmational



                                                              62
organizations of repute, there is always a variation between the projected demand and the
actual consumption of fertilisers due to a variety of unforeseen factors, including weather
aberrations, policy changes, etc. The actual consumption of total nutrients (N+P+K)
deviated from the target by about 16'10 at the end of 7th Plan, 22% at the end          (11'   the Rth
Plan and 13% at the end of 9th Plan. The deviation at the end of the ~th year of the I (llh
Plan, i.e. (2005-06) was about 7':';, Therefore, it is preferable to adopt      d   mcthodology
which has the minimum degree of variation Irom the aetual. There is also the need fer
mid-tem1 r('vie." of the results and updating the figures, ifnced aris'",-


6.].4   Demand projections l1lad\:   n)   \'~inoUS   agcnCJt's



In the past, various organizations'        institutions adopted different methodologies            for
projections of demand for fertilisers. A few of them are liikd below:


        1.         Roy L. Donahue      (1966). The methodology used was districtwise crop
                   acreage x fertiliser recommendations.
                   Donde and Brown (1972). Variables used - Oistrictwise data on area
                   under crops, irrigated area, farm harvest prices, and agricultural
                   technology. Methodologies used - (a) time series, (b) multiple
                   regression.
        3.         National Commission on Agriculture (1976). Methodologies used (a)
                   Replenishment of nutrient by crops, (b) area under aops and
                   recommended doses. (c) demand for agricultural production and
                   response ratio of crops to addition of fertilisers.
        4.         National     Council       of      Applied    Economic    Research          (1978) .
                   Methodologies - Household sample survey.
        5.         Working Group on Fertilisers for Five year Plans. Methodologies
                   used in the 9Lh and 10·h Plan - Multiple regression model (FAI), Neural
                   net approach (NIC), Sustainable growth approach (DAC).


6.1.5   Model Adopted by Alagh Committee


 6.1.5.1 The Working Group on Review of Stage I & ![ of New Pricing Scheme (NPS I

and formulation of Policy for Stage 1II for Urea units under the chainnanship of Dr. Y. K
 Alagh. prepared the demand projections during 2005 for the period 20] 0-11. The model




                                                     63
was prepared by National Centre             {(iC   Agricultural Economics and pl,I;C) Rcs~arch
(NCAEI'R) for the Working Group. NCAEI'R adopted two approaches.


(a) ~ormative approach. The normative approach worked out the ,kl11and as the
quantit\ of fertiliser needed to produce spccitled level of ;:gric'lltura\ output

 (b) Positive approach.         The positivc approach estimated the quantlt) or krtilisc'rs Ih.(
 would he dcmanded corresponding             10    ditferent scenarios     0:'   variables that aike!         Ihe
 demand      for fert.ilisers



 6.1.5.2 T:\h\e 1 and :2 pr~scnt the All-India demand !()r tertili"er to\\'ard~              ~IJ IlL   i;   uJ;~kr
 diflereill ,'cenarios as prepared by NCAEPR.


 I. :'\nrmatiw Approach


!:-rabl;;-i:All~Tndi~O~~land       Scenario for Fertilis~to~ard~         2010:-TI---
~_~ __ ....                                                 foi,,,
                                                     ]~~~,;,y i~:;;;"-"'-_l'<;-
\I.-output     growth rate 272%, NPK ratio 2-003126:954_n-1--13,6~=-24.829_                                          -j




 2. Output growth rate 4.08%. NPK ratio 2003 ~23,301                             I 15,215      !   27.786
 3. Output growth rate 2.72%, NPK ratio 1991 20,954--~'-13~48i)--;-i4Jl2i-'-
 '-~'~--------c-----'---CC-------
 4. Output grov.1h rate 4.08%, NPK ratio 1991
                                                                     --------                -------.
                                                             Grow1h rate per annum


L__________________                                      I   (2002-03 to 2010~~                                      _


  Output gro~1hrate 2.72%, NPK ratio 2~~----
~1.                                                                         -~53               ~  ~~~a        ---.
12. Output growth rat~ 4.08%, NPK ratio 2003 3.ri"                        ---T,-:72---         "-'4-:22-             -i
13. Outp~growth           rate 2.72%, NPK ratio 1991 2.53            -     -I 2.36 --       - -;-2.57 . --               1

L4 Output groV\1hrale 4.08%, !'iPK ~atio 199112·7~                 -~-3~56=                 __J~'=82=                _




                                                      64
         II. Positive Approach



[TabjeTATI=1i1d~                    Deman~~~~na~iO~;)r-[Jrl~to~ards                                       SJl~~j     1~-_=~-                          -
                                                                                                                                                          --.-~
                                                                                                                                                             I

                                                                                                                                                            _--1
                                                                                                                                                                I




l_~.                                                           u               •   n_~U<llltlt~            ('()(JO   tonnes)
II. Business                 as usual (BAli)                                                 24.959
 --~-----------------
~.                                               ----.------                   ---   +---------


! 2. BALI and freeze on subsidy                                                       : 24.122
-- ---,-'------------.------.----
         ..                                                                -         _-r--    __   ,---


'I       3, Freeze on subsidy. exploit irrigation                                     : 26,303
 1--·-·-----·- - - ----
 I       4. Average output growth rate 4%                                                    27.452
     L            ..                                      .
                                                      ..,__ _



          6.1.5.3 A synthesis         of the two apPw:lChes                          rn eals thaI '~e demand                    it)r urea by 201 (1-1 I

              would vary between 24 million Wnnes                       al 10\\              agrieulrufJi      output gro\'olh and 27.6 millim

              tonnes corresponding        to a relatively             high grcl\\lh scenario. Extrap('/ating                          the growlh rate:

              (between     2002-03 and 20 I 0-11) used in the model. the demand for urea works out to 24.6

              million !Onnes for 2011-12           at 10\'0 agricultural                      output growth, and 28.7 million                 (onnb        a(

              relatively    high output    growth              scenario.       The total nutrient consumption                          (NPK)      comes

              around 21.5 million tonnes and 24.2 million tonnes, respectively                                             for the two approaches.

              While the consumption            of urea at 28.7 million tonnes. based on the higher agricultural

              output growth seems to be in order, the total nutrient consumption                                               of 24.2 million tonnes

              appears to be low compared             to the current level of 20.7 million !Onnes.



              6.1.6      The rate of growth used in the r'lodel for fertiliser consumption,                                           was on the base

              year 2002-03      when the country                   faced worst kind of drought. Meanwhile,                                a significant

              change has taken place on the fertiliser consumption                                        front. Compared        to a steep reduction

              of about 7.3% in the consumption                      of fertiJiser nutrients during 2002-03, the growth in the

              consumption      of fertiliser    nutrients            was 4.4% during 2003-04, 9.5% during 2004-05                                         and

              12.4% during 2005-06.            The average growth in consumption                                      of fertiliser   nutrients   during

              the first four years of the 10lh Plan was 4.75%. The growth in agricultural                                                   output        was
              ] .9% during the period.




                                                                                      65
6.1.7       As per the CIment           indications.       the growth       in the Wb::Tr,l"n                  "I' fertiliscr

nutrients     may end up 7-8% during 2006-07,                      The results geIl'culc"d L11rough model                   "I'

NCAEPR.         despite     its scientific    basis may need to be "rdated,               ".,r'"'",,,r\\       for \\()rking

out fertiliser Illitrient consumption,



6.1.8       Demand projectIOns based on FAl model



6.1.8.1 Ideally.      the estimates          "I acreage     under vanous       ero!"      :1",'


doscs "I' application          of feI1i1iser could give the best re"J11 ! L"',,

estimate      is a\'ailable     for the Il,h plan. which could e"abk                   ;, :--

fertiliscrs   on thi~ hasis.



6.1.8.2 Keeping        in vie\\ the recent trend in the consumptIon               of fer1l1;"",            the estimates     "I

demand for fertili,c!" nutrients and products have been \\orked                        l'Ul   I"   r \,    I,JT the 11,"~I'la11

period      based on the multiple            regression     model. Among a iarge ","' ::->er of factor",                   Ihe

following       variables      were    finallv    considered       in the model         hase.::       ", their     sta1lstieal

significance      and stability of the functional            relationship   to estimate d,"'1,"KI f<)rthe rerind
2006-07 to 20] 1-12,



            (I) Irrigated area, (2) Area under HYV, (3) Fenilise,                      I~utri~r.'    XiCCS.      (4) Rainfall

            (as % of long term average               value),      (5) Lagged    dep('TId~nt \a;ablc                (Fertiliser

            consumption       in the previous year)



6.1.8.3 Input Data


 Actual time series data for the period                   1971-72 to 2005-06      and prc.:il~l,'d values fur the

 period 2006-07        to 20] 1-12 on All India basis have been used in the ,,'odd                            for the ahove

 variahles.    which werc found statistically              reliable,



 6.1.8.4 All India Dcmand Forecast ofN, P20S and K20




                                                              66
Based on the above model, demand                  forecast    has been made separately         for N. 1',0; and

K,O. Taking into account. thL' predicted vaiues of independent                       variables and actual values

of lagged consumption        up to 1005··06 and predicted               values of it thereon. the forecast of

N, P,O, and K,O has been worked out.



6.1.8.5 Assuming      nom),,1 rainfall     for the forecast            period ",jth the actual and predicted

values of other independent          variables.     the demand         forecast of krtiliser    nutrients     f()r the

period 2006-07 to 10 I 1-] 1 has been vvorked out. Based on the modeL the growth in total

nutrient   consumption     is estimated     at 4.1 % per annum during I! ," Plan. as against 4.5°'0

per annum      attained    Juri~g     the first four years             oj the JO'h     Plan. The total       nutrier-r

consumption     for 2007-0R works oul to 23.12 mi!lilln tonnes. For :>011-12. the projected

figures are 16.90 million tonnes. The projected                     ligures of 'i. 1')0, and K2()      are shOVlin

below in Table 3.




6.1.8.6 Taking into account the average consumption                       level (\1' 8]% N through urea. 60%

P through OAP. 30% through complex                   fertilisers.      ] 0% through SSP and 68% K through

MOP. the product wise demand lor the period 2006-07 to 201 ]-12 has been worked out.

Accordingly.     the demand         for urea may touch around              25.4 million tonnes by the end of

2007-08.    The demand       tor DAP. complex            fertilisers    (other than OAp) and SSP would be

around     7.9. 7.7 and 3.8 million tonnes.             respectiwly.        The demand       for MOP would           be

around     3.0 million    tonnes.     The projected          demand      for urea. DAp. complex             fertilisers

(other than DAP).         SSP and MOP for the year 2011-12                     is 28.8, 9.5. 9.3, 4.6 and 3.7




                                                             67
    million tonnes. respectively.               Table"         presents        product wise demand of krtilisers            during

    1006·07 to 1011·11
,.                      _~_m       . _~._.                      ~                            .,__ .    _
i              Table 4: All India Demand Forecast of Fertiliser Products (' 000 tonnes)
                                         2006·07 to 2011-12
                               [rea--        T~DAP --                ~(~n;ple.\                       SSI'          \IOP'
       Yedr


(2!}()6.IJ7                 -2~305--t-'750()
                                                                    -I -'7360
                                                                    -!
                                                                               fertilisers
                                                                                                 1-


                                                                                                      2875          2850
 2007·08                  .- 2~360--     - 7930--                      1---7780"                 ,.   3040          ]015
              --                       --      1·--   -.----             -
                                                                     .+... --
f2008.09 _. L ~627~ __        8310 _ L._._8]65_._'I<)()                                                             ,180
  ;()O~·IO _.1_ =71].L~        P!.5_+ __8550               '.341l                                                   :;,(,()
  2011!.]I   '27945            <)105'     89:;';,4')i);545
i 20! iI2-:
•...
                  28755- -t-9510          93:\1)
                                             ----L
                                                         -t--
                                                           ;()4"     --'---                       •           I
                                                                                                                    3;40
. ,.       i ()r_Jircct cO!1sumption.f.\cll]dc'i.demilll{]                    for manut~ctlrc ... : C\,mple,krti    I'.',>rs




       Ihe charts presentcd        below show the actual and tilted \ dille,! of 'Iii [ncii:, clmsumpt;()!1 ,)f

       :'-). I' and K separately    for the period]            971·73 to 1005·06.




                                                                                                                   -- I
                                     Actual vis-a-vis fitted values of N consumption                                    .
                                                                                                                        ,


                                                   (1972-73 to 2005-06)




                                                                                                           ---.-
                                                                                    ,




       -----------------~--~_.~--~~--~~~-




                                                                          68
                           Actual vis-a-vis fitted values of P,O, consumptioll
                                               (1972- 73 to 2005-06)
            6.000
            5.000
       ~    4.000
      g     3.000
      ~     2.000
            l.OOO
                  o
                  ~ ~ ~ ~ ~ ~ ¢ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~
                ~~~~~~~~~~~~~~~~~-
            ~     ~    ~   ~'   ~   0 ~ ~ ~ ~ ~ ~
                                     ~~   ~L    ~.   ~.   ~




                                      f --+-    Actua!        •        F llkd   I

                                                                                                             --I
                           Actual vis-a-vis fitted values of K,O consumption
                                          (1972-73 to 2003-04)
            2,000

            1,600

       2'   1,200
       0
       0
       0
       ~        800

                400

                  o                                                                      , , , , , . , , ,
                  ~ ~ ~ ~ ~9 ~~                                   # ~ ~ ~ ~ ~ ~ ~
             ~~~~~~~~~~~~~~~~
            ~ ~ ~ ~ ~ ~ ~ ~                               ~        ~       ~         ~   ~   ~~ ~   ~
"




L                                               __
                                          I_-~:~_·_·_~                  F_itt_e~.I                  .~         ~




    Zone wise Demand Forecast of N, P10s and K20


    6.1.7.7 Table 5 shows the percentage share of various zones to all India con,wnption                           on
    nutrient basis. The share of consumption ofN is highest in North zone followed by West.
    South and East The share of conswnption of P20, is highest in West zone followed                               11\

    North. South and East On the other hand. the share of K20 consumption is highest i·)
    South zone tollowed by East, West and North. The share of each nutrient according to
    zones indicated below is the average consumption of 5 normal years of the recent past




                                                              69
r-----------------·--------                                                                                    .------------- -                                ----
I             Table 5: Zone wise per cent age share to All India consumption of fertiliser
                        ---- -------, -- - - --- ----+ --- --- ---
                                       ;\1
                                               nutrients
                                                             P,O,
                                                                   --------T--
                                                                         ,        K,O
                                                                                                                                                          U_




        -.,··---------1----------~----:--7------- ----~-~---------- '1- --
i ~orth...
            East                         --t- __--b'lc-=--
                                               j                         ,8j             +
                                                                                         , __       *3~---4
                                                                                                    -IJ.J.._                          -+
                                                                                                                                                       225
                                                                                                                                                       11.9

      __
    ___ .
               - iU
r~\O~~)'- --r -.--        ,              ----1...-   __   .
                                                                                 - --nut
                                                                                     .
                                                                                                   -~H--   .     _
                                                                                                                                     --!               ~;~

             6.1. 7.8 Accordingly.             zone wise demand                     forecast    of fertili"T                  nutrienis          has hecn \",dcc' 1

             uut. lahle (, presents zUne wise consumption                                  uf fer1ijiser nutrient', I,)l' the pc-nud                            20(\hl'

             tn :'01 ] -: 2
    r   u

         -     ------                                         -------                                 --             -------------




    :                         Table 6: Zone wise demand forecast of fertiliser nutrients ('000 tonnes)
    f------.-------------                                                    2006-07 to 2011-12
    f
    ~y caru----~---------

    L2006-0 7
                                .---
                                                                           Ni I
                                                                        1957 !
                                                                                 East Zone
                                                                                         P,O,
                                                                                          776
                                                                                                                 ---r------··----"    K,O
                                                                                                                                      566 I             -nol)
                                                                                                                                                                ----i
                                                                                                                                                                      [,,,,,I'
                                                                                                                                                                                 1
     2007-08                                                            2043              821                                         599                                  ;
                                                                                                                                                                      _,41>2
                                                                                                                     -                                  --------.-"
     2008-09
    --                                                                  2116              861                                         63 I       L                    ](,ox '
                                                                                                                                                     --.---.----.-------'
     2009-] 0                                                           2]85              902                                              ~                         37q:
     2010-11                                                            ~251              942                                              704                       3897l
     2011-12                                                            2316              984                                              743 I               --404:~
                                                                                 North Zone
             2006-07                                                    5321              1731                                             334                        1'81    -1
                                                                                                                                                                        .-' '.'J
             2007-08                                                    5553              1830                                             352                        770,5 \
             2008-09
             2009-10
                                                                        5751
                                                                        5941
                                                                                          1920
                                                                                          2011
                                                                                                                                           372
                                                                                                                                           393
                                                                                                                                                                      8044
                                                                                                                                                                      8344 i
                                                                                                                                                                                 1
                                                                                                                                                                          ~
             2010-11                                                    6]]8              210]                                             413                        8632 I
             20] 1-12                                                   6296              2194                                             431                        8921~
                                                                                  South Zone
             2006-07                                                    2950              1461                                         1045                             54~~
             2007-08                                                    3078              1544                                         1108                             5731--<,
             2008-09                                                    3189              1621                                         1171                             5980
             2009-10                                                    3293              ]697                                         1241                             623] 1
                                                                                                                                                                          ~
             2010-]1                                                    3392              1773                                         1312                             64771
             2011-12                                                    3490              1852                                         1386                             6728       I,


                                                                                   West Zone                                                                                ...J
             2006-07                                                    3557              1783                                             570                          5909 i
             2007-08                                                    3711              1885                                             601                          6] lJ7~ !
             2008-09                                                    3844              1978                                             631                          6453 !
                                                                                                                                                                         ----~
             2009-10                                                    3971              2071                                             664                          6705       I
             2010-11                                                    4089              2164                                             701                          6954 I
                                                                                                                                                                              -<
             2()] 1-12                                                  4208-L            2260                                             740   i                      72l28J


                                                                                         70
                                                    CHAPTER     - VII

                FERTILIZER       A V AILABlLlTY,         MOVEMENT,          DISTRIBUTION        AND

                                          INFRASTRliCTlJRE       REQURED



    7.1         INSTALLED        CAPACITY           OF FERTILIZER         '\FrRIENTS



    7.1.1        rhc sector-wise and nutrients-wise         installed capact\    ,,( 1\:nilizcrs ii, the \e;lr

    ::>()()5-::>006 is givcn in th,- table bel(m:




    ~C!OR- WISE.\:1'1 glEN!: WISlil'J~ L.!lJ.LDS·'\P'\CJIU2EYER]]IJ/LRS



I   SN~'-i        S~ctor - ---      ---     - - - :-~:~~cl:')~:::~r~                -:pe~ccIita~




r-
~---+---------

I2.
          -I.     Public Sector----

                 I Cooperative
                                            -- - - i-,-
                                              -----0~~~-- ---+~.o-_--1
                                                   I
                                                            -- --

                                                        i:32~~
                                                        --h7~~., 12~~ 1
                                                                        -,-------      T------c-         --1

                                                                                                     ~.6-~
                                                                                                      303,_.
                                                                                                                 j
                                                                                                                 I
                                                 --+~3!~JL35.1~
                                 Sector         _       31.69

l3.              i_private secto~                                                      +~~7    l   ~~~
    ,             Total             ,         ~~_2(J~I __                56·~ __       r~~_l~~~~_J
    •            Ins/ailed capacity of the functional units only.
    Installed capacity, product-wise and sector-wise, may be seen at Annexure-7.1.


    7.2          PRODUCTION               AND       CAPACITY      liTlLISATlON         OF     FERTILIZER
                 NUTRIENTS



    7.2.1        Production and capacity utilization of fertilizers in terms of nutrients In the
    terminal year of the X Five Year Plan are given in the Table below:




                                                           71
                                                                                          TABLE
         PRODVCILQ)J6NlL<O'(~I)AJ~ITY ~;TJLISATION OF FERTILJI:I~!LI'{UTRIU\IS


         ALTERNTIVr                            I (Assuming 90% capacity utilization in the existing plants)
rv            car--          .-:               Nitroge-;:'(i .\1r)--                    Percentage                          l'h,"phate (LMT)

I                                                                                       Capacily                                                                  Capucit)
I                                                                                       Utilisation                                                               l'tilisatiol1
1-                                                                     .-    --'T--'             -    ._-                         -.                      ,
                                                                                                                                                          ,



1,,_ /-~                                       Target*   -J ACIU~J~till~atlon                                               rargd*                        i (;tilisdli,)Jl


    I    ~O(L-O,                               108.52         I 105.08              '196.8                                                       W04
    i        _        ---.                                -t----              --~                              -+--                              no




    ' 2003-04                                  10C).68             105.57           I    963                    , 4C,08                          3617             "/6.X
                      -- -                               -+---                         -.-'-
                                                                            ~-----t-----   .
    I,2004-05                                  111.39!             113.05           I    101.5                              r08                  40.28
    f---·--                         c------·· -.-----+-c--.-.-                                                              ------- ---
    ! 2005-06                        i         117.28         • 113.32                   96.62                  ,4708                            41.87            88-')
                              nun:
                                                                                    1




    rI2()06-07__                               i 3 1-:89---·:--11'2.941'856                           . --"'T47.08                     -.--' 4642 .               98.6
                                     ;!                       "I                                                i
     l (Estimated~---.i           ~ __                                       --.J                             ...l _.                    _
         *    Assuming 90% capacity utilization in the existing plam.1
             Source: Working Croup Report on Fertilizersfor Ihe Tenth Plan
         ALTERNTIVE 2
        rye;;;:-----r , Nitrogen                          fj-MT)
                                                          \        "
                                                                                                                          --rPcrc:~tage
                                                                                IPc'-rc---'e'-n-ta'-g-e--~!-P-h~osph~i~(L-1\-1-T-)                                                -,
                                          I
                                                                                                                ,
                                          I,                                            I Capacity                                                            : Capacit\.
                                                                                                                                                              ,
                                                                                                                                                              I
                                                                                         Utilisation                                                          " Utilisation            'I


         ---.---
                                          ~rget*           -1 Actual                     Utilisatio;;-iT                     argct*- TActual--rlTiili;;;(i-~n                       'I
         2002-03                                120.58   t             105.08            87,1                 152.3J~-                  ---t--J9.04-t74~6-
                                                                                                                                             ,
                                                                                                                                                                          -       --'
                                                                                                                                                                                            ,



                                                                                                                    I 52.3]              T3617=P9.l--1
             2003-04
             2004-05
                                          1121.74
                                   .. t-:-.---+__:__:__:_
                                          1123.45
                                                               1   105.57
                                                                       113.05
                                                                                         86.7
                                                                                         91.6
                                                                                                                    ,


                                                                                                                    I       52.31  j77JJ---~ 14 -:28  0



                                                                                                                                    :::-_J
                                                                                                                    l


         l
             2005-06
             2006-07
             (Estimated)
                                                129.34
                                                143.95
                                                                       113.32
                                                                       112.94
                                                                                         87.6
                                                                                         78.5
                                                                                                                    i

                                                                                                                -1--.--
                                                                                                                    I
                                                                                                                    ,

                                                                                                                        I
                                                                                                                              ~f;~;-,
                                                                                                                            52.3]

                                                                                                                            52.31

                                                                                                      _____             L_


             * Assuming            100% capacity utilization in the existing plants.
             Source: Working Croup Report on Fertilizer;,for Ihe Tenth Plan




                                                                                                 72
7.2.2    During 2001-02. the terminal year of the 9"" Five Year Plan. actual production of
fertilizers in terms of 'N' and 'P'   Wa<;   73.02 lakh \1 Is and 25.62 I,.kh MTs. respectively.

]n the year 2005-06. the production of 'N' has reached the bel              of 113 32 lakh MT s and
of'P'    41.871akh MTs.


7.2.3     It may be observed that there was a slow increase in fertilizer production               in
absolute terms during Tenth Five Year Plan. There \\ as a shortfall in actual production
vis-a-vis the target projected in the Working Group on Fertilizer, for the lenth Plan.
particularly as per Alternative 2. The shol1fall was      ,)/1   accollnt of n(Jn-implem~ntati(Jn of a
number of projects. which were envisaged/expected tn be irnpkmented during the Tenth
I'lan.    This included   IFFCO-Nellore.         KRIBHCO-IIJZlCJ third stream. KRIBHCO ..
Gorakhpur. RCJ,;-ThaI third stream and revamp of FCI-Sindri. The joint venture project.
Oman-India Fertiliser Co (OMIFCO), which was expected to start production by 1999-
2000, was delayed and was completed only during the course of Tenth Plan. What is
significant is that, except the OMIFCO project. none of the projects envisaged by the
working group of X Plan had any success. Except for marginal capacity addition
(BVFCL Namrup -II plant) the situation can at best be termed as stagnant, in terms of
installed capacities of urea. However, the operative capacities have declined significantly
during the plan period. In addition to the closure of the urea plant of NLC-Neyveli. non
operation of the RCF Trombay V (on account of gas limitation),                   Duncans Industries
Plant-Kanpur and FACT-Cochin I (finaneia] reasons) have contributed to the sub optimal
capacity utilization vis a vis the installed capacity. While best ever urea production of
202.39 LMTPA had been achieved (during 2004-05) as against the installed capacity of
210.37 LMTPA, the situation had been far from flattering in case of DAP wherein the
highest production had been only 52.36 LMTP A as against an installed capacity of 70.89
LMTP A. Production of complex grade fertilisers, however had been on the upswing.


 7.3      ROLE OF STATES IN ASSESSING AVAILABILITY OF FERTILISERS


 7.3.1    Assessment   of requirement         of fertilisers      had been found to be varying
 significantly   across the States. Some States such as Karnataka. Tamil Nadu had



                                                   73
consistently under assessed the requirement, while OIh"r States like Madhya Pradesh
went in for over assessment. While it is not possible to make an accurate estimate. it is
observed that the assessmcnt process more often than not takes into consideration the
physical realities of change in cropping patterns. change i.1 externalities leading to such
changes etc. It is felt that the role of States in dema!ld assessment has to be more
scientilic and realistic.


7.3.2    While assessment of requirement is one area that has to be tine tuned. preparation
of month wise demand pattern is anotbcr area where sip,fleilnt progress is to be made. It
is observed that the        ,,,Ie   patterns are significantly of:' the assessed demand patterns
leading to complications in logistics planning. This prorkm h'LSbeen further accentuated
as movement and distribution of fertilisers has become s'~nificantly de-controlled. States
may have to inculcate scientific planningl monitoring orocess into this exercise. use
highly calibrated simulators! models. Use of IT may haw to be made mandatory.


7.3.3    It is also observed that equitable and timely distribution of fertilisers at all
locations within the States is often found to be wanting even when the availability is as
per the assessed requirement            of the State. There is no uniformity in planning and
monitoring     in a district wise format which is leading to such an anomalous situation. A
uniform composite system of planning and monitoring encompassing States and the
Centre in a seamless structure would greatly help in fine tuning the distribution setup of
fertilizers. The recent efforts by the 0/0 Fertilizers in setting up of the Fertilizers
Monitoring System (FMS) is a step in the right direction. The fertilizer industry as also
the state governments          need to be pro-actively involved in this effort to make it a
meaningful      instrument for monitoring the availability and          flow of fertilizers to the
various consuming areas and to pre-empt shortages in a timely manner.


 7.3.4   Adequacy of Transportation            Subsidy For Hilly And North Eastern States


         With an objective to ensure adequate availability of urea to the North Eastern
 States. Government reimburses actual freight costs to ~;'e companies supplying urea to



                                                    74
the North Eastern states (exc<'pt Assam)under        the Special Freight Reimbursement
Schemc. This scheme seeks to compensate the increased freight charges incurred by the
suppliers in transporting urea to these states due to difficult terrain. A limitation of this
scheme is that it docs not provLdc lilr adjustments in the road freight eha~ges incurred in
secondary transportation of urea .. Secondary Freight charges are t1xed dt the level of 8'"
Pricing Period for urea (2000-03). This leads to a situation where supplier' arc relul'lant
to transport urea over long distances in some of the st~tes in the NL region. There           lS d

need to address     this   issue through   changes    in the roiin        t"r   freight   charge.,
reimbursement to the urea companies.


7.3.5   Review Of Buffer Stocking Arrangements           for Fertilisen     in the Context of
V1eeting The Exigencies


Buffer stocking is operated by the Department of Fertilisers in case of dc-controlled
fenilisers, mainly DAP and MOP. Quantum of buffer stocking required is a function of
overall demand - availability situation. The X Plan peri0d had \\itncssed two cxtremcs of
this activity. While in the initial years, the department had not operatcd any bulTcr stock
owing to low demand and enhanced availability, the pcnultimate years had seen rccord
levels of buffer stocking in OAP (about 10 LMTpA). This can be attributed to an
inconsistent policy, which was not able to attract enough domestic production or imports.
The connotation of buffer stock had changed from that of stock that is used to deal with
'exigent' situations to the stock that is used to address the 'emergent' demand -supply
gap. There is a vast difference in both these scenarios, and needless to say, bufler
stocking being used to address policy deficiencies, rather than exigent situations leads to
an inherently unstable condition. This issue nceds a thorough review.


 7.4    EXAMINE            TRANSPORT         LOGISTICS          IN        MOVEMENT             OF
 FERTILISERS       AND RAW         MATERIALS         AND SUGGEST            REDUCTION           IN
 TRANSPORTATION            ELEMENTS




                                               75
7.4.1   While reduction in transportation costs may be a stated object;ve in knns                   of
reducing subsidy burden. it invariably has to be reconciled with the larger objective' of
making available for sale to fanners at all locations in th., country in a timely manner.
The previous policy of freeLing oecondary transrortation          C(hls   etc .. in case of urea and]
fixed transportation cost component with out any provision for escalation in case of (k-
controlled ferttlizers is reported to havc had ies effect   01'    a-, ailability in far l1ung arca,.
especially during the peak consumption period. Since rv\\ materials! feed stock is net
freely and abundantly available at all locations "I' the cl'ulmy. transport! logistics in th'.'
fertilizers sector is a residual activity and '<s such re'"cdlion options arc limited                   .\
realistic policy which either provides       Il'r lransrortdti,'n         costs on actual basis      ,>r

alternatively provides for price decontrol needs to be rut in to place immediatel)                   I"

ensure supply of fertilizers products, particularl)               decontrolled    fertilizers.   to the
consuming area.


7.5     SUGGEST           WAYS          AND         MEANS                 TO       STRENGTHEN
INFRASTRUCTURAL            FACILITY      IN RAIL ROAD SYSTEMS


7.5.1   Evaluation    of Tenth Plan Performance.


7.5.1.1 A review of the TENTH Plan perfonnance indicates that the share of Railways in
the fertilizer transport has remained in the region of 75%. In respect of Imported
Fertilizers, the capacity utilization at the ports on a year -to year basis ranged from
48.62% to 97.08%. The low utilization of capacity was due to the sub optimal use 01'
berths at Haldia owing to draft and berthing problems and Paradeep, due to high cost of
handling and labour and other technical problems. New MangaJore, has emerged as a
good alternative     port which can potentiaHy cover the entire hinterland                  of Kerala.
Karnataka and southern region of Maharashtra. Pre-berthing detentions, low discharge
rates, low turnaround, storage and evacuation problems, high handling costs which were
common problems during the IX Plan continued to affect throughput during the X Plan
 period also, in spite of general improvement on efficiencies.




                                               76
7.5.1.2 River transportation           has not been fully utilIzed,       not just because    most of the

fertilizer    plants     and ports have railway      sidings   within the premises     with storage       and

loading facilities but also because of the infrastructure          constraints



7.5.2        11th Plan     Perspectin
7.5.2.1 The fertilizers demand du.ring the terminal year of il"' Five- Year Plan h,,,, b",'I,
estimated      at 27 million tones NPK or 55 million tones product.              Based on this dnd       \I ]\[1

rail-road coefficient        of 75. the vear-\\,ise demand and rail-road fertilizer tranic       drc   fll\ ,."

helo\\>



 DEMAND          ESTIMATION           AND UKEL Y VOLUME            OF RAIL TRAFFIC           DIJRING

 IHE 1lrH FIVE YEAR PLAN
                                                                                               (Lakh     MIS)


iY;a~-~_~~                            c:=:::::i:l------M--o-ve-ment-bY------                           __~,
                              I                                    Rail                       Road
                                                                                                            -~
,
 2006-07 __
, 2007-08         =t   -          .          _
                                        448_90_
                                         47125
                                                                  33668
                                                                  35344
                                                                                              I J_22_2
                                                                                                     _
                                                                                              I] 78]     --1
                                                                                                            ___    ---J


12008-09-                                49130                    36848                       12282                   I,
                                                                                                                       ,
                                         51100                    38325                       12775                       I
                                         53020                    39765                       13255          !
                                         54980                    41235                       13745 ~~.            J
 7.5.2.2 The actual movement             will be consumption     driven which in turn will depend             on

 how good is the monsoon.             The movement    pattern will however remain the same i.e. from

 Western to Northern          and southern sectors, from Northern to Eastern and Central Sectors,




                                                        77
7.5.2.3 The existing          evacuation       facilities     arc just about matching                 the demand           from the

manufacturing       units. However.         mil and road facilities need to be augmented/strengthencd

I'urther to catcr to pcak r',quirements              and for timely evacwllion                frum favoured             Ports like

Vizag, Kakinada.           Paradecp. Ncw 'l.1anglore . Kandla. Mundra ete ..



7.6         HAl\[)L1NG         OF IMPORTED                  FERTILIZERS



7.6.1       The country       has 11 major ports having an estimated                      c".o""i[\          ,:1' nearly    'h lakh

tonne for handling tinished fertilizers and nearly LVi nJuwr                                dL,~        intermediate        p(lrt~ 0 '
                                                                                                                                      1




which only 20 ports with the capacity                        of 40 lakh \li          codd      ···C     ulililed     I(Jr bandlinf'

Icrtili7.ers. Capacities        to the extent of 15 lakh MT cannot                       ")\\.1"         be fully utili/cd         fCll'

logistic     and other constraints           such as closure             of porh      due t·,         l11uns,)(lI1   e1uring peak

consumption        season. tide problem.           lack of railway waguns'              be""5 boats. god'ml1                 facility

etc. Available      capacity,      thcrefore     is only 81 lakh MT. Consideri:1g a utilizati,)n                           factor of

80%. only 64.80 lakh MT may be available                          for fertilizer handling.              I.ow cost iml.'stments

for upgradation!           modernization       of the mechanical             equipment        on        however.       provide      an

additional       25% throughput            in the existing             capacity     due to impro\'ed                 performance

Although.        the fertilizer       companies        situated        near the pon       aree arc using               mechanical

facilitics created at Paradeep,            Cochin and Vizag for unloading of capti\'e cargo, the use of

these facilities         is however     not pennitted         (for handling        of fertilizers)         by others. Thus the

available      capacity     at port is being underutilized.              Corrective     action in this direction               needs

to be taken        urgently.      Most ports are severely                constrained      to handle high volumes                    on

sustained       basis.     Excepting     Mundra             port, no other port, currl.'ntly is able deal with

panamax         vessels. With the sea movement                  from CIS countries            and US gulf increasingly

being taken up through             these large vessels, accepting                 and handiing them at Indian ports

has become          a severe limitation.          While paradeep            port has the draft to handle panamax

 vessels,      it is limited      by the lack of necessary                 infrastructure          10    handle      and evacuate

material       to the hinterland.       With increasing           pressure        on demand side               and faced with a

 static indigenous         production      capacity,        it is only natural that the imports would assume a

 significant     role and as such there is an urgent need to review infrClstructure capacities                                        at
 p0l1s for discharge         and evacuation        of fertilizers.



                                                                  78
7.6.2     The demand supply gap in product krms. which is to be met by imports, is 114.92

lakh MTs (including             potash) in the terminal year of the Eleventh Plan. Tu this we have tG

add the additional             facility    required    for imjJOt1 of urea from Oman                 project      which       is

projected       at 16.52 lakh MTs of urea. As such pOt1 loads me bound to put pressure                                      on

handling,       movement        and availability       of fertilisero; in the country.          especially     during       th.,

peak consumption             season.



7.6.3       There is a presslI1g need t()t' upgrading                  and modernizing         the sbore suPPC)rt           I()I'

achieving       higher discharge            rate" throltgh     mechanical        unloading    and bagging         facilities.

raising     the number          and quality      of harges      at the anchorage          ports and an increase               in

godown capacities.             There is also an impcrative            need for creating facilities            !{)r handling

panamax         vessels      at selected     ports. Ennore      port near Chennai            proposed     to create      deep

draft berths to accommodate                 panamax     vessels carrying fertili7.ers during the XPlan period

and was expected to bc operational                    in 2003/4. However,          no progress is seen on this front

even in the terminal year of the Plan period. Dredging                       of the existing entrance ch3.lmel at

Vizag & Kandia and creation of an additional                         berth at Vizag port could be undertaken                    to

accommodate          larger or even panamax              vessels. Similarly         matching     infrastructure       can be

developed        at ParadeeI'       port for handling         panamaxes.     ParadeeI'       port can then sene             as a

hub port for           servicing          the needs    of the Eastern       States which are deficient               in urea

production.        Such a situation          would also reduce longer lead movement                  from the Western

 and Central units to the Eastern States,                thereby optimizing          the movement         pattern further.



 7.6.4      To supplement           the efforts       of major ports that handle 60-70% of the finished

 fertilizers,     improvement             in the existing      minor     ports     will   be more       economical          than

 creating       new ports.       The existing         minor    ports are well connected            with rai I and road

 facilities,     and can be upgraded             with little investments.           Reputed     regular      importers      and

 professional       stevedores         could also be encouraged             to take up augmenting              facilities     for

 handling       fertilizer     cargo.      Port of Pipavav        and Mundra          are recent     examples        of such
 private participation.




                                                                79
7.6.5   Following are some additional suggestions to improve port handling:-


a)      New Mangalore and Cochin ports should ensure working of all tinCT shilL ani
        also augment the warehouse capacity.


0)      CherU1ai port should address the problems relating to rrcqu~nt shitiili~ "f ,,,,,cis
        between berths to improve the perfomlance and aho avoid bCi1hinc' "f fertill/cl
        cargo in a C(lotaminated ,jetty.



C)      Use of dcep water pon at Kakinada port needs to be op~ned up             1,,,· knilisers   tn
        improve the handling capacity at this port.


 d)     The minor ports performance needs to be upgraded on acquiring self propelled
        bargcs/ boats in good numbers supported by good storage and evacuation
        facilities.


c)      Widening of National and State Highways with proper matting to reduce transit
        time and transportation cost.


f)      Warehousing capacities and Evacuation by the Railways are to be matched with
        the unloading capacity at each port.


 g)     Coastal Shipping/Inland Water transportation need, encouragement for movement
        of fertilizer by providing liberal assistance. The following needs to be addressed
        for effective use ofInland Waterways:


                  Development    of infrastructure    facilities   for loading    and unloading
                  terminals.
         -7       Compctitive water freights.
         -7       Integration of Inland Water Transportation with coastal shipping.



                                                80
         ~     Night navigation jitcilitics.
         ~     Round-the -year navigability.


7.7      ROAD TRANSPORT


7.7.1    The road transp0!1 plays a kcy role in the cCluHr",           tranSpol1 system and
fi;cilitates direct delivery at Ihc "'Jstomer's doorskp. It 'Jilen C()mprises the first and th~
last leg in the chain even where the transportation is predominantl, by Rail ways. Besides.
it is the only means of mechanized transport which is not adequate to meet the demands
of fertilizer industIJ. The impact of bad roads increases fuel consumption, maintenane,"
cost and decreases the speed of trucks thereby affecting availability. The development
                                                                          by
and maintenance of road transport will have to be substantially increased , way l)f
widening and proper matting of road to withstand increasing load on the national and
State highways.


7.7.2    To strengthen the infrastructure      facility in road system in the country the
Government is currently undertaking a National Highway Development Project (NHDP)
that envisages four-laning/ six laning of major corridors. Since long lead trat1ic of
fertilisers is significantly by rail, this project would have limited relief on fertiliser
movement.


7.7.3    In addition, widening to 4 lanes of National Highways connecting major ports in
the country in an aggregate length of 4000 Kms is also proposed which will facilitate
fertiliser movement significantly.


7.8      RAILWAYS


 7.8.1   Almost the entire volume of the imported fertilizers is transported by rail only.
 Railway is the primary carrier of fertilizer goods over longer leads in India, hence the
 economics of fertilizer distribution     would fluctuate with the efficiency of Railway



                                                81
operation. In the last few years. the Indian Railways have demonstrated their commitment
by increased    induction of rolling stock and lifting of freight trame.            Along with
ag:-oclirnatic conditions. eost·bendit of fertilizer usage etc.. the efliciency of the Railway
system has an equally important role to play in stirn'llating krtili7ei' consumption. Pon
Railways facilities and pOlt-rail connectivity need to be strengthc>ned significanth           during
the Plan period if timely availability of fertiliser,; has to be ensured.


7.9     INLAND WATERWAYS AND COSTAl. SHIPPINt;


7.9.\   There is a need to provide a thrust to tht devehlpm<,n', of Inland Watcmi\vs and
Costal Shipping for mo\·emcnt of fcrtilizers. At present.. it     IS   being used onh   ')[1   a vcr)
small scale by the fertili7er industry. For a country. which he, expcrienced an apllreciabk
growth in industrial and agricultural sector in thc recent years the existing vessels of the
costal merchant fieet are not adequate. Most are over agcd. Morcover. '.'arrying domestic
cargo in the coastal ships owing to a variety of reasons such as lack of priority berthing.
high cost of bunkers, spares and stores. high handling costs etc. make the operation
unviable.


7.10    LIQUID FERTILIZF:RS


 7.10.1 Though sporadic efforts have been made to popularize the use of liquid fertilizers.
 their use has so far been accepted only in pockets. At the current levels of utilization,
 there is no requirement of any railway infrastructure at present for their transportation.
 Road tankers of 10-12 tonnes capacity are recommended for this purpose.


 7.11    FERTILISER STORAGE AND DISTRIBUTION


 7.] 1.1 Though the available storage infrastructure has so far met the requirement of thc

 fertilizer sector more or less adequately, some constraints have come to the fore in peak
 time. In view of competing demands for a number of agro-products, it will be desirable to
 strengthen the warehousing infrastructure to meet the requirement during ti,e Eleventh



                                                 82
Five- Year Plan. This is mort: sr· because kl1iliscr demand has a definite peak and non
peak distribution of demand and is not amenable to 'just i,) time' inventory planning.


7.12      USE OF INFOR:\tATION           TECHNOLOGY


7.12.1 The        Department     ("    f'crti lizcrs        bl'ing   the   apcx·mollltortng      agcr.C\.
manufacturers/importers        should be linked to it through all Oil line computer basc.l
inventory     monitoring   s) stem.   f3csides   such       connectivity   needs   to be l'xtl'nJl'd      :i1

consuolption centers and disl:'ich so that fertilizer demand can he met cxpeditiulIsl}                 (lIll!


in a timely manner.


7.13      OTHER POLICY ISSLES

7.13.1 Demand-Supply linkages: Due to deregulation during the Eleventh Plan. market
forces were assumed to pia\" an increasingly important role in matching demand with
supply. However, it is necessary that a close look is given to these policies so that the
primary objective of reaching fel1ilisers to all the required locations is not vitiated.


7.13.2 Packaging of fertilizer: It is pertinent to mention here that the use of bigger bags
(600 kgs, 1000 kgs and 1:500 kgs.) has been resorted to extensively in the Scandinavian
countries. These are polypropylene hags with a separate inner liner of polyethylene. The
inner liner, after, filling, is sealed. The outer bag has handle type of arrangement on the
top, which is secured w~th a tape and can then, be lifted by fork lift or pulley type crane.
Such bags can be stored in the open without any fear of damage. This will go a long way
in reducing the transit and storage losses. Similarly small packs for use in the hilly
regions      of some States can be encouraged                   to improve    movement        and thereby
consumption.


7.13.3 The developments of this concept would result in the following advantages:
(i)         These bags could be loaded even in the monsoon in open wagons thereb)
            eliminating the risk of damage by humidity and water.



                                                       83
(ii)     Handling with simple mechanized devices (even a pulley and rope arrangement)
         will be possible, which will speed up loading and unloading operatitll1s.
(iii)    From the rail wagons, these can be placed directly on trucks and taken right up to
         the retail point, thereby eliminating the use of packing materi,,:s.
(i,)     These bags can aiSl' be useful in moving traffic involving the ch:m"e     ()f   gauge. :'1
         the break of gauge point. the bags can be mechanicallv .,hilled :rom clne gauge'         {<>


         other. thereby eliminating transshipment bottlenecks
The use of bigger bags would however need advanced hCindling Ictciiilil"           "I    thl' t,lrli:
level.


7,14     TRA:'-ISI'ORT OF FERTILIZERS            IN BULK


7.14.1 The rate at which our fertilizer consumption            has been increasing makes it
imperative to bring about certain structural changes in the handling of fertdi/ers. Such a
change is necessary not only from the point of view of speeding up movement by rail
transport but also from the point of view of putting the logistics of fertilizers distributil\fl
on a firmer footing. It has already been accepted that fertilizers would be moved in train
loads to nodal points and from there further dispersal would be by road within a
reasonable radius of say about 230-250 kms. For inland surface transportation. use of
specially designed railway cars to transport fertilizers in bulk, from the plants to the main
distribution centers is quite common in Scandinavian countries. The hopper cars have
sliding roof on the top. which is opened from the top to facilitate loading of fertilizers in
bulk in a matter of few minutes each. There are two types of discharge arrangements in
the Railway cars onto the underground hoppers (with belt conveyor arrangements to the
storage godowns) - central discharge and side discharge. The rate of discharge from
central discharge arrangement is faster than side discharge arrangement.


 7.14.2 Innovative    Packaging:    Apan form sophisticated automatic arrangements                l(,r
 weighing a predetem1ined quantity of fertilizers (50 kgs) in the bags at the plants/main
 distribution centers, simpler arrangement for volumetric packing has been designed by
 Norsk Hydro (Norway). There is a small silo on top with a valve arrangement through



                                                84
which a predctem1ined quamity of fertilizer drops into a IGwa chamber and the valve
closes automatically. A screen is provided on the top of the silo to prevent jumps coming
down. Thereafter, the bag is placed below the nozzle and through another valve. wben
operated manually: the fertili/cr:, in requisite quantity d:op into the hag film} the 10ller
chamber. There is a small adjustahle hell conveyor arrangement thrdugh which the hags
can be loaded directly     "!1            tmeks. l'hesc machines can he eITectivc1:, uscd at the
                                 the i'U<!d
pOl1s!nodal points.


7.14.3 Bulk transp0l1 of fe,iilib:r: At present tCrti!i/ccs are moved in com ention<J1
wagons. covered as well as "pen. Our dependence on the general service wagons has al
lime resulted in a seri,ms constraint in the avaiLlhility of wagons on account uf
unhalanced pattern of traflie as \Ie!! as utilization etc. 11'specially designcd wagons fl)!,
handling of fertilizers arc introduced they IVouid work in closed circuit between the
loading and consumption centers. as in casc of petroleum tank wagons and thereby ensure
guaranteed availability.


7.14.4 While efforts have         10   be made as mentioned above. in the short term there is a
need to improve the usage of wagons that are currcntly available on the Indian railways.
Design and standardization of covers to the open BOX wagons would greatly enhance the
versatility of usage of existing railway stock and greatly improve the availability of rail
wagons    for fertiJiser transportation.        Mechanized    bagging facilities with capacity
corresponding to discharge rates in each port need to be set-up on priority.


7.14.5 It would also facilitate mechanized loading and unloading arrangements at the
factories / ports and the nodal points. Tbis is particularly necessary in case of giant
fertil izer plants where manual bagging and loading could prove a serious bottleneck.
 Further. unloading of fertil izers from block rakes at the nodal points would also be
speeded up. reducing the turnaround of wagons.




                                                   85
7.14.6       Transportation     of fertilizers   in buik in specially designed         wagons and containers

Wtluld reduce the transportatitln           costs of fertilizers   and also disperse bagging awa)                 from

the ports where it ofien leads to logistic bottlenecks



7.14.7 Bulk transp"I1 of fertilizers             requires   large capital in\cst'ncllis          fur the terminak

and the rolling stock. Large volum~ of transportation                      .
                                                                     and ,.:ertainty     IJ1'   such lransportatit 11
                                                                                                                   1




are ne(".'~sary pre-requisites          .. IIl"\\vevcr, to save costs. tne industry.             the pmis and          the-

railw,l\,      can jointl,    explore the ieasibility   of introducing    this   '''':;·.cr'    in ,,,me nominated
CI1"Cu;t".




                                                            86
                                                                                                                  Annexure            - 7.1



                      Installed Capacity Product-wise and Sector-wise



                                                      --,                                     (OOO'\H)

                                                                                     -r---~------ 2006-07
                                                                               -- -Installed Capacit)' -,- ;;----
                                                        ,
    N;\MF OF_I'L~N1L __ LPRQQUCI
                                                        :
    ______________                Ll\;\MJ,, __                               QxY             ._ ~    n            1_ '
[ PUBLIC SECTOR:
I   NiL~ang~I-I!~=-~= __
                 __
                  -Turc~                              ~.-~._                        4.7R·~I_=-=-j~oI,_                                 -,:::;i
NJ'L:_ hatinda __ ~               f-Urci'_              f                          ..5lJ.5-j-_. __ .135.Jj_              -        -                1

_NFl.Pani£at                      'llr,,-"              1__                         511.5+ __            2.15.3 ~.                        O.ll,
    _l\iu.:Yijaipur               EJr-",,                                           8~.~        __       397.7t          _0.0:
    _!,I'L:YijaipurExpn.    __   +U..':e.a              1                       364.6          397L                                   --(l.:0l
    _Iotal (NFL1~~                 ,                  -L-                     _31.3.0.7 L_1486LI                                            0.01
      BVFCL:Namrup-l_                  ~S---------l-                                   O,tL _              0.0    I                         O.O~
    . BYFCL:Namrup·1!                  Urea                                         2~o.o ~-             llO.,~+                            O.O!
                                                        f
                                                            1           __




     BYFCL:Namrup-1lI            __ l!rea
                                  ~                                                 315.0                144.9_ - __ ---              -.--.O..!)1
     BYFCL:Durgapur                    Urea   -----l------                            0.0                  ~~                               o.n 1
     BYFCL:Barauni                     UreaL                                          0.0                  0.0                              O.(I~
     Total (BVFCL):                                             !                   555.0                255.3                          _ 0.0
     FACT:Udyogamandal           lNs---_-r=~225.0                                                         47.3                           .0.0 I


     FACT:Coehin-l@)
                                       20:20
                                       Urea         _1__
                                                        t--                          148.5
                                                                                       0.0
                                                                                                          29.~
                                                                                                            O.O
                                                                                                                                  ~29.7
                                                                                                                                      ~O_
     FACT:Cochin·1I                    20:20                    .                    485.0                97.0               __ ._ 97.Q_


     Total (FACT):                     OAP------F--- 85::~                                               17::~                '--12~}
     RCF:Trombay                       Urea                                            0.0                  0.0                             0.0
     RCF:Trombav                       15:15:15                                      300.0                 45.0                          45.0
     RCF:Trombay-IV                    ANP(20.8:20.8)                                361.0                 75.1                          75.1
     RCF:Trombay- V                    Urea                                          330.0                151.8                             O.tL
     RCF:Thal                          Urea         -----+                          1706.9               785.2                              (1.0
      Total (RCF):                                   -t--                           2697.9               1057.1          _~ ..          120.1
     MFL:Chennai                       Urea                     i                    486.8                223.9                           0.0
                                       17:17:17                     ,                840.0                142.8                         142.8


      Total (MFL):
                                       ]4:28: 14
                                                    --- iI                             0.0
                                                                                    1326.8                  0.0
                                                                                                          366.7                             ~I'OI
                                                                                                                                        142.8
     SAIL:Rourkela                     CAN                      ~                    480.0                120.0                       __ Jl~
     NLC:Nevveli $                     Urea             -i------                        0.0                 0.0 I                            O'~I
     PPL:Paradeep                      OAP                      1                       <!:!U               0.0 I             ~              Q:~1


                                                            87
                                                                            i
                                                                         ----,---1-----38.4-+-
                                                                                                                            ~:~-l-_=-I~:i~
    B\ -Product                       : A/S                                     182.9                         I                      i
     ~-._-----                 -----'~-I----'---

---~~~{J;;~hor;;~~------~~~~ ~ t-- __
_____~
                        -
                   .---.- 1--- - ~~:~
              ~l---------------+-----
                                      ---                                                                                                                         0.0
    PPClcSala.dipura···                            ~SSP                          L              o:~-.                       ():fL:                                n.o
    H~LKhcl~i                                  -i-    S~~_!_.Jllil.o                                          \             O_:L                               30.1
    TOT AL PliBUC
    SECTOR-'--
    .("OOP, SECTQR:
                                             --t---  ..       __     .
                                                                                           2529 ..8j
                                                                                                   .L
                                                                                                                        3~97.6
                                                                                                                                     t
                                                                                                                                         '
                                                                                                                                         !

                                                                                                  15 4                                                      i3HI
    IFFC():lS.an<Jla_                                       2 --
                                                   t'I~- ~(-~1~6         -            . --           . 0
                                                                                            -'7"00 :' -.                 -51~i                 -


 ~ ~ ~);~:
l~ ()~~IOi-=~---it.'",a - --~--- _1~~;:~ ~~~:~ s~~~1
                                             ___              0                                  .'-'.+                    84.lI..;                         22~.0




I
    JFFSO-PhuIPur
     1'-1c.('_f~~t:lI'l1rExl'n
IIJ-F-,-Sc.)          _
                 A~l1la _
                         __ ---=   __ --     __
                                                   ~ Urea
                                                   i'-lI1e"...
                                                                   __     -t __
                                                                           -t-
                                                                                           ....:.s51.~r_.}53~~:.
                                                                                             JlM.6~ __
                                                                                              864.6~
                                                                                                                        ~.l97.7:.
                                                                                                                          397.7r __
                                                                                                                                                                  0.0
                                                                                                                                                                  0.0
                                                                                                                                                                  il.U
.llfCO\Ol1iaE'I'n

i    IiF.<-2parad".'1'....-------=tli;o
                                                        'rc"-
                                                                             +-  +-           86~-_

                                                                                               t--- --2~~:i~-
                                                                                             I~~~:~
                                                                                                                          397.7,
                                                                                                                                                             690.U
                                                                                                                                                                  O.U



~ - -~~--===-=-=---;:~~~~:- =--:::~~+
                                                                                                                                                               20.0



     G;~I    -t!·
                    -=~-+--.-:.-=-::~1+
                                        1_
                                           --~                                                                                                           -,---------
                                                                                                                                                              ~1.6
                                                                                                                                                               ,1.2

I       (IIFCO~-
    KRI BHCO:Hazira. __
                              ----~
                                       .__         =tur~
                                                                                             8024.8 ,
                                                                                             lJ29.2
                                                                                                                        ...2373.9
                                                                                                                        ....J95.4l_
                                                                                                                                                            1712.8
                                                                                                                                                                0.0
                                                                                                                                                         _._0_-----

     TOTAL         COOP. SECTO~=-                                                            9754.0                      3169.31                       -
                                                                                                                                                             1712.8
                                                                                                                                                           ----

     TOTAL         PUB.+CO-OP                                                               19353.8                      6666.9                             2145.3


                                                                                                                                              Annexure ---7.2
                                                                                                                                                       (Conld.)


    '\AME          OF PLANTS                                  PRODUCT                       Installed Capacity 2006-07
    ---                                            --                                                                                    I
                                                                                                                                                         ---
                                                                                                                   1\
                                                                                                      1




                                                              NAME                QTY                     I                              'I        P   .-
     PRIV ATE SECTOR:
                                                                                                                                                       --
     GSFC:Vadodara                                            Urea                           370.6                        170.5                         0.0
                                                              A1S                            228.0                         47.9                    --.--0.0
    --                                                        DAP                            165.0                         29.7                        75.9
          Total (C;SFC):                                  I                                  763.6                        248.1                       75.9
         CFL:VJ~                                          I 28:28                            200.0                         56.0                         56.lI..
          .~--
                                                              14:35:14                       200.0                         28.0                         70.0
                                                                                                                                                         ----

                                                              20:20                          200.0                         40.0                         40~
    _Total (CFL):                                                                            600.0                        124.0                        16ti.Q.
     SFC:Kota                                         .       Urea                           379.0                        174.3                         .llJl..
         i).!l::Kanpur                                        Urea                           722.0 :                      332.1                           OJ),
         ZI L:Goa                                             Urea                           399.3 \                      183.7                         .0.1)_
                                                              19:19:19                       240.0                         45.6                         4'.6
                                                            28:28
                                                          ._-                                   0.0                          0.0                          0.0
                                                                                                                                                            --
     ---------------.;----                                    DAP                            330.0                          5~_                        15.~
      .:rotal (Z~lJ:      -                               i                  I             _~~.3          1 ____           288.7.L...........          197.-1..




                                                                                 88
    PPL:Par~~                               lDAP                     I                   72o.0    i-                    l29.il            -:~_~~~


        ~           ~ ~-1:i~
         j:§d~:~ji ~h
         ~
    "~~:,,'(:(:;)"-::~~
    _~<:T:!\1~r.gal'!'e        ~            +_lJrea--                       .            J80.0~                         '-7.".:.81                    Jl_&
  ~
___                                            jDi~_l-                            _ .180.0..1                             32~    I                    82.8


    Zf.~a~~~12                     - 2~~~i ~~~
                      62Q.=--1~=-~-~~~:h r-_-~.:.
          ___=__=~=-~~=~-'
           =
~~'~~~(c~::=I~~
    ________________




r= -=~- --~=-
               :: -~~~
              ~1~ i~:
                -   -=-- - ~
                                            +.2~.20 _            ____+_




                                                    :>:Jc:>'3:=-~_.=---_0.0
                                                                                          70JJ
                                                                                                  T




                                                                                                  I                ..
                                                                                                                         14.0'




                                                                                                                    _--0.01;).0
                                                                                                                                 1 ....      ~::'~~
                                                                                                                                                      14.0


                                                                                                                                                                   '



I     1   o-t:M0NFC-)- - - ----
    --------------'"-------     ----.-
                               ..
                                               j :>020..
                                               r--    ------
                                                            __       -r- -
                                                                      ---
                                                                                     -ii;:~!- - J~::~t ~::~
                                                                                     -                                  ---- --t           - ---'-"--
    TAC:Tutlcorin                              : A/C                                      64.0 ,                          16.0 '                       0.0
    iil:::.~;-ldi;-==-==-_--:-=HAP_==_~=675~0                                                     ~-__                  iil.s] _~~()~
     PNFN~l~1--.--
                                     , SSP

                                   ----1 --~--J----6-4.(j1
                                                                       :                  165.0
                                                                                                          -        =16.oL:::
                                                                                                                           0.0
                                                                                                                                             --0.0
                                                                                                                                               270:5-
                                                                                                                                                      26.4



                                                                                                  ~-= - ._.JLJI
    GSFC:Sikka-1          --                        DAP--·             ,-_.         ----:'88~0-           - -           105.8:
:C;~<;FCSikka:II-=- ---=--
 1'~tal (Sikka-I&II),
                                           t2~p--=:::_---t__
                                             1-:                       I
                                                                                =_=-396.0
                                                                                   _ .3~~.0                             IJJ:!I
                                                                                                                                      ~-1822.
                                                                                                                                           452~
 GFCLKakinada                                  I DAP ~                                .§70.0_~                          I~.g+                    J.ll.l!d..
_IQS:-Uagdishp.!',- _
                   _                           i Urea                  I          _ 86~                                 J~7.7t_. __                    O.0
     Hin.lnd.Ltd.:Oahej
     DFPCL:Taloja
                                         --tPAP
                                              I 23:23
                                                                 ---+- i
                                                                                         40O,ll
                                                                                         :z.30'0--1- _
                                                                                                   _
                                                                                                                       72.0+
                                                                                                                   ._52.9_L
                                                                                                                                               1~
                                                                                                                                                52.9
     NFCL:Kakinada-1                            UREA                   I                 597.?+                       274.8-L-               __ 0.O

    N;~~I~~~~~a-1l
     CFCL:Gadepan-1                        -
                                                    UREA
                                                    UREA
                                                                  j[
                                                                           =-            1~::*-
                                                                                          864.6 ! -  --...l2Z:.7.
                                                                                                                   --~:::~L$='-----*                   .Q.Q.
     CFCL:Gadepan-1l                                UREA                                  864.6_~ __     397.7                                         lJ.ll..
    _ Total (CFCL):                                                                      172_~           795.4 _._                                      0.0
     TCL:Babrala                                    UREA,                                 864.6          397.7                                          0.0
     KSFL:Shajahanpur                               UREA                                  864.6+_                       397.7                             0.0
     OCF:Paradeeo                                   DAP                                     0.0 .                         0.0         ..                  _O.:Q.
     (IFFCO PARADEEP)                               20:20                                   0.0       r-:-                 O.O_I-                     ~
                                                    10:2626                                 0JW---                         Oo..~ ~o..
                                                    12:32:16                                0.0 \                          0.0               ._~
    Total(OCF:Paradeep):
    Bv-Product
    SSP Units
                                                    A/S
                                                    SSP
                                                             ==1                           3*t- -- -fH-----*
                                                                                      6441.2   f-- -  I --                 0.0                  1030.6
                                                                                     22216.4----5394.3                            1--           3513.5_
    --TOTAl. PRIVATE SECTOR:                                                                          I       ..                                          --
                                                I

     TOTAL(PUB.+COOP.+PVT.):                    i                                    41570.2 I                      12061.2                     5658.8




                                                                           89
                                                            CHAPTER VIII



   CAPACITY                   ADDITION               AND PRODUCTION PLANNING (RENOVATlO~:,

  :>.WDERNISATION AND EXPANSION) FOR ELEVENTH FIVE YEAR \'\ ,\,",



11.1           CREA



 i
~.             The    dOIl)t'~tic     pruduction        of urea ba~ grown to the !e\"ej nf 20.11 rr:i!Lll1i

:~.,' year       2CU)-{}(1          and the consumption                   ft'3Ch-:d     a level of 22..+ million              \ ~l

':"'''W1illlg         fur OMIFCO                  impor1s     of     1,325        million      \11 In that          year,    tb~      i', '"


C"~"llll1pti()il            and     production          remained           at    0,925       million         M1 which         ":\,,

compen:;ated                through         import    of 0,731 million                 rvn   of urea, As no new                1'1',)(;',."'"         ·;1

                                                                                                                                                       "
:"cililies       have been envisaged                   at present          the domestic            level of production           leve'         "jli


rcrnalIl       static where as the demand                    is likely to increase to around 2632                         million     \,;         ",
20D7-0S,             30A1         million      MT      by 2009-10               and    35,15       million     MT    by 2011,,;' ..                   iu

reduce/eliminate               this staggering          demand-supply                 gap in urea, the Government              of In";,, ;,

"",king         a number            of plans         /strategies,     The plans/strategies                   and likely     ineen!;' c                ,0

increase the production                     levels in various plants are mentioned                     in brief herein,



                                             A)        Existing Gas based UI'ea Units


8,1.2           It may be noted here that the perfOrmatlCe efficiency                                  of the gas based urea ptail's

i:J {nelia are at par with the plants                               worldwide,           Most of the plants               are perfo,r; "~g

satisfactorily,             and there is still scope for further capacity addition through revamp piC'",:,

 rl1'~likely plant-wise                capacity increase and the investment                         levels are given below:



           isc-r'~nt--'-' -,
           i   No.
                        -
                        I                                             Re-assessediAfter
                                                                                         Capacity
                                                                                                             Revamp
                                                                                                                             Inve~imc!lt
                                                                                                                            (R~. n'.'es)
                                                                                                                               C
                                                                                                                                                            l
                                                                           (MTPD)              I       (MTPD)                                               ,

           I
           r-----l------
           --1.'
                        I
                                    --""
                            NFL, Vijaipur-Il
                                                                     -,     ---
                                                                         2620
                                                                                               i-----·--
                                                                                               i       3150
                                                                                                                            --,- })(: ---1                  i

                        I               '
                                                                    ______                     I                            -----.-.                   ~~


                                                                           90
        f2-TfFFC"(~A(,~la-II            --          12620-- .~~.             301O------r---1            07--1

                            ;::-~~~~
        l~r~J::;;::::;ml~::-:-t !. ;;~'
        Is--TRCF  '---t'- fh-;;! --                       5-130"   -         5700                      (,75

        r-6-~1~R!~I~6)~H-a~ira               ~ ~_       -~~46--~'80~                 __      ..
                                                                                            ~jl - 675
        17.       iRCF,Trombay                      !     1000               1000                      120

        ~8 ~_tIF                  _
                               --_- _
                       ~~6~Kal~)T= 1~.1650                             ~_    1650-+                      24
        I 9.      i GSFC.   Yaciodara
        110-tc-in,Gadep-;;-;;.1

        [~~_l~Ff~O-Aollla~[~._-
                                         --r-       I     1123

                                                         26201
                                                -1---- 2620_.           I
                                                                             112,

                                                                              ~)I)


                                                                             ,010         . ~_~
                                                                                                  i
                                                                                                        )75

                                                                                                       41 "

                                                                                                        1_10


        1~':~;~;J~~:I:l~~~~
        1l~FCL.
         '4
                         t- ~~::~
                --1----~~~~--
                            K""Md,.lI
                                         m




                                                    !-lsi<i -          ,..   "00
                                                                                             Uti      -~~~
                                                                                                       1(]()



        f::'
        L
                  !
              ' ....
                                     -'~--~-~~~
                                  ~:~~- .~-~: ..
                      :::~~;;'~::~:~~I=1--~~- ~.~
                                 ..---L_._.         L _.           --'        ._._._
         Note: 1) The completion time schedule for these schemes would be around 2
                         years from date of start of implementation.
                      2) Naphtha-based        Phulpur-I & II plants have already been converted to
                         gas based.
                      3) Total capacity       Increase through revamp measures would be 7145
                         MT/day or 2.36 million MT per year.


                            B)        Existing Naphtha based Urea Plants


8.1.3         All the naphtha-based plants are to be changed over to natural gas. Though this
will not affect any increase in plant capacities Annual savings in subsidy shall be realized
due to substitution         by cheaper Natural Gas feedstock. Plant-wise capacity and the
investment levels are given below:




                                                          91
                                                        _I         .--------.-.--                    -- - --- ---------1



                 I ~I;  r'""'me                              I
                                                             I


                                                             I
                                                                        Present
                                                                      Capacity
                                                                      (MTPD_) _
                                                                                         i
                                                                                         1
                                                                                                           Investment for
                                                                                         \ Changeover of Feedstock
                                                                                         I                  (I<s. Crores) __
                                                                                                                                          ,



                 --.[.---.-----
                   t.                                                             r
                  2~1~:r1
                         I SFC Kula

                       ~t;~,;                           __
                                                        n_
                                                                            ----- +
                                                                            1149

                                                                            1210         ,
                                                                                                               X5

                                                                                                                70
                                                                            '-. --- _un)
                 l='    r'/1U:L\LL~galurc                                   \ 152
                                                                         niim
                                                                                         I
                                                                                        T-n..
                                                                                                                85
                 14. \ SPIC          I ""(UIITl
                                                                                                              120
                                                                           .. ----1--
                 [E]tiCL (;,,(jc~an-II_                                     '620
                                                                            = n_l_
                                                                                             I                  70

                 Note:       The time \chcdule                   t'lr implementing               Ihe
                             would       h,~ drounJ              21/;     years     from             the     date     of   stall   ,,~'

                             impll,tl1t~t1\alion.



                        C)        Existing Fuel OiULSHS based Urea Plants


8.1.4.   All the fuel oillLSHS hased plants are to be changed over to natural gas. Thoug']
this will not effect any inerease in plant capacities, annual savings in subsidy shall be
realized due to substitution by cheaper Natural Gas feedstock.
                 SI.     Plant Name
                                                                   (MTPD)                                   Changeover        of
                                                                                                      Feedstock (Rs. Crores\
                                                                         -----          -+-~----C-~-----.-
                 1.      NFL, Nangal                                    1450                                        465                       '
                 2.      NFL, Panipat                                   1550                                        465

             13.         NFL, Bathinda                                  1550                                        465
                 4.       GNFC, Bharuch                                 1927                     i                  650                       ,

                         __________                 i                                            i                    --
                                                                                                                                              I
                                                                                                                                              1
                  Note:      The time schedule for implementing                                      the changeover         schemes
                             would be around 3 years from the date of start of implementation.


                                             0)         NewfExpansion


8.1.5      Out of the above-mentioned plants, capacity enhancement has been envisaged
only in the gas based plants through revamp measures. To further enhance urea


                                                                 92
production capacities, new expansion units have been envisaged by the following units <it
present.

         ...                      ..
                                   -~----'---.---.--- -- ---------.--------.--
        ~_~-r----------- -- -----.--
        i   Sl. I Plant Name                                             Installed New             Estimated
        ! No.         !                                                    Capacity            Investment (Rs.
        I I                                                     1          (MTPD)                   Crores)

        ~'~:.-r~~(f:;~~~-                 Ja~dishP.~~_~=·_~                            .
                                                                                       __
                                                                                 ~~~~-~-L_         =~_:~~_.---
        I
        r
                ;                 I
            i-iKRIBHCO~f1az;ra- --,-                                       . -320r5-'    -+... -     2500
                          ,
            _ ... ----1.      .   ~   .    ._ "         ~'___       __       .            ~             ,      _
Note:       The time schedule for these plants would he around 33 to 36 months from the ,lei":
             of start of implementation. The total yields of urea from these would he' ..'
             million MT per yt:ar.


                                                  ~=)                    Joint Ventures Abroad


8.1.6        The revamping of the gas based plants and proposed expansIOn plants would
provide additional urea production of around 2.36 Million tonnes from revamp measures
and 3.27 million MT from expansion projects million MT per year. However as the gap
between demand and production is expected to be around 14 million MT by 2011 ·12.
 additional production facilities have to be planned. The best option to meet the remaining
 gap of about 8.37 million MT urea would be by which work out to around 5.63 million
 MT per year encouraging JV ventures to set up plants abroad in gas rich countries where
 cheap gas is available with buyback arrangements. Some quantity of urea may be retained
 for imports to get the benefits of international trade. Government of India have already
 taken initiative in this regard and encouraging sponsors from India to invest. The
 following overseas JVs have sponsors from the Indian fertilizer industry in urea sector.
 i)               One Joint Venture Project Oman India Fertilizer Company (OMIFCO) with
 IFFCO, KRIBHCO and Oman Oil Company is already operating at Oman with installed
 capacity of 1.654 Million MT urea.




                                                                             93
ii)        srrc     Fertilizers   and Chemicals      Ltd. l;AE         lS    implementing           a JV urea projcct

along with MC Investment            Corporation     of USA and Emirates                   frading    Agency   of \JAE

with an annual urea production          capacity of 0.396 million MT.
iii)        Some other JV Projects are in the pipelinc in c'.Juntn,,, like Iran. Saudi Arabia.

Kuwait, and Nigeria etc.



8.1.7.           Benefits to the Country/Government                    JU('     to RenflyationfFxpansion             of
existing Plants along with JV Plants abroad


(ii Dependence         on imports     will be reduced        ,vitie    l"-   like". " check price ot llre"           j"
                                                                   "
international      market.

(ii) The country can expect lower prices of urea in ,he (~Unle,t.e market. v,hieh will ,a\C

subsidy outgo, in the long run.
(iii) Joint venture projects abroad can ensure suppl)                   ,)" lfl'C3 at low cost on a IOf1!;-term

basis, due to exploitation                                       in
                                  of cheaply available gas SOUlCCS those countries.



8.2        PHOSPHATIC


8.2.1      The estimated total demand supply gap by 2011-2012                        would be 1711 Million MT

ofP20s      equivalent    to around 3.9 million MT of DAP. The following strategy is suggested

to meet the demand supply gap.

           i)        Direct import ofDAP:         I million MT

           ii)       The balance DAP gap may be met through JV abroad for manufacture                                   of

                     Phosphoric     Acid with buy back arrangements                   to manufacture       phosphates

                     in India. This will require      production             facilities    for 1.33 million     t\.H of

                     Phosphoric     Acid per year in rock rich countries.



8.2.2      The setting       up of phosphoric      acid plant abroad will lead to Import                      of single

 intermediate       raw material     instead   of large quantities             of Rock Phos. & Sulphur.                 In

addition        to freight saving, this will also minimize             environmental           issues arising    out of

 problems        in disposal of gypsum and Fluorine emission in a phosphoric                         acid plant. The JV



                                                        94
companies      can further rcduee costs through long-tcnn                captive supplies of roek phosphate

or investment      in rock phosphate         mining.



8.3      POTASSIC



8.3.1       In the potassic sector. the country is completely             dependent     upon imported       tvl01' to

meet the indigenous           demand.        The world trade of MOP is essentially               in the hands d "

few producers        like Canada. Belarus.           Russia. etc. and it is getting further consolidated             in

the hands       of few companies            by way of investments.          mergers.     etc.     Tbis has led t()

substantial     increasc in prices of MOP. which has approximately                    d,)ubled over the last 2,';

years.      fhe country is paying heavily for lack of pOla3s;c resources in the country and ,t;

hea\ y demand        fe)r sustenance       of Indian agriculture.      The Government           needs to c".;ourage

indian companies            especially     in the public sector to explore the possibility              of somcing

MOP from other ncw sources and procuring                         mining concessions     in new areas, wherevcr

feasible.     The Indian investments           in potash rich countries can only provide a certain level

of comfort       to this highly          dependent     sector.     Long-term    buy-back        arrangements       with

present suppliers          can also be an alternative        strategy to control the present trcnds of price

Increases.



8.3.2       In parallel,    intensive     R&D in this sector to explore the possibility             of extraction    of

 potash from other natural               sources in the country       like marine sources in addition          to the

 land sources could also be explored.                 ICAR and agriculture      universities      may also explore

 the altematives      to potash in agriculture,          if any, through focussed research.



 8.4        SSP INDUSTRY: ROAD FOR REVIVAL


 8.4.1      The Single        Super      Phosphate     is the only fertilizer     under Concession          Scheme,

 which carries sulphur as an additional                nutrient to the soil. Due to its comparatively           lower

 selling prices, it is widely referred               as the poor farmer's      OAP.     This sector has suffered

 seriolls problems         after decontrol     in 1992. Initially, there was no concession              provided     for

 the manufacture           of SSP.       Subsequently.     this was introduced        but the compensation          was



                                                             95
much Icss as compared to that on DAP. At present also. the quantum of concession on
SSP is nearly half of what is proportionately applicable to OAP. Due to the localised
nature of this industry. difTerent State Governments arc fixing the selling prices of SSP
and the price varies widely across the states. Since the 'larious State Governm<:nts fix the
selling price and the adhoc conc<:ssion is being lixed a~d disbursed by :he Central
(io\'ernment,    the absence of close coordination          bdween        the two is makir,g the
manufacturer of SSP unremunerative.


SA.2     As a result. the production of SSP io the wuntn          has «line do\% from:; 7.21 Iakh
tonnes in 1997-98    W   32.82 lakh tonnes in 1999-200G ~nd i'urther to 23.63 lakh tonnes          In

2005-06.     The Government has recognised the prohlem of unremunerative costs to the
industry and has increased the adhoc concession in the year 2005-06.                     Though this
provided a temporary reprieve to the SSP industry. the increased concession has been
gradually offset by incrcase in input costs, marketing & di,tribution costs, ctc. over the
                                     of
last one year. For sustained grov>.'th this sector. it is necessary that the concession paid
on sale of SSP is linked to a rational nutriwt value 01"1" as has been provided for in
respect of OAP and complex grades of fertilizers. and further is based on an escalation
formula      which   gets    updated   quarterly    to   renect     the   changes   in    the   input.
production/marketing        costs involved in the production and sale of SSP.              Since the
Government of India is paying concession on sale of SSP. it may also examine the
 feasibility of announcing selling prices of SSP for various states in the country after
 examining the location of various SSP industries in the country. This will provide a great
 degree of coordination between the selling prices and the concession paid on the sale of
 SSP, and help ensure that delivered cost reimbursed to manufacturers are rational and
 remunerative.


 8.4.3     The other major impediment in the grow'th of the SSP sector has been its quality,
 which has always been a matter of concern. The Government has embarked upon half-
 yearly technical audit of all SSP manufacturing units to ensure better quality and has even
 notified various grades of rock phosphate, which can be used for manufacture of SSP.
 This has definitely had an impact on the quality of the SSP being manufactured but there



                                                   96
is still scope for further improvement.   The Government can examine the feasibility of
ensunng      100%   sale   of   SSP   through        the   malor   and   established   fertilizer
manufacturerslimporters,   who can be held accountable for ensuring quality of product
that they would be marketing.


8.4.4     The SSP sector in the country is largely dependent upon the indigenous rock
phosphate, which is of inferior grade and is not suitable for production of phosphoric
acid. Substantial amount of rock phosphate needs to be imported to also cater to the SSP
sector. There are large deposits of inferior grade ofroek phosphate in the country. which
is not suitable for producing FCO grade SSP with 16% water-solubie 1'20, content.             fhe
(jovernment can provide for other grades of SSP with lower water-soluble 1':0, contellt
ulldcr the f:CO as ~lso Ihe Concession Scheme so that the unutilised low grade rock
phosphate in the country ean be gainfully utili sed for manufacture of SSP and provide
another source of phosplntie nutrient to the farmer.




                                                97
                                     CHAPTER IX


REQUIRJ;;MENT        & AV AILABILITY      OF FEEDSTOCK,        RA W MATERIAL          Al'IJ)
              INTERI\1EDIATES       FOR EU:VE:\TH       FIVE YEAI< !'LAN


9.1     FEEDSTOCK       REQHREME~TS          FOR UREA


9.1.1   Government's    policy has aimed at achic\",ng the nl<"inIlinI p'bsibk    degree of
sclt~sufticiency   in the production of nitrogenous   fcr;ili/.·ch based (In lItili/lIt;on of
indigenous feedstocks. Prior to 1980. nitrogenous fertilizer plant> were· based mainly on
naphtha as feedstock. A number of fuel oil based ammonia-urc" r,llIn!s were als,) set up
during 1978 to 1982. [n 1980. two coal based plants "'''re set up lor the tirst tnnc in the
country at Talcher (Orissa) and Ramagundam (Andhra Pradesh).          With associated and
free gas becoming available from offshore Bombay High and South Basscin hasins. a
number of gas based ammonia-urea plants have been set up since 1985. Later. however.
thc gas availability started declining particularly in relation to the increased demand. In
view of the limitations on availability of gas, a number of urea expansion projects were
taken up during [990s with naphtha as feedstock with the flexibility for switching over to
gas as and when it becomes available.


9.1.2   At present, out of 28 urea Imits with capacity of 197.0034 lakh metric tonnes per
annum (LMTPA), 16 natural gas based plants account for 66.08% (130.1749 LMTPA). 8
naphtha based plants account for 23.07% (45.4535 LMTPA) and 4 FO/LSHS based
plants account for 10.85% (21.375 LMTPA) of the capacity. For gas based units, cost of
 feedstock accounts for 60% of the total cost of production, whereas for naphtha and
 FO/LSHS based units, it is about 75% of the total cost of production. Feedstock-wise of
capacity of urea is as follows:




                                             98
                                                I                      (LMTs)      ,              .
                                              --1                --j               i--- -- -;
                     b~- _L'- _-_J
                     I


                     i1\aphtha
                                          -


                                                    18
                                                                       136.-I-~49m16~.~)8
                                                                    145.4535
                                                                                       __
                                                                                   ~\ 07-
                                                                                            nul
                                                                                                  i
                     i----_ ----        ---:---+-----...4----------+---
                     i.F()IL:mS                     4                121375         !1085
                     11';)tal                       28---11             ~-7:0034    1100-

9.1.3   Until 31.3.2003,           11K   subsidy to urea manufacturers was being regulated in terms of
the provisions of the erstwhile Retention Price Scheme (RPS).                                Group based,   New
Pricing Scheme (NPS) I,)r mea units, introduced from 1.4.2003. aims to induce the urea
units to achieve internationally competitive levels of efficiency and encouraging the use
of gas as feedstock, and bringing in greater transparency and simplification in subsidy
administration.      The ultimate                        aim is to move towards a single producer           price.
convergence between this, the MRP and the international prices of urea, and eventual
decontrol.


9.1.4    The production of urea based on natural gas as feedstock is energy efficient and
cheaper as is evident from the tables below:


Latest weighted average rates of concession for different groups of urea units
(Notified upto August 2006)


             ~-
             I Group
                         ------
                                                            !   Latest weighted average group         I
                                                            I concession rate (Rs./MT)
             ,
             I ,,,-92 G,e           -
                                                            ~5               ---

                 Post-92 Gas                                : 7057
                 Pre-92 Naphtha                                 17637
             L                            _



                                                                       99
            l:~;r:~t'"'8:=-
            . Mixed feed           • 9272
                                         ·u                       u-·          ..        _




            h)ve~~ll ---Weighted-9444     .-                 --       -----     -----

            LAv_erag~                         ---1_~              .                 ._


Statement       showing average energy consumption per MT of urea                                              b~ urea
manufacturing units

                  _----- ---
                 1 Group
                 .,
                                                 -I Averagc-c~crgy -l:on~ump(io~l                       i


                 ,
                                            I per MT of urea (G Call                                    .
                                     _______________                                              -I
                       Pre-92 gas             6.160                                                     '
                       Post 92 gas                  5.672
                           ----c-----+----------
                      . Pre 92 naphtha              7.746
                                                                               ---                -~
                  ~O;"2Mph",                        5_781
                                                                              -------        --    -~

                       FO/LSHS                      9.263
                       ------
                       Mixed feed                   6.959                                          ~
                                    ------~----------


9.1.5       The following table shows the urea manufacturing                             capacity, the cost of
production and share of subsidy for the year 2004-05.


             I   Statement showing the Estimated Share of Producti~~-&Subsidy                                        for   1
                                                                                                                           !
             I
             I   the year 2004-05
                 Feedstock                     Capacity                       Weighted            -Tper-c-en-t-a-g-e-
                                                                              average                       of subsidy




                                                       100
9.1.6        It may be observed     :[(1<11       thc aboY<:I.able tn'll the urea produced with gas
accounts for 52% of the total production (65% including mixed feed units) and thc sharc
of total subsidy is only 25% (38% tncluding mixed feed units). The remaining 62% of
the total subsidy goes to the naphtha FO/LSHS units which accounts for only 34% of thc
production    capacity.   This is mainly on account of the high cost of naphtha and
FO/LSHS.       The following table indicates the comparative cost of various feedstock
utilized in the manufacture of urea:


                 Comparative price of various feedstock


             Name of feedstock                    Price (US $/MMBTU)
                                              I              _

             APM Natural Gasl P\H             i 2.6-3.1
             JV Gas
                                              Lu                 _
             R-LNG                            , 5.00
             Naphtha                          l18 - 20
                                               !
             FO/LSHS                          . 13-15
                                              I


9.1.7         In the above    background,             the cost of teedstock    IS   clearly   a maJor
consideration in fonnulation offertilizer policies. The present fertilizer policy is aimed at
greater usage of NG/LNG.         This is not only because NG/LNG is cleaner, cheaper and
more energy efficient, but would also help in bringing unifomlity in the industry and help


                                                       101
to move towards            a single urea price and decontrol.            Accordingly,     the poiicy stresses               the

need for conversion           of naphtha and FO/LSHS                 based units to gas-based         units, and also

that the creation         of new capacity      through expansion.          new projects (including                re\ival    of

closed units), de-bottlenecking/            revampl modcmisation.           should be bascd ,)n \(fd'-I.N(J.



9.1.8         1I0wever,    due to the dwindling        supplies        of natural    gas. elen      till'    existing       ga·;

based units have been facing shortage                 of natural gas. Against the total requirel1",n.                        or

33.01 MMSCMD               of gas t(lrthe existing gas based units. the actual a\era!,c                     ,upply durin"

2(1)4-0-)        was 23.79      MMSCMD          only. With the commissioning                or LN(,           knninal        oi

Pctronet        LNG       Ltd. and commencement             of supplies       or RLNG       to COlhUI1\CrS \\               .c.:
    1.-l.2005. the gas based ureu uni!.s along the l-lB] pipeline received                  7.775 i'vl\lSCMD                  ul

R-I.\:G        during 200)-06      and the average actual supply of gas to urea units ..luling 20Ci5-

06 increased        to 28.483 MMSCMD.            With the supply of R-I.NG. the supply posllion of ga,

to urea units along the IIBl pipeline                has improved         and the extent of usage of costlier

substitute       has come down, but the shortfall in the case of gas based units in K"kinada                                and

 liran region continues         to be acute.



 9.1.9           Apart from the requirements           for the existing        gas based units, NCi/LNG will

 also be required          in the near future for other purposes               as well such as conversion                     01
    naphtha     and FO/LSHS       based units to NG/LNG, de-bottknecking                   of existing            urea units.

    setting up of new and expansion            Ufl,a units and revival of closed urea units of HFC and

    FCI. Based on the proposals         received     for de-bottlenecking           and expansion           projects    and if

    all the proposals      for revival of closed urea units fructify and all non-gas based urea units

    convert to NG/LNG,          then the total requirement           of gas for the fertilizer      sector by the end

    of Xl Plan Period        would be 76.269 MMSCMD.                    The break-up      of the gas requirement

    year-wise    and the corresponding         production      capacity of urea is given in the table below.



    Table: Projected Gas Demand in the XI Plan Period - Fertilizer Sector
:--                   ~7-08         ---r2068-09                 2009-10          r 201O-IY-j2011-=I2----.
r   Gas Demand        ! 41.~-               42.889              55.899           176.259     -----TI -i6259~
I (\lMSCMD)           i                                                                                I
~                     i                .l                   --L..-                           .__~             _




                                                             102
                                                                           '-----T-                                  ----
                                                                                                      ----------,.;---
, ExpectedUi226.156                      ,- ,.   !I   226~J:'i-(;          259.656                 1.329352               I 329.352
 Urea                I



 Production

 Capacity

 (LMT)



 9. I.I 0                As per the available                   information,      the availability          of APM gas supplied             by

 ONGC/GAIL               shall     progressively                 deeline    from        55 ~lMSCMD               in 2005-011 to             .3g

 MMSCMD             in 2011-] 2. The supply from domestic                               Joint Ventures         and private suppliers

 will rise from 20 MMSCMU                             to 6,' MlvlSCMD.               The Mlo P&'\G            has also indicated           that

 by 2011-12,         the supply            of LNCi It'om suppliers                   such ", Qatar, Shell and Iran ctc .. is

 expected       to increase        from the present level of I g MMSCMD                                 lO    around        54 MMSCMD.

 The supply of .IV gas/private                        gas/r-LNG       will be at market-determined                    rates.    Overall, the

  M/o P&NG has projected                    that the availability              of gas and RLNG both from domestic                          and

  overseas    suppliers          shall increase            from the present 93 MMSCMD                          to 159 MMSCMD                 by

 2011-12.          However,        the share of APM gas in this will only be 30+8 MMSCMD                                                   (30

  MMSCMD            by ONGC and 8 MMSCMD                              by OIL).          What emerges from the above is that,

  apart from the issue of availability                      of NG/LNG            out of this for the fertilizer sector, there is

  likely to be a wide variation                         in the prices of gas ham                    various    sources         and resultant

  uncertainty       on this score also. Details of gas availability                                projections        by the end of 11 ti1

  five Year are givell in the table below.



                                                      Gas availability projections
                                    r-------------                               Avajlability(Project~d)                  ----~-l
  I Domestic
                                    I            __\::"~
                                          :~~[-+;f'~~ ..
      Sub _Iotal
       LNG
                                           =--=-=~---~-----rs-=~=_=_
                                          Qatar                                118
                                                                                                                       I~
                                                                                                                      27
                                                                                                                                _     -.   1  I
  I
  I
                                     i
                                     L__
                                           ------------------r' -.--------
                                       Shell
                                             .              .
                                                                                 Spot
                                                                                           .                    --;
                                                                                                                      9
                                                                                                                          -----------1
                                                                                                                                    ~
                                                                                                                                               ,

  L_                 _               Iu
                                           lran
                                                            .                                  .       __    .-l~~                           j

                                                                           103
9.1.11       As regards the question of availability of gas for krtiliLcr industry. although th,'
sector has been treated a, priority sector along with powcr in the cllnlext ll[' alillcation uf
APM gas. the proponil'nate            amount of gas for fertilizer scctor has been declinin~.
I:urthcr. in discussions     as regards allocation of gas. the requiremcnt of fcrtili'/,cr sector

does not app"ar to be generally adequatcly retlectcd.           Thc r"kvancc and irnrort;.lllC,· ul'
this is thaI. although not comparable to power. which is in itself an energy forn1'source
fertilizer   is only   a consunling    sector.   HOV./CVCf, particuiarly   in \iev,   of the nCt.'d tu

Increase agrieuitural gwwth to 4%. fertilizer needs to be secn as a slutegic                   SeClll!
Further. Ihe subsidy        on fertilizers. in overall terms. has alrcad) reached a level of
Rs.24.000 cmres in 2005-06 and with increasing demand which can be a llicipalcd.           C




growth in the subsidy level could be very significant. Thc only way in which incrcasing
fertilizer pmduclion and managing the subsidy burden can be reconciled is by cnsurinl~
availability of gas for the existing and proposed requirements in the fertilizer sector. 1\
may also be added that as of now, there are no options. such as the possible use of coal
for power generation. in so far as the fertilizer industry is concerned and there are limits
to the possibility of creating urea capacities abroad, though the Departmelll is seriously
pursuing such possibilities wherever feasible. Besides, the production of fertilizers (urea)
involves the most efficient use of gas since it uses both its heat value and the chemical
components.


9.1.12         As far as the priee of gas is concerned, it may be mentioned that, the basic
price of APM gas remained at Rs.2850/- per 1000 SM3 from 01.10.1999 to 30.06.2005
and was revised to Rs. 3200/MCM effective from 1.7.2005. The JV gas !l'om Panna-
Mukta-tapti       (PMT) and Ravva fields was earlier being supplied as part of the APM gas.
From 1.4.2005, 6 MMSCMD of JV gas is being procured by GAIL at market drivcn
prices but being supplied to urea units and powcr plants at APM prices. the differcncc
being subsidized from the Gas Pool Account.



                                                   104
9.1.13           The Planning Commission                   in a recently preparcd approach paper for the 11th

Five Year Plan has advocated                  export parity price of surplus petroleum                 products.     Indian

oil companies          exported       about    3 million      tonnes       of naphtha    during      the year 2004-()'.

Incidentally,     about the same quantity of naphtha "w; consumed                             by the fatiliser     industn

in 2005-06.       The exp0l1 parity priee of naphtha                     \\mlld he In\\cf by 2- 3 LS dollars             pn

million BTU from the prevailing                    priceofahout         I '\ SIR j,er million !:In'.



Connectivity,          availahility       and pricing of gas



9.1.14         Three elements         corne into play in rcsV"!              "C cumcr';ion      of non-ga:; hascd upil'

to gas viL connectivity,              supply and pricing ,)f g",              In so far as connectivity          and supph

arc concerned,          the matter        has been discussed            in detail between        DOl' and Ministry           cl

Petroleum       & Natural Gas (M/P&NG).                    Broadly. the 37 urea units {28 functional                units. ::'

units under shutdown              and 7 closed units of Hindustan                Fertilizer    Corporation       Ltd (HH          I


and Fertilizer         Corporation        of India Ltd (FCI))           can be placed in 5 categories,           namely (al

 13 gas based units on the HBJ pipeline                       (b) 9 gas based units on other pipelines                 (c) 5

naphtha        based     units   (d) 3 fuel oil/low           sulphur       heavy   stock (FO/LSHS)          based     unils

(excluding       GNVFC-Bharuch,               which currently           uses FO/LSHS          as feedstock   for urea but

has gas connectivity)            and (e) 7 closed units ofHFC                and FC!.



9.1.15                 While connectivity            already exists f()r the units in the first two categories.               it

 is likcly to be available            in the next 3 to 4 years, in respect of other units too, except in

 respect of units at Goa, Mangalore                   and Tuticorin         These three units will have to explore

 alternative      feedstock        like     Coal     Bed    Methane        (C8M)     and      Coal   Gas.    A statement

 indicating      the unit-wise        pipeline connectivity             is at Annexure-9.1       and proposed       pipeline
 network is at Annexure-9.2.



 9.1.16         In the meetings           held between fhe officials           of Ministry of Petroleum           & Natural

 Gas and the Department                of Fertilizers,       the Ministry       of P&NG has conveyed               that there

 should be no problem of general availability                       of gas/LNCi from the year 2008-09 onward,



                                                                  105
and DoF could go ahead with its long term planning                                 for the fertilizer sector. It was also

,tated that the domcstic          gas availability         scenario will remarkably             improve       trorn 2008-09.

and that fertilizer units may get in touch with gas suppliers and tie up their requirements.

As per the production              sharing       contracts      for such private'lV            gas production.           the gas

rrodlleers      have     freedom         to     market     their     gas     Oil     market    considerations           and     the

(,ovcrnment       has no control over its allocations.



9.1.17                On the issue of pricing. M/P&NG has e;crres.,ed the \ iew that while APM

~as quantity      will continue to dv.;indk, futun~ gas requirement                           call   he   il1ad~   available      1u

t~:nili7cr sector by various domestic,/intcrnational                                                         ~cs,
                                                                           gas producers onl! on market pri •..



Coal ~asification         technolog)'



9.1.18       Coal Gasification          Technology       involves conversion             of coal gas into synthesis             gas.

Synthesis       gas derived        out of coal           g3sification        can be used for pl)\Wr                 generation.

pmduction        of     fertilizers,     methanol,         hydrogen         etc.     Since    syng3s      can      bc    used     in

manufacture        of     urea,    the        Department        of   Fertilizers        h3S decided         to     constitute      a

Coordination       Group in the Department                   of Fertilizers        to study the feasibtlity         of adoption

of coal gasification         technology         in fertilizer sector in India. The Coordination                      (,roup     wIiI
comprise      of representatives         from Ministry of CoaL Ministry of Petrolel.m                        & Natural Gas.

Department       of Fertilizers,        GAIL (India) Limited. Projects & Development                             India Limited

(PDIl ,) and Fertilizer Association               of India (FAI).



9.1.19         A Core Group has been formed in the Department                                 of Fertilizers       (0   assist the

Coordination          Group       and     (he    Core      Group       comprises         of representatives             from     the

Department        of Fertilizers,         GAIL      (India)     Limited.       POlL and FCI Aravali                 CYPsulll      &

Minerals       India Limited           (FAGMIL).         The Core Group has been. inter alia. assigned                            (0

ascertain     the price and availability            of coal in view of the :\cw Pricing and Supply Policy

being introduced          by Ministry of Coal and will make projections                        regarding prices of coaL




                                                                 106
9.1.20     GAIL intends to set up a Coal Gasillcation Plant in Talcher (Orissa) for which a
Tcchno-cconomic feasibility study has been carried out through Mis Uhde India Limited
with Shell Technology.    The estimated project cost works out to Rs. 2400 erores and the
gestation period of the project is of 39 months. The plant will require 5200 tonnes of coal
per day (average ash content 32.8%) and dolomite 546 tonnes per day. Thc capaciiy of
the plant is 7.76 MMSCMD of synthesis gas. Two washeries will also be set up to bring
down the ash content of coal frolll 36% to 32%. A li"al decision to set up this plant be,
not been taken so far.


9.1.21          The cost of Syn gas is "'rected     io be less than the price of R-LNG and
much less than that of naphtha and FOi!.SIlS. fhis wouid be ofa major advantage for the
fertilizer industry as it will result in availability of a cheaper feedstock derived from   COcli

which is available within the country, more particularly in the castem region, in ahundant
measure.


Coal Bed Methane (CBM)


9.1.22      Coal bed Methane (CBM) can also be used as feedstock in the manufacture of
urea. Work is in progress in 16 C8M blocks. There are 6 blocks in Jharkhand (Area of
exploration in the districts of Hazaribagh. Giridh, Bokaro. Bhanbad. Chatra. latchac•
Ranchi), 3 blocks in Madhya Pradesh (Shahdol and Chindwara), 3 hlocks in west Bengal
 (Burdwan, Purulia and Bankura), two blocks in Rajasthan (Jalore and Barmer, one block
 each in States of Maharashtra (Chandrapur),        Gujarat (Banaskantha) and Chhatisgarh
 (Koriya). The work of exploration is at various stages of progress but none of the blocks
 has been commissioned so far. Once the hlocks become operational, the revival of closed
 urea units viz FCI-Sindri (Jharkhand). HFC-Barauni (Bihar bordering West Bengali.
 HFC-Haldia      (West   Bengal),   FCI-Ramagundam       (Andhra    Pradesh    but   hordering
 Chandrapur district of Maharashtra), FCI-Talcher (Orissa but near Jharkhand) Lcanbc
 thought of and supplies of CBM from blocks located in state of Madhya Pradesh.
 Rajasthan and Gujarat can be used to supplement the deficit being felt by existing gas




                                              107
    based units in the supplies of NG/LNG              and to non-gas based units which arc required         to

    switchover         to NG/LNG.



    9.1.23         The expected       CBM production        during thc Elcventh Fiyc Y car Plan Period       IS

    shown in Table bclow-



                                                                                                            (5M3)
State             Coafield/Block                                             2009-10    2010-11         2011-12
                                                                                                                    -,
                                          2007 -08         2008-09

 West Bengal Raniqani South                   60,000            230,000   150,000           460.000        600,000
             Raniqani East                          0                  0   30,000           100.000        200,000
,---
             Raniqani North                         0                  0         0            30.000         50,OQQ
             Sub Total                        60,000            230,000   380,000           590,000        850,000
 J'narkh;;nd Jharia                           40,000            260,000   500,000           800,000      1000,000
f--
             Bokaro                                 0           120,000   350,000           550,000        800,000
             North Karanpura                        0            80,000   150.000           300,000        600,000
             South karanpura                        0                            0            50,000       100,000
             Sub Total                        40,000            460,000 1,000,000         1,700,000      2,500,000·
 Madhya Pra< Sohaqpur East & V                50,000            400,000   700,000         1,000,000      1.400.000
             Satpura                                   0               0         0                  0        20,000
             Sub Total                         50,000           400,000   700,000         1,000,000      1,420,000
 Chattlsgarh Sonhat                                 0            20,000   130,000            140,000       200,000
 Maharashtra Wardha                                  0                 0         0                  0        10,000
 Rajasthan   Sarmer                                  0                 0   50,000           100,000        250,000
 Guiarat     Sanchor                                 0                 0   30,000            80,000         120,000
 Grand Total                                  150,000         1,110,000 2,290,000         3,610,000      5,350,000


                                             Requirement        of Naphtha
        9.1.24         Consumption     of naphtha    for the production      of urea in the last three years is

         given below.



        ! 200~.03               L~-3.027              Million MT .               I
        II   2003-04        ~   -L---         3.225 ~illion        MT    ~

                                                                        -----.--J
        ! 2004-05
        t 2005·06      -= _ t ..  I           3.165 Million MT
                                               2.')6 Million MT                 J


                                                             108
9.1.25    The consumption of naphtha in the past few years has been more or less at the
same level for urea production. Naphtha is a very expensive feedstock                   j()r   the production
of urea. After the conversion of naphtha based urea units 10 Natural Gas. the requirement
of naphtha for fel1ilizer industry will be nil. Year-wise demand of naphtha for fertilizer
units during Eleventh Plan Period is given in Table.


                                       Requirement                of Naphtha
                                     2009-10                      2010-11           2011-12

                                                                                                  I

                                      ------      ------'--~_._----                              .I




                               Requirement        of Fuel Oil/LSHS
9.1.26    Consumption of fuel oil/LSHS during the Iat three years is given betow.

                       r-::-:~----------_._.'_._------~~-------~----
                       I   2002-03                 I       1.863 Million MT
                       ~. __ um      __ . --.---t-;--;u_ ...            -----   c
                           2003-04                 I 1.893 'vlillion MI             I
                       r-::o~'-~-~~--+--'---------1
                       I 2004-05                           1.863 Million MT
                          ......
                              u._.
                       I 2005-06
                                        .~._.._        I

                                                             .~
                                                           1.79    Million
                                                                          .nMT --'I.
                       L__ .                                         . __ .         j


9.1.27    During the course of Tenth Five Year Plan, there was a negative average growth
 rate in the eonsumption of FO/LSHS by the fertilizer sector. None of the new plants or
existing plants are likely to be based on FO/LSHS as fcedstock. Hence, it has been
assumed that the demand for FO/LSHS during the first two years of the Eleventh Five
 Year Plan would be at the same level as in the year 2005-06 by the fel1ilizer sector and
 for the rest of the three-year it has been assumed to be nil. Some quantity of FO/LSHS
 may be required as fuel in the existing boilers even after switchovcr to NG/LNG. But this
 quantity would be small (of the order of few lakh tones).




                                                       109
     Requirement of coal


     9.1.28      Apart from gas, Coal is an essential input for urea units as some of the urea
     units utilizc coal as fuel for power and steam generation Coal is a cheap source of fuel
     for the fertilizer units. The captive power plants have been installed by most of th,: units
     due to poor quality of grid power and frequent interruptionc. There are 7 urea units
     namely      IFFCO·Phlllpur·L      NFI.-Nangal,          NFL-Bhatinda.            NFL-Panipal.                 DIL·Kallpur.
     GNVFC·Bharuch            and SFC·Kota which use coal in substantial quantity !Clr power and
     steam generation.



     9.1.29      The actual consumption of coal during 2002·113. 2003·04, 2004·05_ 2005·06
     and 2006·07 b ICrtilizer Llnitsis given in the table below:



i~; __ J-Yea'~-_=~=-
  N~                                        =--e~             consumption (L\<IT)                                                           i
                                                                                                                                           -1
                                            -. -+.---------------
: I.               ! 2002·03                    I        28.685
[
~.
              ---+,--:;---
                   _0(b·04
                   !                             26.967
                                                 I

r    3.                2004-05                           23.7:19
I-:--------ji--~~c__c_
! 4.

r~--~QOb6-67~
                       2005-06


                *Estimated
                                        ----+::==,,-------- --- - ----- .. -~-

                                            __
                                             ~_2_4
                                                         27.313

                                                               *
                                                              __
                                                                         _

                                                                             ~ -_-_--_
                                                                             __               -_-=~~~~~~
     9.1.30     Requirement of coal by fertilizer units during IlL' Five Year Plan is projected as
     follows:
    is. No.              --
                       Year                         I                   .------------------

                                                         Projected co al requirement (UvIT)
                                                                                                                                     ...   --


    11.                2007 -08
                                                    ~420                                                                                        ,

    t:=
                                                                                                                                                1
                                       --                          .. -------------------                                        -------1
                                                                                                                                                ,
                       2008-09                       31.420
                                                                                                                             -~---~---.-_i
                                                     I                                 ____   u._   .-----.-----        .•




    L 4.
                       2009- I0
                       2010-1 ]
                                               --h:~~420
                                                   26 720
                                                  1 .
      5.               2011-12                      25.120




                                                             110
9.1.3\ In case, the HFC-Barauni, HFC-Durgapur. IIFC-Ilaldia, FCl-Sindri, FCI-Talcher
and FCI-Ramagundam.      which are prcsently closcd, ar~ rl'\i\ed     on coal gas, then the
estimated annual coal rcquirement for thcsc 6 units "\)uld Ix 114 LMT as the annual
rcquirement of coal for one urea unit of a production capacity of 8.58 LMTPA is 19
LMT



9.2     Raw Material for OAP


9.2.1   Rock Phosphate
9.2.1.1 In case of phosphates. the paucity of domestic ral' matcri"l constrains           the
attainment of self-sufficiency.   The indigenous pwductiun     'Jf   Rock Phosphate during
2004-05 was 1.359 million tonnes and the imports" ere around 4.845 million MT. In
addition, the indigenous rock is of inferior quality and requires beneficiation. At present.
most of the indigenous rock is used in SSP Plants. The fertilizer PSlJ, RCF along with.lV
Partner is actively cJnsidering installation of Phosphoric Acid Plant in Rajasthan using
indigenous rock after beneficiation and blending with imported rock. The rock ph0sphate
exploitable reserves in the country are limited and it is expected that the country will
continue to depend upon imported rock phosphate for meeting its demand in the years to
come.


9.2.1.2 Since the availability of rock phosphate in the country is limited, it is necessary
that large scale survey and exploration be carried out in this sector for finding out new
geological reserves of rock phosphate which can be no'-' mined economically           in the
 increased price scenario. A nodal agency can be identified, which can be dedicated
towards coordinating and monitoring the extensive surveys and exploration in tills sector.


 9.2.1.3 The world rock phosphate production will increase from 177 million MT in 2005
 to 195 million MT in 20 IO. China alone will account for one-third of this growth. Thc
 rock phosphate production (excluding China) is forecast at 136 Million MT in 2010.
 Production is projected to increase in West Asia Africa. East Asia and Latin America.




                                             III
(Source:    IFA). The Government should proactively encourage Indian investments in the

new mining capacities coming up in next 5 years.


9.2.2      Sulphur
9.2.2.1 Sulphuric acid is an intermediate in the manufacture of P20, fertilizers. Small
quantity of sui ph uric acid is available as by-product in copper and zinc smelters. India
does not have any reservcs of sulphur and only moderate quantities of sulphur arc
available as n:covcrcd from the Oil and Gas Sector. Requirement of sulphl!r is imported
from Iran. U:\L Saudi Arabia. Kuwait. Bahrain. Qatar dc. The sulphur import ill            2()()cl

stood at 2 millilll1 tones and is expected to rise :;Iightlv during the 11th plan period in th,,'
evcl1t of the unutiliz.ed capacities in phosphatic sector are utilized complctc!y.


9.2.3      Phosphoric Acid
9.2.3.1 The indigenous production of phosphoric acid has picked up siowly during the
 10'10 plan period with 1.243 million tonnes of production in 2005-06. The total installed
capacity for indigenous production of merchant grade phosphoric acid is 1.76 million
tonnes and therefore. there is a substantial indigenous capacity, which is under utilised
due to tight demand-supply       position of imported rock phosphate and sulphuric acid.
There is need to facilitate the fertilizer companies to source additional raw materials for
 100% utilisation of indigenous capacity during the plan period.


 9.2.3.2 The global phosphoric acid capacity is forecast to increase by 5.4 million MT
 between 2006 and 2010 to 48.5 million MT P205. The new projects will be in Algeria.
 China, Egypt, Morocco, Russia. Saudi Arabia and TW1isia. Only four new plants will be
 dedicated towards export and all of these are under captive supply agreements. Therefore
 no significant addition to merchant phosphoric acid capacity is expected during the
 forecast period (Source: IFA). 11 is observed that large phosphoric acid capacities are
 currently closed in Ell and L:S due to unremunerative returns, The need to encourage
 Indian companies to set up more phosphoric acid joint ventures abroad to cater to
 increasing indigenous demand for phosphatic fertilizers is the obvious direction for the
 XI Plan period.



                                               112
9.2.3.3 Approximately,            85% of the world production             of phosphoric        acid is for captive

consumption        and only 15% is traded in the international               market.    Ollt of the total trade of

approximately        5 million tones of phosphoric           acid (as P20,),        India imports more than 2 5

million tones every year.            It is j~,und that the trade of phosphoric            acid is not a tl'ec trade

and more than 50% of the intemational                  trade is by way of long-term supply arrangements

between       the producers       and the importers.        It is evident that in case our country                 has h)

service    the increasing         demand     of P205      through     import of phosphoric             acid. then the

Indian companies            need to participate   in more joint venture,          It)r production      or phosphoric

acid in phosphate           rich cOllntries. with long-tern)         supph      '"TJilgements.        Otherwise.       al"

increase      in Indian demand             for phosphoric         acid without       corresponding        increase       in

international      trade of P205,        will lead to sharp incrcase in internation;;!             prices due to tiglll

supply position.



9.3        DAP

9.3.1      The imp0l1 of DAP               has risen sharph         in 200=,-O(j and the trend            is likely      to

continue      in 2006-07       with a total import of 2.5 million tones of DAP. The import of DAP

during     the    ll'h   Plan period       will depend      upon     increase     in indigenous        production        of

phosphoric        acid, increased       supply of imported phosphoric            acid. better capacity utilization

in IFFCO's        plant at Paradeep,       smooth production         of phosphoric      acid by the Senegal joint

venture, etc. In the event of above improvements,                     it is likely that the import of DAP will

 stabilise during the plan period at around               I to 1.5 million tones in 2011-12.              However,           if

 there is no further addition to indigenous              production,     the imports can go up further to 3.9
 million tones by 20] 1-12.



 9.3.2     World production             of the main processed        phosphatic      fertilizers     (MAP, DAP and

 TSP) was stable in 2005 at 23. I million MT. Between                           2006 and 2010, new processed

 phosphate       projects     will essentially    focus on DAP. Global DAP capacity                     is projected         to

 grow by a net 3.3 million MT 1'205 reaching 24.1 million \1T P20,                                 in 2010. China will

 contribute      substantially      to the gro\\i1h in DAP capacity.             The other main additions              will

 come      from     Saudi      Arabia     ar.d North     Aflica      In contrast.      some      OAP     capacity      was



                                                           113
shutdown     in US in 2005 and 2006 (Source:        IF A). It is observed    that large capacities     are

lying closed in United States due to unremunerative          costs and shortage of indigenous          raw

materi allintelmediates.



9.3.3     The international   trade of DAI' is approximatel)         12.4 million kmes pcr annum

and the Indian import constitute     approximately      20% of the Irade.      An\ increase'decreasc

in Indian demand      has a major impact on the OAP prices as India is the leading importer

ofOAP      in the world.   The world trade ofDAf'       is not expected to sigl'itieantl\   increase     i:l

the next 5-6 \ears and. therefore.    it is necessary    that our demand Ii,.. P205 in tht' Ccluntn

should not be highly dependent        upon imported      OAf'. At bcst. it can continuc      :It   present

Ie\cl with cll;'rts   to bring it dOl\ll to approximately      1-1.5 milli\Jn tones of impc\!1 e\er,\
y--car.




                                                 114
                                                                                                                                          Annexure-9.1
                                                                               Pipeline Connectivity

                       --N-;'melNumb-;;~f            l--- -.--~---.                                      --Connectivity
                                                                                                                                                           .
                                                                                                                                                 -1 -- ------
                                                                                                                                                   ,
                                                                                                                                                                    Expected
             _ •__ .__          Plants                i__                  PiPelin~      __     l _                                                L
                                                                                                                                                                   Gas Supply
                                                                                                                                                                     (Year")
    A      ~QlIs Based Plants on}J~~PiJleli~                                  .                .    _
  I        j~~IBH<;'O.       Hazira                  .--f
                                                On H~J Pipeline         U~_,,-isti11£...
                                                                                    __
                                                                                                                                                 --r--
                                                                                                                                                    ,
                                                                                                                                               - ·--r
  ]
           pCL..::J3aJJral_a
             -i
             .~~'!c.: Shahjahanplj'
                                            . On HElJ PipelLne
                                             LOn H~:!,!,ipeline.
                                                                          E.\isting
                                                                          ExistiTlL __ ..
                                                                                                 _
                                                                                                  _                                              -r-   I




  5&6
        _ ~.I(;l'-~}agcJ;shl'ur-_--.'
          -i i'<iL ~..YJi:liElJrI & II
                                                Onf.1I3J Pipel~_          Existing _
                                             _2Tll.!fl.1!ipel ine--+ E~stirlg
                                                                                                                                                  l~I
  7&H       J~l:.CO_~ onla I & "-
                        A                       On '-18J Pipcline         Existing_
: 9& I0 +JIFCO--=-I'iJt.1IElJr--'-~II_  __      On f:lBJ Pipelinc         Existin'       .        _
  1.1
  I,
     &.12 . ii.'FCI._=- Gad.9:'..all-1 _II_
         __ U~C -_Ko~
                                      &         Clil. HElL!'iEeline       Existing
                                             ~. On HI3Jj'i£eliTl.e.....__ Existing
                                                                                           _
                                                                                             .. _                                               -t__                Dcc' 2(1)(,.
  B            Gas B,,-sed I'lants~oth~r       PipeIine~                          _                                                                                            -

                                                                                                                                                                     2007·08
        :~_ .__ ~~~.1~~)~bay
              .                                 .. _!ran                   sector                Exist~~                  _                                I
                         -_I
    _I~&:17_.:.._'Sakinada & U                        -J<_5i              Basin                  Existil~!.L                         _
                                                                                                                                               -----f---
                                                                                                                                                    .                2008-09


     18~)19_H.:~~~~.--K~.~:ruP~&·-tl.~::~:::gion
     21    I GSFC Vadodra
                                                                                              l~:::::::----- ----i--                               ~--- 2(l(ri:08


                                                                                                                                                           i
                                                                                                                                                                     2(107.08-
                                                                                                                                                                                   1




                                                                                                                                                                                           •

   _ -"L9NVFC        Bharuch                                                                                                                               L                           _
, C ---- -, "';phtha B-ased Plants -                                --------                      .---         ----


l-=      ~=~
         3
               I
               I
                         --
                       ZIL. Goa
                       MCFl. Mangalore
                       FACT. Cochin
                                          ..




                                                =+=
                                               ----I
                                                                                  -
                                                                                  -
                                                                                  -
                                                                                                 No definite plan.iTl.~h( ___
                                                                                                 No definite plan in sight ____
                                                                                                 From Kochi lNG terminal
                                                                                                                              ----   -    --



                                                                                                                                               ~~=_:__
                                                                                                                                                     •.••
                                                                                                                                                               I       2009
               I
               ,                                            ,                                    Subject to availability & tie'llp of                          I


                                                                                                                                                               !
,U4     Ul             ~--------------_._-
                       SPIC. TII!icorin
                                                            ---.
                                                                                  -
                                                                                                 gas
                                                                                                 No definite plan in sight
                                                                                                                                          -
                                                                                                                                               --+---~~
l-s-r                  MFl, Chennai                                               -              Kakinada -- Chennai
                                                                                                                                         ---
                                                                                                                                               -:-L                 2008:09 '"
                                                                                                                                                                     2009-10
                                                                                                                                                                   --------
                                                                                                                                                                                               '

!D--------t FO/LSHS               Based Plants
10I NFL, N~                                                                       -               Dahei - Dadr;
                       NFL, Panipa!                                               -               Dahei - Dadril Pipeline to
                   I   NFL, Bhatinda                                              -               Dahej -- Dadr; I Pipeline to
                                                                                                  Bhatinda
:E                     Closed Units
i---i-                 FC I, Ramagundam        ---1-----                                                                      via--i-2()03.09-
                                                                                      ---'--O:Sp-u-r-o-n-K;-;--ak;cicn--ad7a-tc-oc-U;c,-~-;;-
                                                 ~_+--
r::-
i



,
                   I

         2 ~FQTakh~r
         3    ,FCI, Sindri
                                                                                                 Coal Gasification
                                                                                                 Spurs from the following options:
                                                                                                                                           +1
                                                                                                                                                   r'
                                                                                              __4--'F"-'IYc::(dc::eo:ra:::b.::ad==------c-_--------. _

                                                                                                                                                  2009-10
                                                                                                                                                                        -.---
I,       4    I FC I, Gorakhpur                                 i                                (i) Jagdishpur - Haldia
         5    I HFC, Barauni                                    I                                (iij Orissa Coast to Haldia&                I


         ~
         jl:~~:               ~~LJ~tJr           ~   _1                                         I_to_w_~~s_~uja~:                                          1_
                                                                                          115
                                                  Annexure - 9.2




     EXISTING I PROPOSED PIPELINES & GAS TERMINALS
r'          WITH FERTILIZER PLANT LOCATIONS




                                _           HVJ· 36'2700




                           =
                          pROPOSED GAS GRID PIPELINES
                           -



                           -
                           -
                               Dahe) - Uran - 30'520
                               Dlidri- Nangal-12/14/16i22/2S'S72
                               VI;aJpur _ KOla 18/16/12/1018' 614
                               Kakinada-lJran - 48'1024
                               Kakmada - ChennSi - 30'SBO
                           -   Kakinada - Haldia - 30'1150
                           -   Haldla_Jagdishpur_30'872
                           _   Debhol - Banglore -Chenn<!i - 30' ~100
                               Kochi   - KanJirk.l.:od . Mangalore
     Q
                               BangalOfe - Coimbatore - Kanjirkkcd

     •                         Myanmar - Haldia·      36/40'59/950

     •                         HVderab8d - Vijaipl:r .- 30'900
                               Vijaipur -Auraiya·Jagdis.hpur.   30/18'570
                                DaheJ _ Jamnagar - Porbandar- 3078.5 ~
                                                                            I




                116
                                        CHAPTER - X



            ISSl!E OF REVIVAL OF SICK AND CLOSED FERTILIZER


 10.1   Scope of Revival


 ('here arc several   reasons   for considering     the revival   ot ihe Cldscd   units   uf   thl~Sl'

companies as an altemative to allowing theIn to be liqLlida·,d. S:lme ofthc more pr_'ssin~
reasons arc hriefly discussed he]ow.


 10.2   :Vlostof the units of these elosed companies h:ive excellent cxisting inJrastructurc
in the shape of residential colonies, coal and electricit\ tic-ups. water tiltration piants.
Railway sidings and a very sizeah]e area of land. This inlr'Lstructure is ideal tor Brown
Field Projects. Liquidating this infrastructure        would he a wlossal     national loss of
va]uahle resources.



10.3     Some of these units arc located near coal pitheads. which ensure avai]ahility or
cheap coal for fuel and feedstock. This makes these units of strategic va]ue for power
plants as well as for fertilizer/petrochemical        complexes     through the route of coal
gasification. Majority of these units are also likely to be on the proposed national gas
grid.



10.4      Most of these closed units are located in industrially backward areas. Already
closure of these units has hact an adverse impact on the economy of these areas. specially
the States of Bihar, West Benga], Chattisgarh and North Eastern Region. A case in point
is Sindri. closure of which has turned a once prosperous Township into a ghost town.


10.5    Then there is the question ofdemand-supp]y gap vis-a-vis domestic production of
nitrogenous fertilizers. The installed urea capacity of 28 plants presently functioning in
the country is 197 lakh metric tonne (LMT) against which actual production in 2006-07 is



                                              117
expected to be around 202 LMT. However. the deman,; for urea for agricultural                              use in the

current year is likely to be around 230 LMT. In the previous year 2005-06, the actual urea

consumption        of 222 LMT was partially               mct from urea imports            of around       20 I.MT.

including      13.5 from Oman India Fertilizer            Company         101\1IFCO)    The \Vorking Group on

Fertilizers    for the Tenth Plan has estimated             that by the end of Eleventh            Five Year I'Lln

(i.e. 2011-12)      the demand for 'N' nutrient would he ]61.71 LMT per annum which would

translate     into ahout 28 I LMT of Urea. This would require an additional                       urea capacily      ,,1'

66.58 LMT over the domestic uc.,a pro,'lIction                capacily and Ihall)f OMIITO.



10.6        Clearly there is a need to strengthcn            domestic       urea production     capacitv     to fullill

the demand-supply            gap for foud security        as also   \1)   reduce dependence       upon il11pllrtS. ,\

portion of this gap can be met by de-oolllenccking                        and e"pansioll      of thc existing     urea

units. and also by reviving           the closed urea units of IIFCL and FCIL which arc situated

mainly      in the Eastern region,         which      hardly has any existing          urea capacity       at present.

Further, the revival of these urea plants could be considered                      on NG/LNG,          which would

heeome available           in sufficient quantities     hy 20 I 0-11 along with p;peline connectivity.



10.7           Shortfall     in availability   of fertilizers       is mainly    attributable     to deficiency       in

production       units. There are States where there are virtually no fertilizer plants. In States.

such as Bihar, Jharkhand,             Chattisgarh      and West BengaL where these closed                    units arc

situated, there are at present no functional              fertilizer plants.



10.8          Finally,     by reviving    these units. the Govemment              would be fulftlling         its own

commitment          to the public.       The revival      of these units will also boost the agricultural

development         in these areas and create a new environment                   of industrial    development        in
such areas.



 10.9 Possible Modes for reyiyal

There are several possibilities            for reviving     of the closed units of these ,'ompanies.             Some

of the possibilities        are:




                                                           1Ig
(a)     Setting up of new Brownfield Fertilizer Plants, usmg natural gas/LNCi/Coal
gas/CBM as feedstock, by setting up a Joint Venture with Strategic Partners, with na
fresh infusian of capital ar guarantee being sought from the Gavernment.
(b) Setting up of a new Joint VenLlre project with thc public/private equity participation
in non-fertilizer sector. such as petrochemical complex or pawer plant etc.
(c) Setting up of sector specific Special Economic lone with the krtilizer pre,ductio!1 as
a necessary activity.
td)   Any other suitable/viabl<: mudeL keeping in view that fertilizer producti,,,' should be-
a necessary ac,tivity in the model. alang with any other viable ccanomic activity.


10, I0 The technical and operational ef1ieiency of the Indian industry is comparable tll
1he international standards.     The average efficiency in Indian industry fur rCCl)\lT\ af
1',05 from rock phosphate ta phosphoric acid is 92,54%. The Pi), recavery ctficicncy

within the industry varies from 85.05% to 96,9%. Similarly, the 'N' recovery efficiency
varies in the industry from 93.68% to 99.22% with the average efficiency of Indian
industry at 97'()! 'Yo.   The 1'205 recovery from phosphoric acid to manuiacture        D-\Pl
complex fertilizers varies between 93,04% to 99.58% with the av~rage eftlciency of the
industry at 97.6%.


10, II The average conversion efficiencies in the Indian industry as enumerated above is
comparable to international standards and even better in many cases. The variance in
P205 recovery from rock phosphate is also due to the fact that various industries use
different types of rock phosphate, which have varying amenability for conversion to
phosphoric acid. Nevertheless, the industry needs to be more competitive and the units
with low conversion        efficiency   need to improve these parameters      through better
operations and required investments.      The present Concession Scheme based on cost plus
methodology with the base costs derived on the basis of average industry cost. do not
provide enough incentive for improvement. It is felt that a departure from the cost based
Concession Scheme to a regime based on international benchmarks and pnces, will
induce the Indian industry to be even more competitive through improvement in their
conversion efficiencies and low conversion costs.



                                               119
                                      CHAI'TER         - XI



I:\TF,GRATED      NUTRIENT      MANAGEMENT              AND BALANCE         FERTILIZATION



11.1   1he increase in consumption of rertilizers dUling the 10lh pian period has not hecn

ahle to lead to a corresponding       increase in agriculture produc'ivit}.       The margin"'
rrodllCtivity of soil during the plan reriod has shown a declining trcnd \ is-a-\'is use or
fertilizers. This trend can he controlled        and rather rewrsed    \\lth halanccd usc of
fertilizers, whieh provides a propcr mix of major nutrien!s. like. '\.P&K dnd provides Jor
and facilitates   the use of secondar}       11lld micro nutrients like :,ulphur. calcium.
magnesium. zinc. horon, iron dc .. through fortif,cation and enrichment of different
fertilizcr grades, The present pricing scheme of various fertilizers is skewed in lavour 01"
nitrogenous fertilizer, i,e.. urea.   Moreover. the cost of nutrients N.P&K to larmers
through various fertilizers varies widely. providing disincentive fe'r use of higher priced
complex fertilizers.   Further. the product hased pricing has discouraged fortification of
fertilizers with micro nutrients or its supplementation with secondary nutrients. This has
led to almost zero replenishment of secondary and micro nutrients in the soil. which are
so critical for increase in agriculture productivity. It is, therefore. necessary to have a
pricing mechanism, which promotes balanced use of fertilizers          0'   is at least not biased
towards increased use of straight fertilizers.


11.2    There is urgent need to address the issue of pri~ing and rationalise the price of
various fertilizers in a way, which promotes halanced fertilization. The selling price of
1Crtilizers also needs to be rationalised realistically so as to prevent any excess use of
subsidised fertilizer. The selling prices of fertilizers can be benehmarked with agriculture
output prices (minimum support prices) to provide a logical pricing mechanism. From the
present product based subsidy and pricing mechanism. the need is to progressively move
towards a nutrient based subsidy and pricing mechanism.         The pricing of fertilizers can
also be left to market forces in respect of some of the finished fertilizers like NPKs. SSP.
ete .. which will promote fortification     and supplementation       of fertilizcrs with micro



                                                 120
nutrients and secondary nutrients. Apprehension          regarding spurt in pnces of such
complexes appear unwarrant.ed so long as there is continued control on the selling price
of straight fertilizers like urea, DAP, & MOP, which continue to be the main source of
nutrients for the Indian agriculture.


11.3    There are many physical mixture and granul,lted blends manufacturing             units
located in the country especially in the southern states. They arc catering to the demand
of crop and region specific gradcs of fertilizers particularly in the states of Karnataka.
Kcrala, Tamil Nadu, Maharashtra,          etc.   These crop spl'cilic physical or granulated
ll1i~lures are in high demand in various plantation areas and are found to be more
respunsive towards productivity.        The Government has been discouraging the growth of
phvsieal mixture units due to the inherent quality problems affecting the industry. The
granulated blend of fertilizers has been found to be a major improvement over physical
mixtures, more homogenous in nutrient content and can be easily customiscd to meet
region specific demands.        It would be advisable to encourage setting up of more-and-
more granulated blends manufacturing units in various parts of the country to promote
use of crop and region specific fertilizers, which will ultimately lead to balanced
fertilization and better productivity. An incentive scheme to encourage setting up of more
granulated fertilizer mixing units with proper quality control can be put in place during
the 11th Five Year Plan.


11.4    The fertilizer industry has been complaining of the time consuming process of
obtaining approvals of various grades of complex fertilizers and physical/granulated
blends of fertilizers, under the FCO. With the object of promoting bala.nced fertilization
and encouraging development of crop and region specific fertilizers. the Government will
need to facilitate the industry with fast approvals of various grades of complex or
granulated fertilizers.     This will encourage healthy competition in the fertilizer industry,
which will try to innovate and produce various grades of fertilizers in order to provide
better productivity       levels to the farmers. The industry will also be encouraged        to
 undertake extensive soil testing and recommend usage of appropriate fertilizers,            as




                                                 121
thereby they will b~ in a position to provide the right mixtures to the consumers at the
farmgate level.


11.5      Bio-fertilizer    means the product wntaining carrier based (solid or liquid) living
microorganisms        which     are   agriculturally       useful   i"   terms of nitrogen       fixation.
phosphorous solubilisation or nutrient mobilization etc. ," increase thc ICrtility of the soil
and productivity of crop.


11.6.     Bio-Fertilisers    can be c1assitled inh1 two categoric"
    (a)       Nitrogen      fixing bio fertilizers      like rhizohum,      a70tobactor,    aZllspiriliulll.
              acetobactor. blue green algae and a/ola.
                                                       &

    (b)       Phosphorous solubiliser bio fertilizer like. PSM and mywrrizae.


11.7      Bio fertilizers in India are now ]5 years old. Total installed capacity is 18679.5
MTs in the country. The capacity utilization is only 46.:27% with an annual production of
8643 MTs.        The bio fertilizers are a good supplement to chemical fertilizers however
they are not a substitute.       They improve health of the soi 1. Since it provides nutrients to
soil in a small and steady manner, its immediate effects are not very visible. Sales of bio
feltilizers in the country has not picked up because of lack of kn()wledge and its slow
impact on the productivity of the soil. Use of bio fertilizers is necessary to maintain the
soil health as more and more use of chemical fertilizers kills all the micro organisms
available in the soil, which are so essential for maintain the soil health.                Supplementary
use of bio fertilizers with chemical fertilizers can help maintain the soil fertility over a
long period.


11.8      The Department of Agriculture & Cooperation has taken up a Central Sector
Scheme "National Project on Organic Farming" from October, 2004. Under the scheme,
setting up of bio-fertilizer production units is an important component for which back
ended capital investment subsidy @ 25% of the total cost of the project subject to the
maximum of Rs.20.00 lakh per unit, whichever is less is t'l'ing proviJed.



                                                       122
11.9     The subsidy for expansion/renovation      of existing units is being provided @ 25%
of the actual expenditure to be incurred by the promoter towards expansion/renovation        to
the maximum ofRs.20.00 lakh per unie whichever is less


11.10    The eligible organizations       fOf setting up bio-fertilizei' production   units arc
individuals.   group of farmers/growers.       proprietary,   partnership finns, cooperati\'l's"
fertilizer industry, seed industry, companies, corporations, ~(JOs, SHGs and State O\\ncd
corporations like State Agro-Industries Corporations, State Seed Corporations etc.


11.11    A largd   t,,, setting   up 30 bio-fertilizer production units with an amount of R"
(,00.00 lakh has been kept for the 10th Plan period. So far, funds amounting to Rs.3(J(!.UO
lakh for 15 units have been made available to NABARDINCDC for providing subSidy to
the eligible organization".


11.12    There is wide variance between the cost of chemical fertilizers & bio-fertilizers.
Actually bio-fertilizers are not fCliilizers but only catTier based living micro-organisms.
The production of Bio-fertilizer is done in small units with less capital cost, hence it is
cheaper whereas the production of Chemical Fertilizer requires big units with higher
capital case    The cost of bio-fertilizer required for one acre (@ 500 gms/acre) is only
Rs.25-30.


 11.13 The main raw material required for bio-fertilizer are Mother Culture at various

strains of rhizobium & Azototaetez, wood charcoal, gum and packaging materials like
corrugated boxes and polyethylene bags. In addition, common laboratory chemicals and
 glassware would be required.         Mother Culture is normally available with bio-fertilizer
 project laboratories and agricultural universities, wood charcoal, which is the main raw
 material, can be procured from charcoal suppliers.


 11.14    The production      of bio-fertilizers    is inter-linked with continuous     research.
 Therefore research for new and efficient strains ofbio-fertilizers are to be included in the
 production system.



                                                   123
11.15 Application ofbio-fertilizers     as a fertilizer supplement is relatively a new concept
and hence requires extensive market development efforts aimed at increasing acceptance
of the product at farmer level. Agriculture extension services therefore play an important
role in marketing of hio-fertilizers.


11.16 In order to ensurc supplY of quality Rio fertilizer and in exercise of Po\\ers
conferred under Section 3 of FCA 19.'i5, the Central GCl\crnment has made Fertilizer
(Control) amendmcnt order 2006 vide Ciazctte notilication S.O. 391        (F) Oil   24.3.2006 to
amend the FeO 1985. Through the FeO Amendment Order 2006, 4 Bio-fertilizers havc
bec.:ncovered under FCO namely: rhizohium, azotobaeh\r. azospirilium and Phosphate
solublizing Bacteria.

11.17 Examination          of the feasibility of production of liquid and other forms of
fertilizers


11.17,1           Agro industries and agro-exports      have opened new avenues          for the
farmers in production of field and horticulture crops. Greater emphasis is now laid on
cost effectiveness,     quality and productivity.    The agricultural export policy aims at
diversification   of agriculture to create favorable environment for fruit and vegetable
production through adequate use of plant nutrients. The application of solid fertilizers, as
basal dose or top dressing, results in a lot of wastages due to leaching, run off, fixation in
the soil or transmission beyond the active root zone. In order to create an optimum
environment for the plants to absorb the required nutrients without wastages of costly
inputs, the use of liquid fertilizers through fertigation has to be taken up.


11.17,2           Nowadays mechanized farming is neces~ary to use materials and products
that facilitate automatisation    and offer a high performance. For that reason the liquid
fertilizers appear to be very useful fOffilUlation and with diverse advantages with respect
to habitual fertilizers.




                                               124
       •      Does not cause precipitations nor clogging in the systems of located irrigation
       •      Its dissolution in water is simple and very fast and unlike solid fertilizers. it is
               not necessary to have previous dissolution to incorporate them to the irrigation
               volume through suitable volumetric cquipment.
          •    Make thc automatisation tasks easier since it is enough to put thcl11in a tank
               and regulate administration of suitablc dose through the bulk injection pump.
          •    The content of NPK in these fertilizers is so regulated as to suit different
               stages   0   r crop   growth.
          •    Suitable NPK grades are formulated as per the required NP1( ratio for speci!;c
               crops and also for general use.


11.17.3            The aim should be to prepare the formulation suitable for               ell1J'   conditions
and solve the attendant                logistic problems,       particularly   in the transp0l1ation           and
application.     Liquid fertilizer         formulations    are prepared by using various               fel1ilizcr
materials available in the country, such as urea, DAP. MOP, phosphoric acid etc. The
liquid fertilizersll 00% water soluble fertilizers such as UAN, Super phosphoric acid.
Ammonium Poly-phosphate,                  Potassium Nitrate and Mono Potassium Phosphate have
becn listed in the Fertilizer (Control) Order (FCO). Various types of fommlation of liquid
fertilizers both as clear solution as well as suspension fomLs available in the market in
different trade names. These formulations are also enriched with micronutrients.                           R&D
programme should be framed to study the characteristics of different types of suspension
agents, methodology. of incorporation, of micronutrients, herbicides and weedicides etc.
A big boost to R&D for these types of fertilizers can be given provided the GO! brings
them under subsidy regime as recommended by 'Task force on balance Llseof fertilizers'.
Some efforts by the industry has been done, RCF claims to have produced liquid
fertilizer. NFL was producing liquid urea and selling with trade name of 'Ankur'.
KRlBHCO has also produced liquid bio fertilizer as a result of sponsored progamme.


11.17.5            Another trend is catching up fast, what is termed as customized fertilizers.
Depending on the soil test report, climate, irrigation requirement, crop and seed chosen.
like   doctor's         prescription,          a   particular      !ype   of    mixture   of        nutrient     LS



                                                          125
preseribed(customized           fertilizer) along-with   recommended    cases and time and method of

application     to get the best yield. This can be done through Agri-c1inics where customized

fertilizers     (formulations       like   medicines     are   pre-prepared   for   various   particular

applications.    This needs lot of research and tield trials befon, such formulations         are really

uscluJ. Awareness       in the farmers'     community     is aho to be created so that they do not j~ill

prey to the spurious      claims. The recommendation           given in this regard by "J ask f,'ree on

balance use of fertilizers',       may al~o be kept in mind.




                                                         126
                                              CHAPTER - XII


        SliBSIDY ON FE:RTILlZ.:RS - VARIOUS PRO.JEClIONS & ISSliES


A)LJREA

12.1               With     the objective      of making          availablc      i(;11ili;cers to the        farmer"    c,:

ancndable      prices. thc urea. the only controlled             fertilizer.   is made available        to fanners      ~:

statutorily    notified    maximum        retail   price    and deconlr"lIcd             phosphatic    and      potassic

fertilizers   are sold at indicative     i\1RPs. Since the MRP/lndicativc                  MRPs arc generally          fell"

less than the cost of production          of these fertilizers,       the differcnce       betwcen     their assessed

cost   of     production     and     MRPlindicative         jvlRPs      is paid     as     subsidy/concession           to

manufacturcrs/importcrs            of these fertilizers.     The following          table gives the ligures            (\1'



subsidy expenditure        on urea 'md decontrolled          phosphatic        fertilizcrs sincc 1995-96:




 P,ri,d             "
                 r"'~
                   conceSSion

                   disbursed
                                         1- Amount
                                           urea
                                                       of subsidy disbursed on
                                                                                                      Rs in Crores

                                                                                                      ] Th<OI
                                                                                                       all
                                                                                                       fertilizers
                                                                                                                    "1
                   on decontrolled         Indigenous                 Importe        Total for
                   fertilizers             urea                       d urea         urea
  1995-96          500.00                  4300.00                    1935.00        6235.00           6735.00
  1996-97          1671.77                 4743.00                    1163.08        5906.08           7577.85

  1997-98          2596.00                 6600.00                    721.96         7321.96           9917.96
  1998-99          3789.94                 7473.00                    124.22         7597.22            11387.16
  1999-2000        4500.00                 8670.00                    74.07          8744.07            13244.07
  2000-2001         4319.00                9480.00                    0.98           9480.98            13799.98
  2001-2002        4503.52                  8257.00                   47.34          8304.34            12807.86
  2002-03          3224.52                 7790.00                    0.00           7790.00            11014.52
  2003-04          3326.00                  8521.00                   0.00           8521.00            11847.00
                                                                                     .


  2004-05          5142.18                  10243.15                   493.91            10737.06       15879.24
                                   --

                                                           127
                                                                                              ,
2005-06
2006-
                  6596.20
                  5749.00
                                      10460.17
                                            =1~41"07
                                  -------
                                      10410.37
                                                           -   ---.-
                                                                1093.54
                                                                                 11878.24
                                                                                 11503.91
                                                                                                   18474.44
                                                                                                   17252.91
07(RE)
                                                                                      ~~---

12.2          l'he sharp rise in fCl1ilizer subsidy over the years can \1e attributed t,) th~
following main factors:


   •       Under-provision for subsidy expenditure leading to a earn mer for the ncxt year


   •       Increase in the fertilizer consumption    III   respect of all    mUJ,)f   nutrients.



    •      Increase in the prices of feedstock t,)( urea viz. naphth<i. fuel oil and gas; (the
           prices of naphtha which werc Rs.12500/- per M.T in the beginning of the year
           2003-04   have now increased to about Rs. 30.0001:\1['[and the price of APM gas
           have also been increased from Rs. 2850/MCM to Rs. 3200';-"1CMtrom 1.7.2005).


    •      Increase in the quantum of import of urea;


       •   Increase in the prices of raw materials/ intermediates for the production of OAP
           as also in the international prices of MOP.


       •   For more than four years. there has been no increase in selling prices of fertilizers
           i.e., since 28.2.2002, although the cost of production of fertilizers has been rising
           steadily due to increase in the cost of feedstocklintennediates.


12.3       The trend towards increased consumption is likely                LO   continue. Furthermore, the
general thrust of the Government is to substantially increase the rate of growth in the
agriculture sector. The Task Force on the balanced use of fertilizers set up by the
Department of Agriculture & Cooperation has projected that the requirement of fertilizers
in nutrient terms will reach 28.8 million MTs in the final year of Eleventh Plan as
compared to the present consumption of 19 million MTs.


                                                    128
12.4            \1oreovcr.        the average consumption     of ferfilizers per hectare of arahlc land in

our country       is dpproximately        99.7 kg/hectare     only whereas the world average                  is at 100

kg/hectare.       Our neighbours         namely Pakistan      (138 kg), Sri Lanka            r:n 0   kg), Bangl3de:;h

(177        kg) and China (276 kg) are much ahead                   in terms of feni!izer            consumption      per

hectare of arahlc land. Similarly,            the average productivity         in our country is less than 50%

when compared              with that in the agriculturally         developed     countrie,     likc Chim        (padd\'-

6074 kg/hec:are)           ctc.    It is evident that thert   is    il   need to further increase         the fenilizcr

 usage leve"-      '11   our country to achieve the desired Icveb of pmducti\ 'ly.



 12.5          fhe figures of production, in1port       and con:,,;un1!'"'ltion of maj()r fertilizl'r~        .. i/. urc;;.,

 I)AP. \101' and NPK complexes                 for the period ([,)m 1998-99 onwards                   are gi-.e]; in th,'

 T ahle below:



 UREA

        -

        Year




I Production
Consumption

   Imports

  DAP




                                                            129
MOP

                                                                                   (LMTs)

                                                              l2 (1):;- -1 20il4-T200S:
                                                              ..
                                                              !        ,           I       ~


                                                              04            O'i·               06

                                                              I
                                                              j-
                                                              1-



                                                                                       i
                                                                                       I
                                                                                           *
                                                                           :;4.09--+-45.78




                        1
                         2000 01
                             -     r~21 ::OOF' :-~412:-C-

* Figures for consumption for the year 2005-06 are provisional as provided bv DAC.


12.6            While the cost of production of fertilizers has been rising steadily due to
increase in the cost of feedstock/intermediates,     the increase in sale prices of fertilizers has
not been commensurate       with the increase in the cost of production of fertilizers. There
has been no increase in sale prices of fertilizers since 28.2.2002. A marginal increase in
selling prices of fertilizers announced on 28.2.2003 \Vas withdrawn w.eJ 12.3.2003, but
the increase in selling prices was rolled back after a few days i.e.. w.e.f 12.3.2003 to the
levels as were existing prior 28.2.2003.           The cutTen! selling prices prevailing since
28.2.2002 of major fertilizers are given in the table belo",:




                                              130
                                                   Sellin!! price of fertilizers
                       ----
       i- ------------[.                             ..
                                                      -------,--,-~-c__c----,- ------           -----
                    S.No.            I            Name of the fertilizer               Maximum Retail Price

                                     I,                                                     (Rs. per tonne)
        --·_0- __       - __ --'     ~---------           ~ __,   .     .                         '          _




       r-=-- _;~~__j                                                         :::~;
                                                           ~_J~_e;~=-~-_-_~i-----
       II   __   ~~:-              --1                                       -~±--_-_ 69:~_-:_~_=)_
                                                   com!~e_~_x=~e_prt_iliz_e_rs~                                  un




       I                 5..       _.L                      SS~ ..            J_      V3ll~sfrom Stale to Statl' .




12,7        The increase in sak prices of fertilizers has not been commensurate "ith the
increase in the cost of production of fertilizers is evident from the fact that the ',>,hilethe
weighted average cost of production of urea has increased from Rs 1340/MT in 1977-78
to Rs. 9444/MT, the MRP of urea, which was Rs. I550IMT in 1977-78, is now at present
only Rs. 4830/MT                   i.e., while the increase in the cost of production is by more than 7
times, the increase in selling prices of urea during this period was only by 3 times


12.8                      Pricing         policies     governmg       the   payment    of    subsidy    to       fertilizer
manufacturers have been rationalized with a view to encourage production of fertilizers at
energy efficiency norms at par with the international standards and to induce companies
to take cost reduction measures on their Own to be competitive.


12,9                      Recognizing the cost effectiveness and efficiency of natural gas over
naphtha and FO/LSHS, the pricing policy, announced in January 2004, provides that new
urca projects,              expansion         of existing urea units and capacity increase through de-
bottleneeking!revamp/modemization                           will be also allowed/recognized if the production
comes from using natural gas/LNG as feedstock.                               For the same reasons, a policy for
conversion of the existing naphtha/FO/LSHS                              based urea units to natural gas/LNG as
feedstock has also been formulated in January 2004, which encourages early conversion
to natural gas/LNG. Furthermore, the Department of Fertilizers is in thc process of fixing




                                                                  131
milestones        for conversion           of non-gas      based units to natural gas/LNG                            as tbe gas based

production        is cheaper and efficient as compared                            to naphtha and FO/LSHS.



 12.10           As per a sensitivity           analysis done by the Departl1'·"'t.                        any inerea,e       01 d2Cf,"\5t'

 in the cost of feedstock                  by US S O.5/MMBTll                         would        have an impact             0'\    ,ubsidy

 expenditure       to the tune of R5. 1158 crore pCI' annum



 12.11                  If the naphtha         based and FO/LS! IS based ur:its convert to N(,/LNG                                       and

 gas/LNG         is nlade available         as per reyuircnlcnt.                  then as pcr the sensitivit)             analysis •..
                                                                                                                                    hlllt'.

 the extcnt of savings at various prices ofJ\'G/I.NG                                \\mJid h,·.LS l;d)ows:
                                                                                                                                R5. in Cfon:
'S-av'i;;-g--i~'~S~~~I~g---i;~             -
                                      'S~~ng              i;-::~;ving-Tn-ISa\                       ing-

 subsidy at        subsidy       at        subsidy         at   I subsidy"
                                                                ,
                                                                                       at       subsidy         at   I subsidy          at i
 Ng/LNO            NO/LNO                  NO/LNG               ! NG/LNG                        "CjiLNG              'NO/LM;

 pnce       of      pnce     of US         price of US          I price           of US         price of l;S $           pncc       of US
                                                                    i                       I


I' US        $      $
                                      I
                                           $                    I'      $
                                                                                            .
                                                                                                8.5 MMBTU            !
                                                                                                                     i
                                                                                                                         $
                                                                                                                                            .

16.5/MM13           7/MM13TU           17.5/MMBT                    'I 8/MMBTU              i                        I 9/MMBTU              I




   -
t~~8=J~5~===~59 _J~9-----~960~~=~1                   n.    '~59---

  12.12                 Furthermore,           replacement              of naphtha        by NG/LNG            in case of gas based

  units which are using naphtha                  to meet the shortfall of would also result in savings to the

  Oovernment.           The quantum            of savings               woulrl be about            Rs. 522 crore             per annum          if

  NG/LNG          is made     aVailable         at a price of US $ 5/MMBTU.                                  If additional          gas/LNG

  becomes        available    at US $ 7/MMBTU,                  then the savings would be Rs. 340 crore and only

  Rs. 157 crore if additional              gas is available at US $ 9/MMBTU.



  'Make or buy' option:


  12.13          A decision    for 'make or buy for urea' can be takcn when a comparison                                              is madc

  between        the cost of production            of indigenous                  l:rea with the import parity price ([PP) of



                                                                            1)2
urea in the international market. While the total weighted average cost of production of
urea is at present Rs. c)444/MT, the weighted average cost of production of gas hased
units is Rs. 6280/MT. it is Rs. 15tl79/MT for naphtha hased units and Rs. I 1430/M ] lil!"
FO/LSHS based units             At prescnt. the !PI' of urea is Rs. 11232/\1 1. The tahle bell"\
:;ivcs the IPP of urea since .Iuly 2001.

                                                      ---T----------
                                    Qual'kr               i.                IPP (Ih.lP!\tT)                 I

                           .lull' - Sepkmher,            I                                             -1
                                                                                                            I



                                                                                                7240
                           Ocl-Dec 2003
                                           _.~_-l-
                                                        i-- .                        ~
                                                                                           --78-'3()'
                                                                                                            1
                           .Ian-March. 2004                    I                                8698 '
                                .-------   ---   --      -j-----------
                           '.    1.1       7004                                                 'ill] 2
                       I~il~:i-s~~~~;iber-,--            i-- -----                                   --i
                       I   ""0')4                              I                                    8658        I
                                  2
                       , ~~t-l)ec., 0(i4-~t                            ---------.-              11573
                                                                                                    J
                                                                                                                i
                       i .lan-Mar~-h, 2005                         I          - -- --------12028\
                       I------.-.-----------r- --------------                                  ------I
                       I April-June, 2005     I                                                 12161 :,
                       .                                                                                        I

                       !-.r~ly-September,n----                                                      -I
                       I                                                                                        I
                       12005                                                                    11096 I
                       1()ct--Dcc~2005                                                          11624~
                                                                                                           -j


                           Jar~-M~~~, 2006                                                      1123..:J


 12.14     It would be seen that the weighted average cost of production of urea of gas
 based units is only Rs. 6280/MT as compared to present IPP of Rs. 11232/MT. it is,
therefore, necessary to strengthen the domestic production capacity of urea, which is not
 only cost competitive but would also help in attaining self-sufficiency in production of
 urea which is of utmost importance in the interest of food security.                               It is in this context
 that the Government        has encouraged production of urea based on gas as feedstock.
 Furthennore, non-gas based units are also required to switchover to NG/LNG.




                                                           133
B)                P&K FF.RTlUZERS


12.15             There has been a steep rise in the overall concession                        on sa:e of P&K fertilizers

during the 10'h plan period, This rise has been on account of increa,c                                      'It     consumption     and

at the same                time.      due to steep          increase    in the cost of product'''!l.                which      has been

completely            cu';hioned            frol11 the farmers by enhanced         concc!"ion    ralc               rIle tow I dmount

of concession               released        on sale of p&K fertilizers          during the I (lth I'l", period and the per

lonne average concession                       released on sale of OAp and MOP has hl'c:',                   clt.   bel 0" :
Table 3.1


                                      Subsidy on "I,P&K Fertilizers (Rs.in ('rores)
            iU;e~-I,---P &-1<. f~~tilizers -'--Total" ~carry-l"l~ti-nd;I~~-;;~i
     ',.~~~;-
                          Isubsidy     :1   Indige';;u's[!,lImported Tot~1 subsidy              'oHr to of subsidy fo~
                                                                                   disbursed!      next                 the year
                      I
                      I


(200'2-2003 _78758089~_~r
                        '2                        '4        8
                                                        '8 -j
                                                             I




                                                                 737._
                                                                                    in year
                                                                           3225 'JIOI         ,.---r---=~
                                                                                                   year                                 I




fo:::;:: '063,f·3977 ,7"6°, ~:;:~ :·;:::j-=-17~49-
                         --::~;                 2 6 0 6



:~005~200(q                1174914500                            2050      6550      18299      L 5771               t_2-069~~~]


Table 3.2 - Average Concession paid on P&K fertilizers


     i'   ~l._~
           !
                                                            Average Concession

                                                                                                                               l
                                                                                                        ,


                                                                                          I
                                                                 Indigenous DAP                        :\1OP
                               ---.                                                       I
                                                                                                       3087~-1
                                                                                          I
 002-03                                                                  2570             I
                                                                                                                            --]
  003-04                                                                 3254                          2 822                   'i
                                                                                                                               ,
                                                                                                        -------~-,
  004-05                                                                 4826                          5610
                                                                                                   -
  005-06                                                                 5759                          (, 592                   i
                                                                                                             ___            .J
 ,vo Increase in 05-06 over 02-03                                      124.10%       ~113                    ,52%              j
          ,
                                                       --                                        ..--- --~_._-




                                                                        134
12.16 The rise in concession rates and overall subsidy bill during the 10th plan period is
a matter of concern. The major increase in subsidy bill has been due to the increased cost
of raw materials/intennediates   in the international market. It is necessary that the Indian
fertilizer entities arc encouraged to invest overseas in phosphatic and potassic scctor. in
order to ensure sustaincd supply of raw materiallinternlcdiates to indigenous industry and
at the same time. provide some immur;ity hom the volatilities of intema!ional prices.


12.17 The consumption       of fertilizers during the I Ith plan period is also expected    tll


increase considerably and this will have an inf1ationary impact upon the overall suhsi,h
hill. The average concession rales in the last quarter of 2005-06 are at an all time high
and it may not be s~lslilinahle to further increase the concession rates to cushion the
impact of increase in cost of production. if any. Thc global energy prices do have a direct
bearing on the cost of production of fertilizers and, therefore, the increase in subsidy bill
on account of increase in concession rates to offset increases in costs will depend upon
global energy price trends.      However, it is felt that anv flu1her increase in cost of
production nceds to he shared with the consumers by benchmarking the subsidy levels as
a percentage of average delivered cost of fertilizers.


 12.18 The groW1h in demand of subsidy during the I ]th Five Year Plan has been
projected to go up to Rs.4 7000 crores in 20 11-12 in case the present trend of
consumption and increase in cost of production continues. The mmual subsidy bill during
 lIth Plan period has been projected with various assumptions relating to increase in
 consumption, increase in cost of production, conversion of naphtha based units to gas
 based units, annual int1ation, etc. for varying scenarios as can be seen at Annexure-l2.t,
 12.2 and 12.3. Even the most optimistic scenario wherein the consumption groW1h is
 restricted to 2% per annum and the cost of production kept at present level with increased
 MRPs from 2007-08 onwards, projects an annual subsidy bill of Rs.29206 crores                III

 2011-12.   The projected groW1h in subsidy bill during the plan period is a matter of
 concern.   Efforts need to be made to control the costs of production through strategic
 intervention in the production supply chain and at the same time, the cost of fertilizers to
 the farmers needs to be rationalised with a direct linkage to the agriculture output prices.



                                              135
12.19 The significant increase in concession rates               15   well as use of P&K fertilizers in
quantitative    terms has led to much higher reqUIrement of subsidy.                   The budgetary
allocation,    panicularly,     during the la~t two year' have been woefully inadequate                 to
service the actual payables. As a result, there have 't<:cncuntinuous delays in paymcnt of
concession     dues to various phosphatic & potas';:, fertiiizer manufadurers/importers,
resulting in hcavy liquidity crisis in the industry. F.e problem has bccome more acut~ ln
thc penultimate       year of the 10th plan with the carryover liabihties                  adJing    upto
approximately Rs.6000 crore at the end of 2005-0f'                Earlier, the delay in release   Web   on
account of delay in certification of sales by the "'de (,c,vcmment.                  But. now thi:, has
been compounded         by under provisioning in Budf~' allocations leading              It)   increa,e in
carryover liabilities year·after·year.      This has led   ',C   an "dditional burden on the industry
in the form of increased cost of capital and the sm2Jer companies are finding it dit1icult
to survive this crisis. The hardening of bank interest rates has only compOlmdcd this cost
even more. The Government needs to take cognizar.ce of this compounding problem a:1d
ensure liquidation of these increasing liabilities once and for all so that the indigeflous
industry does not loose it~ competitive edge.


12.20 The delay in certification of sales by the State Governments is still a major
impediment in early submission of claims by the compa.'1ies and receipt of concession
thereon.      The Government is aware of the problem, being faced by the industry on this
count and has authorised an alternate web·based mechanism for on line monitoring of
production & sales of P&K fertilizers and release of concession thereon.                        This new
mechanism needs to be implemented at the earliest.


12.21 The industry has also been complaining abOll1the concession rates being fixed by
the Government.        According to them, the delivered price of fertilizers received by them is
inadequate to fully offset their costs of productiopc marketing and distribution till the
 farmgate level.      The main concern of the industry has been the fixed costs relating to
marketing,      distribution,    transportation   and sales of fertilizers, which has remained
 stagnant for the last four years.            A policy nee"!, to be evolved to look into the



                                                    136
adequacy/inadequacy             of concession       on sale of I'&K fertilizers           is c(jnsidcreJ     necessary

dnd     needs     to    be    completed        expeditiously          The       Polic:y sho\lld   have      an    inbui!t

escalation/de-escalation           clause      so that trends        in cosl of pruducti(,n,          marketing        and

distribution      are either indexed           or captmed       throl.iEh " mecl1,mi·rr. of H1O\ing aver8gcs

while ensuring         that the subsidy         levels remain wi'.hll' the a'1m'.,: e'J1I;rlemenls under Ihe

relevant provisions           of the WTO Agreements.



Suggested measures to reduce suh~idy expcnditure'


12.22       Following        measmes       arc suggested   for ;),ith,i""      do\'. n the iubsidy expenditure-.


(i) .  By time buund actiun plan on adcqluk                                    availability of gas and pipeline
connectivity for the fertilizer Sllctor:

            For gas based        ul'its.     cost of feedstock        a,,(:(oun!s for 60% of the total cost              or
production,       whereas      for naphtha       and FO/LSHS         h:l,;ed uni!:i, it is ahom 75% of the lolal

cost of production.           The production        of urea based       (\11   natural ga, as feedstock       is cnerg)

efficient       and cheaper.      As far as urca           is concerned.         (,6'Y" e'f subsidy    goes      1.0   36%

production        based      on naphtha        and FO/LSHS           whiIe 34% of subsidy          goes to 66'\'0 of

production       of urea based on gas. This clearly hri:lgs out thac go, based production                          i, CO:it
effective      and must be encouraged.            There arc at preset 10 plants including those belonging

to private sector who are producing                  at a cost more than import parity price of urea. Ont

these, there are four units whose per tonne subsidy itself is morc lhan II'P.


            All non-gas        based units must be converted                to gas at the earliest.        The non-ga,

hased units which do not convert within the stipulated                         period of three year, should eilher

be shut down or their concession                 rates should be restrictcd to IPP. Conversion               of n<Jp.-gas

based uits would result in subsidy reduction                   by 3300 crore per annum.



            Capital subsidy should be granted for early conversion                      of FOILSHS based plants.


            Additional       domestic      capacity should be based on gas.




                                                               137
            lncentivising       additional     production    beyond     lOO'Yo by gas based units should be
encouraged          by making them available gas at reasonable                 rates.


            Coal gasitiCtition        should    he encouraged       even ir cerlai~         capital    ~llb~idyis T.O n,'

granted.     However          bcfNe' that a cost benc1it analy,is            sh,)uid be dDne to sec [hat it is co':

effectivc                  r
              ill the IOI1~. UI1.


            ;\s     the l:Ost of fcedstock          is pass tl-Irough        undci" NPS.       the suh~:idy hili         \\j~j

automatically          go up as -~he prict.:s of petroleuI11 produ(:t." :ire soarl~1g up. In a rutt~ristiL

scenario.         price of natural ga:-',""ill be n1:lrkl't determined,          Th~rc i.')   n~l.."'d 10 In(lk~   a\:rbhj-,~

maxitnwl1          quantity    of ,_~hcap (APrvn NG to th'? lirtdilC,              ~eclor on priority         and cn~,urL'
supply oi'the balance rcquiremel't                 on [easonab!c    rales.



            As per a sensitivity        analysis     done by the Department              any increase or dccrease           iT'

the cost of feedstock            by liS $ O.5/MMBTU          would have an impact on subsidy expenditulc

to the tune of Rs. i lSR crore per annum.



(ii).       By renovation/modt'rnization/revamp                    of existing urea units


            Renovatiol'Jmodcmization/revamp                 of urea should              be undeliaken       so that the,

become        energy      efticicnL    Even in the gas based categ0ry, there are \mits whose energy

consumption            is mllch higher than international          standards.     POlL has carried out a study in

this regard. With an investment                 of 15,858 crore, all plants ean be made energy efficient,

which will result in annual savings to the tune of Rs. 10,208 crore with a pay back period

of 1.55 years.




(iii).      By setting Joint Venture Projects abroad                    based on cheaper feed~tock:

 Exploring          possibilities     of setting     up Urea Joint       Ventures         abroad      on the pattern        of

 OMIFCO            and tying up long ternl supplies of I .NG in the countries having rich reserves                          of

 gas and where gas;s aVdilable at prices less than US $ l/MMBTU.
Possibilities     for setting up Joint venture ammonia                   plants with buy back arrangement                    need

to be explored      in the countries which have abundant res"rve~; of gas.


(iv).       By creating        schemes      for import     substitution


          Current     status    ()f    irnports of tinished     fertilll.er<; J.~lJ intcIrl1l'dii:Ht:<.;/ra\" lnat..:r:~1is
used in the manufactme                of ll:rtiliLcrs is <)flhe order of I's. 1(,78:1 crere.



          i\ detinite      policy needs to h~ evolved              i!l   Pro.jc<·~i)\\l~i()j' o( the        Dl'panldt'I1'       k.,

imrort substitution         or tying up long tcnn arrangement,)                    ~hcir
                                                                               ~;!!'       11l1pl',rls.



          The cunent        policy of pricing of phos acid, o,drhur.                   rock ph<'sphate is mcrciy                 IS

based on the concept of international                 markc! pnce of lh~ produ<.'ts \\ hich mean,; it is enly

a spot price.       It does not indicate any lor,g contraclUai I'rice. Since t;)e dCiTJand pattern 01

the Indian Fertilizer           Sector of urea as well as Phosph~tes!                   Potassic          !ertili/.ers     is well

known,      any agency         on hchalf of the Government                   should ncg(o[id~("'wi~h inlefTlar;(n,,1

suppliers       to book their production            on a long term basis lor .5 to 25                       years sine.: the

requircment       of the     fertilizers     is likely to growth in coming years.                 An alternative            could

be to set up joint ventures               in the countries    nearest to the cheapest fecd stock.                        This step

can remarkably        take care of futuristic          requiremcnt         and the subsidy ~)ill on market pushed

imports might fall down.                 The economics       has to be e"amined            separately        by the experts.

For example,        currently         we are importing       Ammonia         30 lakn MT (a~approximately                     at an

average     rate of 270 US$ PMT whereas                      if same ammonia           is produced           in :my country

where the gas rate is less than the US$ l/MMBTU,                              the price of import              of JV       ",;11 he
substantially      be lower than import pricc.               The J\!s will        abo have tlexibility              of sell the

entire production          to international       market     in case the !,r~)duction is not lifted by Indian

government.        The JVs could also he considered                      to he funded by plan budget.                    It is also

pointed out on that from 2006-20]                  I variolls plants are in the held of urea, ammonia                          and

DAP, etc. are coming              up all over the world.                 The project division!             or any company

designated       by DoF should start negotiating              tor long lenn ofT-take of th<:se plants.




                                                             139
         A special      tUik should bc' entrusted                  h) a fatilizcr      company      like f'DiL to cxpl(lrc

possibilities     of lV, ahmad and (,ptions of investments                         in for,~ign counh ies.


         Additional      prodilctioll capacity needs to be ~reated in the country based un natural

gas by way of setting, up new and expansion                               prl)je~ts. rcv:yal or clused urc~\ unih.           ~lIld

production       beyune! 100% by (xi,.ting urea units.


          !\m111onia        plar;t~ need t;,'. be set up within                    ~h~ country     hascrJ ('l'l ga.~ ~;() t lid
amlTIonia is av'nilahk          '-It   dlt'aper   1-;Jtr";S   as compared     L)   i!ll~'Olk'd ,UTlHlOf1!;l.




          Possibililie:-;                       rnines
                              l'l' ~,.·~:qlllrir~g             of rock phosphntl'.       \luriak   or Pc'ta~h.   sulphur-    ,.'rl',

in the counties.      wb;c\,       'HI\'>'   abundant         resenTS of these C,l!ncs. should he cxplored             clI1d.' V

plants should be pt,t up with the help of private scctor and putliic sector companics.                                       I hi,.

is the only way to curtail                    prices      of these    commodi:icCi         ill the illlernat'Gnal      nwrkc·,.

Acquiring       of mines       and lung term tie-ups wil! go a long way in stabiiizing                           the peil'c" ,if

these commodities.



(v).      By encouraging balanced fertilization:


Balanced        application      of fertilizers        should be encouraged             which slJl1uld (;mphasiz~           usage

of complex        fertilizer~' as against the present emphasis                      on usage of stra;.ght fertilizers         iik~

urea, DAP and MOP. Pricing offel1ilizers                           should be nutrient based.



(vi).     In times       to come             the other        altematives      and modalities       for management            and

disbursement        of subsidy including                disbursement         of fertilizers   subsidy to farmer~; ne(,Q t"

be explored.       On this issue, two wncept                    papers have been received by the Working Group

which are appended.




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                                              I~
                                                  CHAPTER-              XIII


               R&D AND TECHNICAL                     ISSUES         IN FERTILIZER              INIHJS.RY
                                                                         •


Current       statm of R& D in fertHLwr sedor


13.1      The number         of fertilizl'r      rroducers      h~v~ ful!-Iledged         R&D ce:1lers like Gsr,(

Baroda.       !T[)O      Cochin .. SPIC          1 uticmin,     RCI          !roL1b3Y, CJ:'>JFC nhmuch.              '. JMC(

Arnbernath       etc. Most of th~ R&D centers in ICnili7cr ,omranies                            are recognized        ;IS   In-

!louse       R&D centers        by Department         of Sci",ntific         ar;d industrial    Rtsem-"h,       Minisll'v    of

Science       and Technulogy           (DS1R).     According          to inf(-mTl~tion collected         by :'AI. '1C1,c'.'"

fertilizer    producers     werc involved         in some kind of R&D activities. The R&O centcr~: of

ten producers \verc rt'-cognizec by DsrR. During the pro\-'e~.;sut' preparing report of s\lb
group IV for lOll, five year plan, the ktters                    wcre se.nt tv seveoly-·lwc,             producers     of ail

types of fertilizers        and concerned         consulmnts/laboi"atories.            seeking informatton           on their

R&D       activities.     The     response     ha'i come        from     oniy t\"'ilty-foUt        producers        and     one

consultant      which confirm          the conclusion         of F Al        There I.as not been much of change

during last five year:; and hence the dats/info:-rnation                       collected are j'ully tepresentati'lc          of

current status. However             it should be not"d that fun fledged exer;~ise liike lasl time has not

been carried          out. The companies         are m;,inly concerned             with trcublt, shooting,         technical

audit & inspection              exercises     and ether       Sh011-term prl'blems.            "DIL     !ll   the past.     and

presently,      GSFC,      SPlC and GSFC are [ping                    beyond these exercise            and 'Ire producing

some encouraging            results.    The current adi vities in PDIl                are reialed only to the day to

day operations          of catalyst plant. POlL have closed down gl.·neral P&:D as pt'!" directive                           of

GO!.


 13.2        Research     and Development           projects     .lYe also sponsored           by"he    DoF/industry         for

the work to be carried o ..!( in R&D laboratarit,'i                     and academic       imtitUlions        like HT's. liP.

 BITS Pilani etc. Over the years a vasl infrasltl.tClutC has been creale·din                                    the countr).

 which include          a chain of national         laboratories.       IItl1versitics and s)1ccial1:'ed institutions.



                                                               144.
Barring a tCw no major R&D programme                         a;'peared      tn h, ve b~en takt:l1 Ei' ~yth'.: pll!:'lll:

funded institution:;.                                      'rtilizer.
                         in the country. in the area 'If f•.



13.3    The assessment         ofR&D      worK has been d.>n~ based                  ":1    the i(,I]o\'.!n,; p,       I.   'nekrs


                  Expenditure        made on eae'! R&D prci,'cb



                  Benefits to th~ ind;]stry Oil imp!emcntll;'w                      III       ,
                                                                                          ',1..   ",,,IC'-l


lcnihzer se\:tor in last 3 year~ ~sa:~foilo\vs


                  IC--;;~p;~y--. ----f                   I
                                                             A~~-llnt SI\~nt>l(~ lakh
                   ----.--.               -------t-::-: ..                   -                                  -J ,
                   RCF                                   1169
                        ~-:-,~-;--~~--';-----
                                        --"'1-")               -to, --
                   IFRO-Fhulpu.                          I L. .. '
                   ~       ~                       n_'   1---- - -
                   IFFCO-Aonla                           I 0.0
                  ~FFCo:K~dl~=-=T{~:3--                                                                            i
                                                                                                        -I
                   GNFC                                  : 184.87
                         . .
                         __
                  _________                   .          L_
                   SFC-Kota                              : 0.05
                   NFC~         -----------r-o:sf-                                                       -- -    -~




                  rsPlc---n----n---i26~6(;---- ------
                  rcm------~          ---
                            --t~--------.
                             ~:~------
                        ~~~~~{:::;l~----i
                  ~-------
                   BVFCL- Namrup
                  L_"            .        ~
                                                    --r;;-"

                                                         ~
                                                           I 0.0
                                                                   ..
                                                                    _
                                                                        - -.~-




As is evident    from the table ahove the total amou:'! of cxpcnditllr';                              made ~'n R&D ';'or hist

three years     of ullits by fertilizer           plants      is of th,' 0rdel' Ill' Rs               8.25 clores           wai'.:h is

miniscule     of the turnover        of these units. Thi; does              -\o!   COmlll~l1_"Fate with the ;- /e and
status of fertilizer industry.
Achievements


13.4    Some of the highlights of the ,,<:hicv'eme:;l, of R& [) work c;,rried ou( by R& I)
centers of fcrtilizer industry arc hereunun:


        •   POlL has done pioneering               r~~carch        0','.   r 35 yc~; 'S i,~ an
                                                                                           the       Q ()f     ~alai yst :rJd

            has significant    a('hie\'el\-lerJ~    J;l   the de..-\.,npml..',(l! ('f pi"adicail)'     till"   ';.~ntircr;Jn~\~

            of catalyst relating to amc\I'f!i,; prod\.H..:tiu:'t               ~;HT(:)S       d
                                                                                          ha<.: sc 'ecr! achieved;n
            the devt~lopment      of sulphui ....-Kd
                                              :                c[l~j;':''''~      ~lr;I!Jhlni:J ,Ji~:l,ci;:~~.iiJn 1::
                                                                              ~ir~d                 l                     1),',-

            catalyst field ther\?   ah.~ :c;udl    r,:;((.iwtlcd                   re'-, E/l,SF,
                                                                      ;';"n,:, ~ik(:                 L,c"(L     ;jnd lbldur

            Topsoe and PD!L's             w'.>ri-;ill the Cj[:'!v';t fide ;s at PH, 'with Ine b",1
            dc\'elopn1ent   in these organl;<lt.ions.



        •   Urea hydrolyser and NOX dba, ~ment process from thc JRii g:", of nitric acid
            plant has beell developed b;. PDli,


        •   A process was developed by "I'IC R&:D center for bin-hydrplysis (,f 'Jrea
            which is being used for pollutien cOPIrol in commercih' ,eak.                                       Similarly a
            process for electrostatic remova: of chromium from cOCliingwater has been
            developed and commercialized.


        •   Process for preparation of Plant Growth Regulator (SP~C Cytozyme), non,·
                                                              e
            chromate cooling water trealment system ,md bie t•. atm em process for urea
            plant wastewater developed by SPIC                      :TC    available lor commercial benefits


        •   Liquid fertilizer UAN-32 developed b/ GNFC is avai13iJ!e j                                     ,   comr.1crcic.l
            benefits.




                                                           ]46
,   ,




                •   GSFC        R&D center has cleve-l.oped cx},erf~e               In "\tTC310TJ mcnitoring                   and
                    selection     of nmterial of ':::0llstnictio[l,      Other COrnpi\,-:;r':'3 on c~)nl:'lcrciJi            h;lSi~.;

                    are uti1'izing their expertise.


                •   IFFCO~ Phulpur           unit haE aenlcH1SiLlted the lcchn,jl,,~'> l~-_)rTli).k~J:~_
                                                                                            i                    h:llCk      :'fI)[11


                    fly ash, The teehnok'gy is n:ady fi\, eOllJ1nerciaEzdu\"


                •   Patented       ~;lo\\    rekast:   Fertilizer     dc\"dopC'd   ;lV   ~FJ,                                '
                                                                                                  d\'· :-Jlt'~ '-:', 'll~ll •.rcu:

                    exploitation,


        [hough there have been some sigill ticant aLhievell1':n' but ;:JractiL.',ll:, ';"                           :,e.S    {',cel'

        c'\l11mercially exploited.          [he effons rC4uired between :ab ~;c31c/pi]01pI. "'1 "':;k,,,.j
        commercialization        arc greatly Jacking. !t is. r~\;ogn;7.t:d th'll unk~s          d'~:\llO!':~r : :\"1;       plant:;
        are not set up it is difficult        to commerdalize         and improve the nc\:." lnnc'\'ili'f';          (; hUi       th~

        system prevalent in the country ~~reatlydiscourages for such deci,jo:1s


        Areas of strength


        13.5    Indian engineering and consultancy organizations ~lrepi'O',iding sc," ,~('s n ",t only
        for the design and engir.eering work, but also for pro,'uri'llent,                   inspectlGr.. eqlcliting,
        and supcrvision         of construction        and erection of fertili"er plants. Inii;aJly, a'                           the
        equipment down to structurals. bolts and nuts were imported, However. capabilities now
        have been built in mechanical equipment fabrication and mad1inery nHln,t!aeturing a·cas.
        At present there are very few items, which needs to ,)<.' imported even for large modern
        fertilizer plants. Catalyst plays an important role in the ma'''lfacture of tertilizers, indian
        companies manufacture now all most entire range of cataly,;s based                      01:   indige"lous and 'or
        importcd know-how. Highly qualified scientists and technologists are illvoh~J                                       if:   j',C

        R&D centers.


        Thc identified strength are:




                                                                147
•     Facilities are available with various organizations in different area~;such as
           Catalyst research - POIL & CSIR Laboratories
           Zeolite based catalyst- Associated Cement Company Ltd IACC)
           Process design- POIL & FEDO
           Pollution control-   POlL. CSIR Laboratories INEER\)
           Coal gasification study facilities at IICT Hyderabad
•      Highly qualified technical manpower
•      High confidence     level be(;ause of some recent technical           achievements   (like
       hydrolyser of PDlL ar.d bio hydrolyse!)

•      l.ong experience
•      Scope to develop several ne\\ pr<lduets


Areas of weakness


    13.6   In spite of tremendous efforts made in developing our technological base in the
fertilizer sector, gap still exists.   The country still imports basic process know-how for
ammonia,       urea and phosphoric      acid plants besides, some critical mechanical        and
    electrical equipment, and micro processo~ based instrumentation.


    Despite vast knowledge pool in the country there are several weak points in the systems
    itself and inter systems. Some of these have been identified as under:


            Lack of Policy direction for R&D by GO!
            Resource crunch
            Lack of vision for technology and product development
            Insufficient incentive/remuneration   to attract talent to R&D
            Lack of modem facilities compared to world standards
            Lack of coordination among various research/academic institutions
            Lack of interaction between industry and research/academic institutions




                                                  148
              Development of process for production of Potash fertilizer from gluconite
              Recovery of potash from sea water
              EXploitation of Indigenous rock phosphate


13.10   Long renn R&D Proposals
              Developmcnt of Memhranc based C02 removal sy'tem                in Ammoma
              plant.
              Running of front end ammoma plant at high ptl'Ssurc and study of
                           o
              pcr!tJf111anCef catalyst at higher pressure i'l PRo HT, and I I reacl(),""
              Dcvell'pmcnt of Synthesis catalyst for operwng at I()\\~r pres"u'c
              Incorporation of idea of fuel Cell based power generation in fertilizer
              plants
              Development of Pre-reformer catalyst
13.11 Medium-Term R&D Proposals

              Development of solution based C02 remO\ al process
              Development of conventional ammonia technology
              Urea process technology
              Recovery of C02 from the flue gas
              Development of conventional         ammonia synthesis catalyst from Indian
              magnetite
              Primary reformer catalyst
              Efficient alumina support for steam reforming catalyst
              Improvement ofHT shift catalyst
              Sulphuric acid catalyst
              Total recycle concept in cooling tower water
              Recovery     of   fluorine   compound     from   phosphatic    fertilizer    and
              development of a technical know-how for production of dense AIF3.
              Sulphur resistant catalyst for Nox abatement
              Development of improved dianodic inhibitor for cooling waler system
              Studies on hydrolysis of poly phosphates in cooling towers and its control
              Urea/CAN coating



                                            150
Thc obvious purpose of identifying                area ()[ strength and weakness is to take action to

overcome     weaknesses       and maintain or increase thc strcngth.



13.7     The fertiliser      industry    is highly regulated         and almost half of its turn over comes

!rom the budget         of Indian       government.        In such " situation.         it is necessary        that the

government       takes an initiative      not only in terms of arranging             money but also providing             a

mechanism        for boosting       the R&D activity in the s,:rtor. A coordination                 group for R&D

may be set up in the Department                     of Fertilizers    e"nsistir,g    of representatives       of other

departments       of the government.             FAL Industry        and ('SIR.     Thc activitics    of the group

should     include     invitation     and assessmcnt         l'f R&IJ      prnpnsals.      arrangement       of fund-;.

monitoring       of the progress        of the R&D projects            and tiDally commercialization             of the

successful      R&D results.        In this connection.       it should be emphasized         that the [)epal1mcnt

of Fertilizers       needs to be strengthened            in terms of technical        manpower       because     it will

work as a nodal point for the R&D elTorts in the fertilizer sector.



13.8     A fertilizer     research      institute    may also be e:itablishcd         l'n similar lines as of road

research institute, coal research institute. steel research institute, cement research institute

etc. to carry out various            researches      related to fertilizer     industry.    This research      institute

should always         maintain      link with the coordination           group for R&D as suggested               above

and with various         laboratories     and other research          institutes    and academia.        Identification

of new thrust areas for future R&D and preparation                         of time bound programmes              as also

fund requirement         and means to source them



 13.9      It is also felt that there should be urgent and sincere attempt be made to exploit

indigenous       raw material       resources.      Some research in the past had been carried to exploit

Indigenous       resources    like coal, rock phosphate            etcetera but results were not encouraging,

funding was short and economics                  were not favourable.        However.      now with very high cost

of inputs derived        from petroleum           and NG/RLNG          and rock phosphate,        time has come to

 re-look again at resources           like coal and rock phosphate.

 Exploitation     of indigenous        raw materials:

                      Coal gasification      process



                                                             149
                 Utilization of waste materials to produce value added products
                 Research on recovery of precious metals from spent catalyst of fcrtilizer
                 industry
13.12 Short-Ternl R&D Proposals
                 Development of software for thermodynamic p[t)pcrty gencration of urea
                 solution and simulation sotiware for urea plant
                 Development of process for urea granulation/pri II fattening
                 Slow release fertilizers
                 Urea dust emission dispersion model
                 New Materials ft)r easier bulk handling anJ tran"portation
                 Requirement of funds
                 Sourcing of funds


13.13 Measures for improvement          of industry institutional linkage


                                                                                    th
          This write-up is fully repeated from the report of sub group IV for 10 fivc year
plan as members felt that it is comprehensive and needs to followed vigorously.


          Dr. R. A. Mashelkar. director general of CSIR has quoted. "tomorrow's          society
will be knowledge society. Tomorrow's market will be knowledge market. Tomorrow's
war will be fougbt not by conventional weapons, guns, missiles and so on. but they will
be fought in the knowledge           markets with the new thermonuclear         weapons called
information and knowledge". The seat of knowledge undisputedly belongs to academic
and R&D institution.


13.13.1          Advantages for institution:


    I. Encourages thc cross fertilization of ideas
    2. Offers temporary, education- focused work in the industry for faculty
    3. Develops joint projects for increased knowledge
    4. Support for researcb



                                               151
   5. Consultancy for facul1y
   6. Rapid commercialization of institutional research loften benefits society as well)


13.\3.2              Advantages for the industry:


    I. An increased knowledge base for;

          •       Cross fertilization of ideas
          •       More option for new and better products
          •       More flexibility in R&D spending (e.g inotiu\i,)nal suppoc[ can be liotcd for
                  an urgent but speculative project without making long tern, internal
                  commitment for adding laboratory crnpkJ\eesl
    2. Greater professional development of employees. through;
          •       Teaching and lectt:ril'g opportunities in instilutior.
          •       Internal short courses given by academic consultants
    3. Reduce the time between innovation and commercial exploitation:
          •       By getting methods. tools and peopie that allolVs indust£) to meet its need by
                  tying science and engineering
          •       Provides inter-connection between various branches of science tl' achieve the
                  objective at fast pace


13.13.3               Possible approaches of industry-institution interaction:
    1. Joint projects

    2. Consultation
    3. Mini courses for R&D scientists of industry on particular subject
    4. Consortia: basic research projects jointly sponsored by number of corporations
          interested in the same field.
    5. Commercial testing


13.13.4               Methods to enhance industry-institution linkage
              •   To give sponsored R&D projects to institutions
              •   To retain professors from academia as consultant


                                                     152
        •    To creatc forum which should organizc meetings, seminars, discussions where
             both industry and institution should interact
        •     Invite eminent per:ionalities from institutions for rlcii\'ering talks on specific
              subjects
        •     Explore the p05Sibility ofshort-tenn        deputakm oftechllical starrfmm
              industry to institutions and .,ice versa.
        •     Nearby institutes   should hC in focus for the c\,opera~icn 'J/lth indIJ:\lry"

        •     Research sabbaticals
        •     Summer emploYTllcnt of students in R&D scctlOIlof "dllstr)'


        As in any co-npL'rati ve veniurc, it is important      that the iC:3ti(Jf}sh,p be founded (llJ

the mutua] respect, interest support alld long tellll ben.'fib rather than       OlJ   selfish
expediency.


13.14 Measures for EDvironmental             matters to be undertaken       during the 11'10 Plan


        In India standards        of em!SSJon are different for the plant<, in,;tallcd bellm'
01.01.1982      and after   o 1.01.l 982.   The Environment       Protection Standards for liquid
effluent discharge and emission to atr in India (See Annexure 13.1) and a comparati,,;
study of differcnt nonns is enclosed in Annexure 13.2.


        The more         industrially   devcloped    countries    have introduced        the limits     (,f
combustion production such as NOx and CO (See Annexure 13.3).


At a glance, some of the suggested measures may be as follows:
    •         Recycling/reprocessing/reuse       of solid wastes genera:ed       III   fertili'lcr plants.
              For example, waste catalyst. fly ash, phosphogypsum. sulrhur sludge etc .
    •         Development of landfill sites for disposal of hazards wastes
    •         Promote cleaner production of fertilizer




                                                    153
Ammonia
    Coversion of naphtha and fuel oil based ammonia plant to NO/l ~NG
    Direct hydrogen        cyanide gas (HCN) in a fuel oil ga,itication      pldnt to a
    combustion unit   LO   prevent its release.
    Use purge gases trom the synthesis process after "ashing   '0   c'~rnovcamnh1nia and
    then routing it to fire the reformer, and strip condensates lu reduce amn1<)[liaand
    methanol as it will contribute to NOx emission.
    Use those C02 removal process. which do not release (,.\ics such ", monu·
    ethanol amine to the atmosphere


Uf~_<J

    Recover/recycle carbamate gases and/or liquids to the reaclO,
    Operate the top of the prilling tower at a slight vacuum
    Maximize product recovery and minimize air emissiom by propcr maintenance
    and operation of scrubbers and bag houses


Ammonium nitrate


Prill tower
    Reduce microprill formation
    Reduce carryover of the fines through entrainment


Granulator
    Reduce dust emissions from the disintegration of the granules


Material handling
    for dusty products, use covers and hoods on conveyors and transition points


Nitric Aci<i
    Use processes that operate nitrous gas absorption at higher pressure in order to
    minimize NOx release



                                             154
Phosphatic fertilizer plant;;
    Maximize the recovery and recycling of dust froC! rock and product handling
    Minimize the discharge of S02 from sulphuric acid plpnt by lIsing the DC/f)A
    process     t   5 bed or bed 4 \nth cesium catalyst and high erticiency demister sYS!<:ll1.
    Prevent spills and accidental discharges through w<:11bunded storage t211:':;.
    through installation of spill catchments and contail'TIlcnt facilities
    Minimize the discharge of dust and fluorine frnr, super phosphale plants to th~
    atrnosphere        hy treating off-gases    uSing   an t:~ticicnt   wet   scr:'lbblng/OuoriTlL'

    recovery system


ESlimatio_nof C02 el.!1j;;sionsfrom the fertilizer plan,s


    During th", past 10 years or so, the topic of glc,bal warming has been heating up
    Increased emission of greenhouse gases such a, C02. CH4, NOx elC. to the
    atmosphere is the cause of global warming.               \\ hile l';Ox emissions l1as been
    regulated by different pollution control boards. C02 emission is not.                  There      IS

    little doubt that we are generating huge amounts of C02. The industry emits
    carbon dioxide (C02) from energy use, from nen-energy uses of fossil fuel and
    from non-fossil fuel sources.         Energy related C02 emissions from the industrial
    sector grew from 5.9 Gt Carbon in 1971 to 8.5 crl Carbop. in 2002 (lGt C               =   3.7 Gt
    C02). The mitigation potential and cost in 2030 have been estimated by an
    industry by industry assessment and also two recent global studies. The industry
    by industry approach shows that, most of the miti!!ation potential is located in
     steel, cement and petroleum refining industry JJ1d in the control of non-C02
     gases. The global studies indicate mitigation potential at 2.5-30 Gt C02
     equivalents per year (0.7-0.8 Gt C-equivalent per : ear) in 2030.
     (Source:       IPCC VIth Assessment        Report on Climate Change 2007: Climate
     Change Mitigation)




                                               155
    Recent figures based on national submission to th~ UN climate secreta! iat ill Belin
    reveal that emissions from 40 industrialized nations climbed by 1.6% overall
    equivalent to 17.8 Giga tons of carbon dioxide mainly released fro,n power plants,
    factories and cars in 2004 compared to 2003, even though oil pJises were surging.


    Today fertiiiser production consumes approximate!~' ] .2'% of the worids energy
    and is responsible for approximately 1.2% of the total em:"i,)n of the green house
    gases in the world, consisting of 0.3% of purc C02., O.'%       "S   ,,:20   and O.6~·u 3S
    flue gas C02 (source: Paper on "Energy Consumrtion            Jnd Crcm House lidS
    I'missions in Fertilizer Industry" presented to \1," Internati'Jr,al Fenilisc!' Soeiu)
    at a meeting in London in 2003, proceeding Nc :i09, IrS by T. K. kn.oscll and Ci
    Kongshaug. Hydro Agri, ASA, Norway). Increased foells on energy issues during
    the last 25-30 years has already caused a po~,iti\c downward treml for l-<othenergy
    consumption and green house gas emissions.


    Theoretically, global energy consumption by the teniliser industry can be reduc~d
    by almost 40% and green house gas emission by 60% through implcmelltatinn lOr
    new technology. This is possible in view of the ongoing replacement                of old
    technology and incorporation of energy conservation measures. As on date only
    two COM projects have been approved by the Executive Board nn CO!'v1 or
    UNFCCC in fertiliser industry. Many more COM projects could be developed to
    reduce C02 emission and also earn carbon credits.            (Especially since Indian
    companies are expected to earn over ]4000 crores over the next year through
    trading of carbon credits. Source: Chemical Weekly, .June 27, 20(6).


13.15 RECOMMENDATIONS


    •   Industry may contribute 1% of its profits to nodal agency which shall take up
        R&O projects of interest to fertilizer industry. GOY!.of India may also give
        matching timds for R&O from the subsidy tilnds.




                                          156
•   Industry can encourage           R&D efforts by g;vll~g preference/trial               to innovations

    made through indigenous              efforts after doing proper risk analysis



•   Industry     should    he ready to take bonafide             ri:;ks after prop~r c\'aluation           pf
    indigenous      product and such decision shall n,'t be subject to audit scrutiny



•   The policy should be long term at least for tt" :,·:ars and it should be explicItly

    clear that benefits of rcsearch will he all""",:              ',' be exploitc:! by industry and

    will not be mopped up under an) p"'text.                 tr,,'ccand only then eoqJ'Jrate       'viii be

    more willing to spend on R&D t:J increase p. ·tit



•   The       institutions/organizations            having     rcs~arch      facilities     can    try      tu

    continuously      upgrade their facilities to rem81;1 ,n foreli'on! ~t the world level.



•   Various     research    institutes     may develop sys'cins for better co-ordinatic>n                with

    each other so as to avoid duplication                of \h"K and optimally            use the meager

    resources



•   Government        should think of providing          more illcentive (other than Income Tax

    benefit) for R&D efforts



•   Proper recognition        and reward policy need to be ad0pted to encourage                     young

    talents to opt for carrier in industrial research and development.



•   Industry     has reached a stage where it is necessary to keep in mind long-ternl

    vision.      It is recommended             to    develop     wodd-class        indigenous      process

    technology       for Ammonia           and Urea production        (represents         85% of nutrient

    produced       in fhe country)        in next 10 years, The target should be to achieve

    specific     energy    consumption        for manufactu~ing       ammonia        at energy     level of

    6.0 Gcal/MT            trom   the     current    technolog:cal        level   of 6,7-7,0      Gcal/MT

    available     internationally,       The recommendcci        cesearch to achieve this goal arc:



                                                157
       ~    Development of membrane based carbon di-oxide removal sy"tem
       ~    Development of primary reformer, high temp shift reactor and low
            temp shift reactor catalyst which can work efficiently on ;,igh prl'ssme
            of 60-70 kg/cm2A and modified proccss conditions
       ~    Development of synthesis catalyst, "hich can work efficicntly        Jl 1"wCt

            pressure of 30-80 kg/cm2A
       j;   Dcvelopment of solid oxide Fuel Cell for captive powc; .c;eneratioll


•   Industry must prepare itself to be able to use indigenous raw l1l:ltc,,,·is
    Suitable technology/methods shall be developed so a'i to w;c !'"ligen"",        n.d-

    phosphate and coai to reduce dependence on imports      ()f   t~cdsto,'k.


•   A pilot piant shall be set up based on latest technobgy claiming to be suitdblc
    for high ash coal to check its suitability for indigenous coal to be used tiJr
    generation of synthesis gas for the production of fertilizers.


•   A coordination group for R&D may be set up in the Department of Fertiii/.crs
    consisting of representatives of other Departments of the GoverlLrnenl. IAL
    Industry and CSIR.


•   A fertilizer research institute may also be established on similar lines as of
    road research institute, coal research institute, steel research institute, cement
    research institute etc. to carry out various researches related to fertilizer
    industry.


•   R&D efforts need to be initiated in the area of developmerlt of better material
    for different equipments.


•   Development     of better    techniques/equipment     to achieve        cHiei'ont unit
    operations at low cost may be encouraged.




                                      158
•       New and cost effective alternate nroducts like bio-fertilizers.   slow release
        fertilizers should be developed which can replace conventiorwl product with
        ease


•       The fruits of the R&D effOt1s may be made available hl ent,rc industry frec    or
        cost.


•       The relationship between industry and institution is to be b':st to achieve best
        result. It is recommended      that indw,tl) sllC'u:d ide~tlfy af!J sponsor the
        projects to thc institution.


•       A forum may be crealcd to encourage interaction ana exchangc of informat!Ol'
        and personnel between R&D institutions and the industry.


•       Eminent personalities from R&D institution may be invited by the individual
        industry to deliver talk on specific subject so that its own officers remain
        abreast with the latest development even in the field of fundamental science


•       Pollution standard may also include the method of measurement             to be
        adopted. Unrealistic and unachievablc standards should not be set.


•       There should be one common standard applicable to entire India.


•       R&D efforts in all pollution related areas are required to develop indigenous
        technologies taking care of not only the current requirement but also iikely
        emerging requirement in next 10 years.


    •   Efforts need to be made to develop technology for recycling, reprocessing, re-
        use of solid matters generated in fertilizer plants.




                                          159
•   Various states may expeditiously       identify and develop landfill sites and
    methods for disposal of hazardous wastes.


•   The incentive like custom duty, free imports for pollution related technology
    and machinery might be allowed till the time indigenous capabilities catch lip
    with the world standards.


•   Government     of India may take immediate steps to get Indian Boilers
    (Amendment) Bill passed from the parliament.


•   Low analysis fertilizers should also be treated at per with other fertilizers on
    nutrient value basis.


•   It is recommended that proper regulations may be formulated for the sale of
    new products like plant growth regulators.


•   Department of fertilizers need to be strengthened technically as it can play an
    important    role in promotion   of the productivity   in the new economic
    environment through R&D efforts.


•   Even the well-defined products take very long time to be notified in FCO. It is
    recommended that mechanism needs to be developed to expedite inclusion of
    such product in FCO for the benefit of the farmers.




                                     160
                                                                                                     Annexure-13.1

                                Different Standards of emissions

s.                     i-                                                                       -~              USA-r--                      -'ndiaj




                                                                                                ''"""~=t,~:"·;
         Production                     Emission                  EFMA
No.      Process
                         Parameter           units                Existing
     I



     2
         Ammonia



         Nitric Acid
                         NOx as N02
                         at 3% 02


                         Nux as
                         N02(excludin
                         g N20)
                                             mg/NM'

                                             kg/te of Product
                                             ppmv/with SCR
                                                                    200-400



                                                                200/400
                                                                max
                                                                            Oy
                                                                                 -I
                                                                                      j




                                                                                      I

                                                                                          !
                                                                                                       t
                                                                                                     °1~~:---'
                                                                                                           -                          no standard


                                                                                                                                -t-----;--,.:;     .-,
                                             kg/te of 100%                  14                       065                         \          ,_,,"t,·
                                             HN03
                                                                                                                                +-~'eak            aCid
     3   Sulphuric       so,                 kg/te 100%         1.5-3.9                       1.0-2.6                     2.0    I                  4.0
         Acid                                H2S04              (DCDA)                        (DCDA+5
                                                                                              bed+bed
                                                                                              4Cs)
                         So,    T   H2S04    kg/te 100%                    <0.1                      <0.1
                                             H2S04
                         Acid Mist           mg/NM3                                                           0.075                   50 mg/NM3
                                                                                                              kg/te
                                                                                                              100%
                                                                                                              H2S04
     4   Phosphoric      Fluoride            mg/NM3                          30                          5                                               25
         Acid
                                             kg/te P205                                              0.04     10 gm/tc
                                                                                                              P205
                         Dust                mg/NM3                         150                         50
     5   Urea
         (Granular)      Urea Dust           mg/NM3             70-80                                  50
                                             kg/te product      0.35-0.4                             0.25
                                                                                                                                                 ----i
                         NHJ                 mg/NM3             ]30-]65                                50                                                      ,

                                                                                                                                                  --~
                                             kg/te product      0.65-0.83                            0.25                                                      "




                                                                                                                                                              -j
         (Prill tower)   Urea Dust           mg/NM3             100-]50                                 50                                 50 (plants          I
                                                                                                                                     after I. L82)/            !
                                                                                                                                         150 (plants           I,
                                                                                                                                                                ,
                                                                                                                                               beforc          I
                                                                                                                      -   --
                                                                                                                                     ..       1_.~82)          .
                                             kg/te product       1-1.5                                  0.5                                0.5(plants          I
                                                                                                                                        after I. 1.82)             ,
                                                                                                                                        12.0 (plants
                                                                                                                                               before
                                                                                                                                                 J 1.82)
                         NH3                 mg/NM3
                                        '-!-c' .
                                                                65-100                                 50      . -=-C_-, -
         vents           NH)
                                             kg/te product
                                             kg/te product
                                                                0.65- 1.0
                                                                            0.75
                                                                                                      0.5
                                                                                                     0.06       -----1---

                                                        161
      6   ammonium        ,   NII3           mg/NM3                          10
          nitrate
          (granulator/        Particulate    mg/NM3                          15
          prill tower)        Matter

          neutraliser/c                      mg/NM3                         50
          ooler/drier
                              Particulates   mg/NM3                         30
---   7   CAN                 NH,            mg/NM3                         50
                              Particulates   mgiNM3                         50
      8   NPK                 Nil]           mgiNM3                         60
          (N itrophosp
          hates)
                                              kg/te product                 0.2
                              Nox as N02      mg/NM3                        500
                                              kg/te product              0.2
--.
                              Fluoride        mg/NM3                       5
                                              kg/te product             0.02
                              Dust            mgiNM3                      50
                                              kg/te product              0.2
      9   NPK (mixed                          mgiNM3                         60
          acid)
                                               kg/te product                0.2
                              Nox as N02       mg/NM3                        70
                                               kg/te product             0.2
                              Fluoride         mgiNM3                      5
                                             . kg/te product            0.02

                              Dust            mgiNM3                         50              50                       150
                                              kg/te product                 0.2             0.2



          Liquid
          EffiueQts

      1   Ammonia             NH4-N           mg/I                          150                5
                                              kg/te product                 0.1          0.0025
      2   Urea                Urea            mg/I                          150                1
                                              kg/te product                 0.1           0.005
                              NH4-N           mg/I                          150                5                50(plants
                                                                                                            after 1.1.82)/
                                                                                                                75(plants
                                                                                                                   before
                                                                                                                   1.1.82)
                              TKN             mg/I              O.I(kg/te          0.0025 (kglte product)      150 (plants
                                                                product)                                    after 1.1.82)/
                                                                                                               100 (plants
                                                                                                                    before   I

                                                                                                                   1.1.82)
                              NH3-Free        mg/I                                                                       4
      4   Ammonium            N               kg/te product                  0.2




                                                          162
                                          -                            -~                           --.-               -----                         -_.------
          Nitrate/CAN
                         _ ...~~---                                                                 ------- 1--
...
                                                  mg/l                               100          ---',.--             ---------                     -'---

                        NII4-N                    mg/l                      _ ....                                                           ...~-
                                                                                                                                                                             20
                                                                                                               .---    ----~~                     ---         --
      5   NPK           phosphate as P            mg/l
          (Nitrophosp
          hate)                                                                                      ----          -   f---
                        NH4-N                     mg/I                                                                                                                       50
                                                                                            -~~-              -~-       ---.----.--              --           -

                        N03·N                     mg/l                                                                 •__          ._n __    .___
                                                                                                                                                                             20
                                                                       ~._-                -_.--~--_._-----                                      ---------.
                        TKN                       mg/I                  0.2 kg/te                                                                        150 (p lants
                                                                        NPK                                                                           after II .82)
                                                                                                                                                         100 (p tanh


-----     -----,
                        Fluoride
                                   --.-
                                                  mg/l
                                                                               L____
                                                                            ---.

                                                                                      0.03 lkg/te NPK)
                                                                                                                       f----                            ---
                                                                                                                                                              hc!lli-e
                                                                                                                                                              II 82)
                                                                                                                                                                             10


      NPK (mixed
      6
    ~;lCid)
                        N H3·Frce
                                              I
                                                  mg/l                      ----[                     -----             -------                       ----         --




---                                                                                                           --        ----                     1--'-----
                        phosphate as P
                        N03·N
                                                  mg/I
                                                  mg/l
                                                     m~   ____


                                                                       -----
                                                                                       -+---
                                                                                     1- .. --_.---                       •   m   _____
                                                                                                                                                                             10
                                                                                                                                                        15O(p lanh
                                                                                                                                                                        _m




                                                                                                                                                 f--                              ,
                        TKN                       mg/I                    0.2 (kg/te
                                                                              NPK)                                                                    after 1.1 .82),             'I'




                                                                                                                                                         100 (p lants             ,
                                                                                                                                                              before               !

                                                                                                                                                             I. 1.82)              i
                        Fluoride     kg/te NPK                0.03                                                                                                           10
 Source:                EFMA BAT Limit, 2000; UNIDO Manual, 1998                                                                                                    ~




                                                                 163
                                                                                                   Annexure-I3.2


 Ambient air (from combustion source) quality standards in some of the industrially
                                                   developed countries


----.-    -----     .~-----'-

                        Start
                                    -
                                           Furnace
                                                                --
                                                          Nox (ppm)        I   CO (ppm)
                                                                                            ---T-------
                                                                                                Particulates
 Country                Year            capacity (heat                                               mg!Nm3
                                           release)



                                                                                                        .
                                                                                                   ~(;"r;:
------      -   -
                                         (mmBtu/hr)                        I
                                                          Gas        Oil   rGAS'OU
                                                                            I   ,

---'---     -   ------
                         1998               >170          ]71
                                                                  ---,-;;,~---. -
                                                                   219
                                                                           I
                                                                          - .
                                                                                            ----
                                                                                    I
 France
-------
 UK
                -

                         1998                Any          146        2]9       -
                                                                                              --- -----
                                                                                                           t---ils
                                                                                                           f-~-
                         1999                Any          97         I7I       -    I         -       -       80
 Germany                 1996               <170            -        122       -    I         -       -    _ilO_J
 E. Europe                                                  -        2]9       -    I        85       -       50
                                            <340          97          -        50             -      5        -
                                                                                                            ---
                                                                                        ,
                      TALuft              170-1020        171        219       25       I    87    5-]00      50
                                                          97         171       25       : 87       5-100      50--
                     Market             All light oils    39          73        -          -         5        50-
                     Demand               Heavies           -        171
  Italy                  1992             170-1020         171       219                              5       50 --
  USA                           -            All         30-100                                                   ....J
  Source: Nitrogen & Methanol March-April, 2001




                                                            164
                                                                                                                                      •



                                                                                                                                     Annexure-B.3
                                        Salient Features of Commercially          proven coal gasification Technologies

 Item                   Lurgi                       Kopper- Totzek       Winkler                     Texaco                       Shell

 Gasifier T e           Fixed Bed                   Entrained Bed        Fluidised Bed               Entrained Bed                Entrained Bed
 Operating Pr., Ata     20-30                       Atmospheric          A tmospheric/Pressurise     Pressurised (20-85 Bar)      20-40 ata
                                                                         d
 Operating   Temp,      600-750                     1600                 800-1000                    1250-1300                    1400-1600
 C
 Coal size              5-50 mm                     90% below 90         2-10 mm                     Ground coal as 65% by        Ground coal, 90% less than
                                                    micron                                           wt.                          100 micron
 Form of Feed           o                           Pulverized           o                           Slur                         Dry
 Feedstock               •     Non & weakly          •     Anthracite        •   Lignite and more     •   Insensitive to coal      •   Design ash content of
 Flexibility                   coking coal from            to Lignite            reactive 1100-           properties slIch as           17~o gives above 80~/o
                               Anthracite to         •     Upto 40%              coking coal              particle size.               process efficiency
                               Lignite                     ash in coal       •   Ash content of 4-        moisture level.          •   Fairly high level of ash
                          •    Fairly high level           can be                46% can be               reactivity and coking        content in coal can be
                               of ash can be               processed             tolerated with       •   Ash content max.             handled (up to 30-32%)
                               accepted              •     Moisture              high ash                 25% preferred            •   There is no generation
                            i) Lurgi dry                   below 1%              softening temp                                        of NO x
                                 bottom gasifier-          to avoid          •   Moisture upto                                     •   Very low CII4 is
                                 no limitation of          feeding                12% can be                                           produced
                                 ash                       problem               tolerated                                         •   (1I2+CO) content in gas
                            ii) British Gas                                                                                            generated is the
                                 Lurgi BGL &                                                                                           maximum amongst all
                                 Lurgi MPG                                                                                                processes
                                 Gasifier- < 25%
                                 ash preferred
                            iii) Lurgi CFB &
                                 IITW Gasifier-
                                 No limitation of
_~                    L- __      ash                                  I
                                                                  -~------




                                                                                  165
    r--.           •   High moisture
                                                   1
                                                                  ---                    I
                                                                                                 -
                                                                                                                 ---·~I-
                       levels can be           I                                         I                                                                             ,
I                      accommodated                                                      i                                      I


i                                                                                                                               I
                                                                                                                                                                           ,
                                                                                                                                :
I
    Ash Disposal   •   Ash disposed at     •   Ash is             •    30% of ash            •    Removed as molten                 •   Molten ash flowing
                       base through ash-       mainly                  leaves via                 slag at the bottom                    down to bottom of
I                      lock system             removed in              bottom balance                                                   gasifier will be
                       ensuring it does        liquid form             separated from                                                   quenched and
I
I
                       not clinker             at the                  overhead gas by                                                  discharged after steam
                                               bottom                 ·cyclones                                                         generation

    Advantages     •   Greater operating   •   Favours            •   Reliable                   Relatively   insensitive           •   Best suited for synthesis
                       expenence               hydrogen               operation   with                                                  gas       generation        for
I                                              formation              Lignite                    to coal properties             I       ammonia plants
                                               without                                                                          I   •   Highest         degree       of
                                               methane                                                                                  conversion of coal to gas
                                                                                             •    Gasifier having no
                                           •   High
                                                                                                  moving parts,
                                                                                                                                        (98.0-100%)
                                               degree of
                                                                                                  maintenance is
                                                                                                                                    •   Thennal            efficiency
                                               conversion                                                                               around 92%
                                                                                                  simple
                                               of coal to                                                                           •   Recently many plants in I
                                               gas (97-
                                                                                             •    Short residence time
                                                                                                                                        Ch ina and around World
                                                                                             •    High pressure
                                               100%)
                                                                                                  operation eliminate
                                                                                                                                        has been built                  I
                                           •   Thermal
                                                                                                  compreSSIOn
                                                                                                                                    •   Steam      requirement      for I
                                               efficiency                                                                               gasification     of coal is
                                               insensitive
                                                                                             •    Higher through put
                                                                                                                                        less
                                                                                             •    A void Nox and Sox,
                                               to coal rank
                                                                                                  purer raw gas
                                                                                                                                    •   Cold       gas     efficiency
                                                                                                                                        (80%), high compared to
                                                                                             •    Direct quench ofraw
                                                                                                                                        others
                                                                                                  gas eliminates WHB
                                                                                                  problems
                                                                                             •    Efficient heat            I


                                                                                                  recovery                  I


                                                                                             •    Ash disposal in slag
                                                              i                                   relatively easier                         ~--_.




                                                                        166
                                                                                                                                                                      ,
  Disadvantages           •    Raw gas contains        •    Higher            •     50-80%              •   Coal needs testing         •    Ox)'gen requirement for
                              significant                   oxygen                 gasification             for properties                 coal gasification is
                              quantities of tar,            usage                  efficiency with          including ash                  higher than other
                              fines and methane             contributes            lignite                  characteristics for            processes
                         •    Ash level                     to high           •   Higher rank coal          proper design of
                              fluctuations lead to          production            requires higher           gasifier
                              operating                     costs                 operating temp        •   Preferred ash
                              problems                •    With high              with the attendant        content 25%
                         •    Operating temp               ash fuels,             risk of ash fusion
                              range is limited to          slagging
                              avoid clinkering of          may take
                              ash                          place with
                         •    Excessive fines in           substantial
                              coal lead to                 heat loss
                              channeling and          •    High
                              uneven                       refractory
                              distribution                 ash type of
                                                           fuel
                                                           reqUIres
                                                           fusing agent
                                                           to ensure
                                                           easy
                                                           removal of
I                                                          ash .                                                    .             I
I Number   of plants    14                           17                   2                            20                             12 (including 2 plants to be
                                                                                                                                      commissioned in 2007)
      Source:     Based on information       provided by   MIS POIL


                                                             ,
                                                            ,"




                                                                                    167
                                        CHAPTER - XIV


    PROFESSIONALISA T10N OF MANPOWER FOR FERTILIZER SECTOR


14.1               The fertilizer industry employs sophisticated tcehnologies in production of
fcrtilizers.    The operating      conditions   are hazardous   both in terms    of chemical
environment, high pressure and temperature. The operation and maintenance of fcrtiliscr
plants require skills of the highest order. Consumption of fertilisers takes place in the
hinterland of the country. The mechanism for reaching fertilisers to all the farmers in
every nook and comer of the country requires special knowledge and experience of
operation in rural areas.       Farmers being consumers of the fertilisers, they need to be
imparted knowledge regarding appropriate use of fertilisers and other farm inputs for
optimum farm productivity.          Industry employs specialist in the areas of agriculture and
rural marketing to carry out these duties.



14.2       As on 01-10-2005, the major fertilizer companies have a manpower strength of
around 32556. The sector-wise break-up in given in the following Table.

                     Sector                 Manpower

                     Public                     15734 ~. -

                     Cooperative                6902

                     Private                    9920

                     Total                      32556




 14.3          Additional employment generation in the Fertilizer Sector will be around 1350
in the three expansion projects considered during Eleventh Five Year Plan .




                                                  168
14.4       Initially, Fcrtiliser Corporation of India (FCI) and Projccts & Development India
Ltd. (POlL) had dedicated facilities for training of new entrants in the technical and
commercial areas. The new entrant underwent rigorous training for two years.                This
system of training of manpower created a pool of trained manpowcr for thc sector. The
tremcndous expansion of the fertiliser industry during the 1980's was possible because of
availability of trained manpower from FCI and other old companies. At present there is
no consolidatcd        activity for the manpower devclopment          in thc sector.   Fertiliscr
Association of India (FAI) is carrying out the activitics for human resource developmcnt
in a limited way. FAI is organizing a large number of training programmcs cvery year in
various parts of the country varying in duration from I to 6 days in various disciplines.
According to FAI these programmes were attended by 143 engineers.                 530 personnel
engaged in marketing and extension activities and 50 persons in the area of information
technology during 2005-06. These programmes are designed for the specific requirement
of the sector. In addition, fertiliser companies arrange a number of in-house programmes
and also sponsor their employees to programmes arranged by other agencies.


14.5         . In view of the GDP growth of more than 8%, there is competing demand for

trained manpower from all sectors of the economy.               Fertiliser companies are already
having difficulty in retaining the trained manpower.             In view of high turn over of
cmployees, need for training becomes even more important.             Therefore, there is a need
for centralized institute for training of new entrants as well as refresher courses/retraining
                ""'-                                        .

of existing employees. A training and manpower development institute can be established
for the purpose. The institute may be established under the aegis of FAI. An allocation
of funds from the 11th Five Year Plan should be made for establishment of such an
institute.


14.6         For development of professional manpower in the sector, specialized training
may be given to selected manpower in the sector. The broad area of training may include:
       •   Agromony (cropping Pattern, Soil Characteristies, fertilizer Usage)
       •   Promotional Activities for increase in Fertilizers usage
       •   Distribution Logistics of fertilizer transport



                                                 169
•   Latest Developments in Technology fronts
•   Plant Maintenance tcchniques




                                      170
                                      CHAPTER -15
                                 RECOMMENDA nONS


15.1   Global Demand & Supply
Keeping in view the surplus availability of urea at global level, it is suggested that
Government should enter into negotiations or encourage Indian fertilizer companies f<lr
tying up for 10ngJerm supplies of urea from the countries whieh will have surplus urea
capacities after commissioning      of the urea projects,      which ar~ at present   under
construction. A technology     mission on fertilizers may be constituted comprising      of
expcrts from agricultural research institutcs and agricultural univcrsities to study the
changes in pattern in usage of fertilizers in years to comc.


15.2    Proiection of Demand
Notwithstanding the best of the models/ tools/ techniques used for the medium to long
term projections of demand by various national and intcrnational organizations of repute.
there is always a variation between the projected demand and the actual consumption of
fertilisers due to a variety of unforeseen factors, including weather aberrations, policy
changes, etc. The actual consumption of total nutrients (N+P+K) deviated from the target
by about 16% at the end of7th Plan, 22% at the end of the 8th Plan and 13% at the end of
9th Plan. The deviation at the end of the 4th year of the 10th Plan, i.e. (2005-06) was

       ~-
about 7%. Therefore, it is preferable to adopt a methodology which has the minimum
dcgree of variation from the actual. There is also the need for mid-term review of the
rcsults and updating the figures, if need arises.


15.3    Role of States in demand assessment
It is felt that the role of States in demand assessment has to be more scientific and
real istic. While assessment    of requirement is one area that has to be tine tuned,
preparation of month wise demand pattern is another area where significant progress is to
be made. It is observed that the sale patterns are significantly off the assessed demand
patterns leading to complications in logistics planning. This problem has been furthcr
accentuated as movement and distribution of fertilisers has becomc significantly de-



                                              171
controlled. States may have to inculcate scientific planning/ monitoring process into this
exerCIse, use highly calibrated simulators/ models. Use of IT may have to be made
mandatory.


15.4   Demand and supplv position of urea in the country
Over and above the present installed capacity of 213.52 LMTI' A of urea (197 LMT from
28 domestic units plus 16.52 LMT from OMIFCO), additional capacity is expected to
come in the next Plan Period as follows:
e)      25.186 LMT from additional production from existing units
f)      33.50 LMT from 3 brown field expansion projects
g)      About 50 LMT from revival of seven urea units of HFC and FCI in Eastern India
       based on natural gas/LNG/CBM/Coal Gas as feedstock.
h)      About 20 LMT from JV projects abroad based on cheap gas/ LNG, which may
       -come up in the countries which have abundant reserves of gas with a buy back
       arrangement for urea so produced by these JV projects.
The above projects should be taken up for building the capacity of Urea in the country.


15.5    Distribution of Fertilizers
It is also observed that equitable and timely distribution of fertilisers at all locations
within the States is often found to be wanting even when the availability is as per the
assessed requirement of the State. There is no uniformity in planning and monitoring      in a
district wise format which is leading to such an anomalous situation. A uniform
composite system of planning and monitoring encompassing States and the Centre in a
seamless structure would greatly help in fine tuning the distribution setup of fertilizers.
The recent efforts by the %     Fertilizers in setting up of the Fertilizers Monitoring System
(FMS) are a step in the right direction. The fertilizer industry as also the state
governments need to be pro-actively involved in this effort to make it a meaningful
instrument for monitoring the availability and flow of fertilizers to the various consuming
areas and to pre-empt shortages in a timely manner.




                                              172
15.6 Review of fertilizer pricing policv
The group based New Pricing Schemc (NPS) for urea units, which came into cxistence
from 1.4.2003, replacing the unit-specific        Retention Price Scheme encouraged        the
efficicncy and cost competitiveness in manufacture of urea during Stage-I & II of NI'S.
During Stage-III of NPS, the urea pricing policy should pursue the following objectives
   (viii)   Achieve self sufficiency in urea at the end of 11th Five Year Plan
   (ix)     Promote   further   investment   in the urea sector including        technological
            upgradation
   (x)      Conversion of non-gas based units to gas through a credible plan of action
   (xi)     Incentivise additional urea production
   (xii)    Encourage investment in Joint Venture Projects abroad
   (xiii)   Urea distribution to be increasingly guided by market mechanism
   (xiv)    Ensuring availability of urea in the remotest comers of the country.



15.7 Review of outgO of subsidv/concession on various tvpes of fertilisers and suggest
measures for their reduction or rationalization

As the weighted average cost of production of urea of gas based units is only Rs.
6280/MT as compared to present IPP of Rs. I 1232/MT, it is necessary to strengthen the
domestic production capacity of urea, which is not only cost competitive but would also
help in attaining self-sufficiency in production of urea which is of utmost importance in
the interest of food security. Furthermore, non-gas based units are also required to
switchover to NG/LNG.



15.8 Taxes and duties on fertilizers/raw materials

All local taxes levied by various State Governments may be ~ithdrawn as they affect the
viability of the urea units or increase the fertilizer subsidy burden of the Government of
 India. The rate of sales tax on raw materials and inputs on hydrocarbons              (natural
gas/LNG. naphtha, and fuel oil/LSHS) be reduced to 4 per cent or less by all the States or



                                              173
In the alternative,     the hydrocarbons     (natural gas, naphtha, fuel oiIlL~HS)       used    II1

manufacture of fertilizers be declared as 'goods of special importance' under Section 14
of the Central Sales Tax Act, 1956. This would bring in uniformity, or at least; a ceiling
in the rate of sales tax on these raw materials and inputs.


15.9    Freight support for transportation of fertilizers to hillv and difficult areas
Freight support for transportation of fertilizers to hilly and difficult areas of Jammu &
Kashmir, Himachal Pradesh, North Eastern States is also being provided under the
scheme from 1.4.1997 onwards.              These special arrangements have helped ensure
availability of fertilizers in these remote areas and may be continued for the ll'h Plan
period also.


15.10    Pricing of Phosphatic
The Government has already implemented the interim recommendations of the Expert
Group set up under Prof. Abhijit Sen to look into the pricing issues of phosphatic
fertilizers.    This has partially integrated the indigenous phosphatic industry with the
international      industry,     wherein    the    international    prIces    of   vanous       raw
materials/intermediates        will form the basis of actual delivered prIce of indigenous
fertilizers.    The need, therefore, is to further integrate the indigenous industry with
international phosphatic        industry to service the capital employed by them and the
indigenous industry should, be provided with a tariff differential re~e,           to cushion the
impact of volatile international prices. The industry also needs to mature and invest in
strategic locations, which can form the basis of their survival and gro\\'lh in future.


15.11 Policy on price or freight subsidy
Policy on price or freight subsidy should be such that the quantum of subsidy and the
market price is not a determinant of the intensity of use of a particular type of fertilizer.
The mix of nutrients to be used should be determined by soil conditions and the need for
particular type of crop and not the relative prices of different types of fertilizers.




                                                  174
15.12 Policv on transnortatiul1               CDSts

;\ realistic       policy      which      either     provides     I(lr transportation      costs on actual             basis     or

alternatively       provides       I(lr price decontrol          needs to be put in to place immediately                         to

ensure       supply       of    lertili/ers        products.     particularly      decontrolled       tertili/ers.      to      the

consunllng        area.



15.13 Feedstock           req~ig'ments        I~)[urea

certilizer     companies         should gct in touch with prospective                 gas supplving       compan;L's           hoih

in the public and private sector to tic up Ihe additional                          domestic gas becoming             a\ailahk

Irom 2008-0<) olmards              hel""e II i, tied up h\ other competing               consumers.



15.14 Sunolies of raw materials                    and intermediates      to ohosnhatic     sector

To ensure         sufficient     supplies     of raw materials         and intermediates          relating    to phosphatic

sector     over     a sustained          period.     the Indian     companies        need to invest          outside     in thL'

resource     rich countries        by \Va\ of joint ventures in mining, production                   of phosphoric           acid.

production        of finished       fertilizers,      etc. This will not only provide some control                     over the

world resources,          which arc so vital to our agriculture,                 but will also help in stahilising              the

international       prices in what is primarily a seller's               market.



15,15 Sourcing          of MOP

In the potassic        sector, the country is completely                dependent       upon imported         MOP to meet

the indigenous          demand.          The world trade of MOP is essentially                    in the hands of a few

producers         like Canada,       Belarus,       Russia, etc. and it is getting further consolidated                   in the

hands of few companies                 by way of investments,           mergers,     etc. This has led to substantial

increase     in prices of MOP, which has approximately                          doubled over the last 2-3 \ears.               The

country      is paying         heavily     for lack of potassic         resources      in the country         and its hean

demand       for sustenance         of Indian agriculture.          The Government         needs to encourage             Indian

companies         especially     in the public sector to explore the possibility of sourcin[! \IO!' from

other new sources              and procuring          mining concessions           in new areas, wherc\~r              feasible.

The      Indian     investments          in putash      rich countries       can onl\     prm'ide      a c~rtain       Ie\el     o!

comfort      to this highly dependent                sector.    I.ong-term      buy-back arrangcmcnts           w ilh present


                                                                 175
suprliers            can      also      be     an         altcrnative      strategy         to contr\ ,I the                 present          ln~nJs or price
I!lcrt2asc       .



l:'i. 16 1\<,a<1.J11ill2IQL I'ho"'l'l:!ali~_~U)-"l.,'lS?!C \lct()r
Since the countr).-: is completely                               Hupor1    dependent             in th',: phllSrh~ ~;( &                p\)1:ts~;j\..' t,.'l'ld:
                                                                                                                                                     S                     :wd

IS   dc\uid           or any suhst.:-lntiaJ economically                              cxpluit;Jblc            rt.':'lT\(S        ill    P<'<~.K.It i:-:              In        thl'


1I1tcre~ts of the na1ion t\1 n:aintain                                  a ccnain         dcgrc,: p1 :-;clf~~ulrlci( \:,
                                                                                                                  1                          I,lt   prudu-':\!\"jl               ,\l
control        dvcr tb:              rorcl'~ uf production                    in this sectur.              V, hile tl1'-..'(~';nlr:-                 lid:';    acqll1l"~:d

:--uhstantial          sclf-suftici\.'pc)·                in krms        uf production             C<:lfJ<ll,jt:.     in thl' r'hl)S~1h,ltlc                   "';(,\..ll\["      II.

                                                                                                                                              \1"     'nkTil,ll!\              1).';1'




m;.Itl'n'l:Si'ill\l~nlll'di<.lt\:s,                  \t     h.    thereil)fc.       impl'ratlVl'          ti1at Ihl'          lndi,.[]        1~)Jlht1'\            ~II\::",::->


<.lhrnad in phusphak                     &:)utash                rich   nati(HlS    1()[ cnsunn~              'lLhti.lirlL'd              ,,1' plh)~phat\:"
                                                                                                                                   ,~lI.~~pl~\

~Ind               h
         rli.l\a .....• in    ~111l~~:Tl1\          1'\11..'   op1imisa1ion        tht'ory. \vhich i:-;              Llll'   ,-''''l';)'~l' \)1       I   \\crl\i        tr<.1\k,

nrJer.       alsu necessitates                 that the \alue              addition        in a    \\'I:'i~ht \)sint!-          in.Jl::<11)         td,~t.-'" I'LtI.::L' at

th~ p"lnt            of resource.



 15.17 ~Q'ldn!!!I'Jor                   SSP

 {'he other           major          impediment                in the growth        of the SSP sector                    hac: been its quali!:.                       which

 has always             been         a matter        of concern.              The Govemmcnt                    h~s cmb"rkd                    upon         halt:ycarl\

 tecbnical            audit         of all SSP             manufacturing            units        to cnsurc           bctt~r       ljl1:tlity        dnd        h".s       ~\e'1


 notitied        various            grades      of rock           phosphate,         which        can bc used                for manufacture                      uf SS!'.

 fhis     has definitely               bad an impact                 on the quality          of the SSP being                   manufactured                    but there

 is still scope               lor    further        improvement.                 The Government                     can ex:tOlinc             the feasibility                    of

 cnsunng               ]00%            sale         of         SSP       through           the       major            and         established                    fertili7cr

 manufacturers/importers,                            who         can be held          accountable              tor ensurinl!                quality           of rroduct

 that they would                    be marketing.



 The SSP sector                     in the country               is largely      dependent          upon        the indigenous                  fl\ck phosrhatc.

 which         is      of     inferior         grade           and      is not     suitable         for      production                of     rhosphoric                  acid.

 Substantial                amount       of rock               phosphate         needs      to be Imported                   to also          calC:        to thc              SSP




                                                                                   176
sector. There are large deposits of inferior grade of rock phosphate                         in the country.     which

is not suitahle for producing          FCO grade SSP with 16% water-soluble                    1'205 content.          The

Government        can provide for other grades of SSP with lower wakr-soluhle                            1'20; content
undcr the FCO as also the Concession                  Scheme        so that the unutiliscd           low grade      r,)ck

phosphate      in the country      can he gainfully      utilised    for manufacture          of SSP and provide

another source of phosphatic           nutlient to the farmer.



Since the (Jovernment         of India is paying concession           on sale of SSP. it may also examine

the feasihility     of announcing      selling priccs of SSP for v"ri'lus statc; in the countn                      anci

examining      the location of van,JUS SSP industries            in the    c0UJ-:tr).    This will provide a great

degree of coordination         hetwccn the selling rrices           and the Cl'nee"ion          paid on the sale of

SSP. and help ensurc that delivered                cost reimhursed         to manufacturers          are ratIonal      and
remunerative.



15.18 Potash from Alternatives            sQw.ges

In parallel,. intensive     R&D in this sector to explore the possibiiity                  of extraction      of potash

from other natural         sources    in the country         like marine     sources       in addition      to the land

sources could also be explored.             lCAR and agriculture            universities     may also explore           the

alternatives      to potash in Clgricuiture, ifany.      through focussed research.



15.19 Renovatio!1....modernization,           revamp         and expansion       of urea fertilizer         industry     In
India

Renovation,       modernization,      revamp and expansion           of urea units should be undertaken                  as

these measures        would not only result in hetter energy efficiencies                  hringing down subsidy

outgo     substantially     but would       also    result     in augmenting            indigenous     urea    capacity

reducing dependence          0\1   imports which will check price of urea in international                    market.



15.20 Measures for increasing ene~liciencv                       oLure!!.Jllants

Fuel Oil! LSHS based Plants and Naphtha hased plants are mainly operating                                 at very high

energy levels. Once the non·gas bas':d units are converted                     into gas hast;d units, the energy

ftgurcs     for these plants will be rt;duced significantly.               By undenaking          certain     additional


                                                         177
revamp / modemization measures after undertaking the study for each plant, the energy
et1iciency of these plants can he furthcr increased to brin!; them to a respectable level.


15.21 Need for n:viVALc>rcI()5"cJJ)SU~

Closed urea units of H c(' and FCf should be reviv~d as these units have excellent
existing infrastructure in the shape of residential colonies, coal and electricity tic-ups.
watcr filtration plants, Radway sidings and a very sizeable area of land. Liquidating tlm
infrastructure would be a ,,<,loss'll national loss of valuable resources. Then there is the
question of demanl1-su,'plv !lap vis-a-vis domestic production of nitrogenous knili/L'rs
Further. revival of closcd units would strengthen domestic urea production capacity tn
fultil the demand-supply      !lap f,n food security as also to reduce dependence        upon
imports.
Following possible modes can be explored for revival of these unib:

(a)    Setting up of ne"       Brownfield   Fertilizer Plants. using natural gas/LNC;/Coal
gas/CBM as feedstock, hy setting up a Joint Venture with Strategic Partners. with no
fresh infusion of capital or guarantcc being sought from the Government.

(b) Setting up of a new Joint Venture project with the publIc/private equity participation
in non-fertilizer sector, such as petrochemical complex or power plant etc.

(c) Setting up of sector specitic Special Economic Zone with the iertilizer production as
a necessary activity.

(d) Any other suitable/viable model. keeping in view that fertilizer production should be
a necessary activity in the model, along with any other viable economic activity.



15.22 Exploring setting up of JV s aQroad· or sourcmg feedstock. raw materiaI~ and
intermediates from abroad

As the cost of gas in countries, such as Kuwait, Iran, UAE, Nigena ele who have large
reserves of gas, is less than US $ I1MMBTU as compared to APM :-JG pricc of about US
$ 2.5-3.0/MMBTU         and PLL's RLNG of about US $ 5/lvIMBTU, the option of setting up
joint venture urea project~ abroad with buy-back arrangements can be considercd.



                                              178
Alternatively, urea companies can a~so enter into long term arrang~ments for procuring
feedstock from abroad. Department of Fertilizers has been in negotiations with countries
such as Kuwait. Saudi '\rabia, Nigeria, Iran. Algeria where lVs ,'an be set up ur Irom
where supplies of feedstock can be tied up.



15.23lndig~lOUS Produqion &ll!ill()rt ofFertilizg


Due    to   the   complete     dependence     of    phosphatic   induslr\   on   illlPOrtccj raw
materials/intermediates,     it is necessary to keep both indigenuus allel imported rOlltes lelr
supply of fertilizers to meet the nutrient demand of the agricllllurc s,,('[or



15.24 Invest!)1ent in Mining abroad

The world rock phosphate production will increase from 177 million MT in 2(J()5 to 195
million MT in 2010. China alone will account for one-third of this gro\\th.            Ihe rock
phosphate    production    (excluding China) is forecast at 136 :dillion         MT in 2010.
Production is projected to increase in West Asia. Africa. East Asia and Latin America.
(Source: IFA). The Government should pro actively encourage Indian investments in the
ncw mining capacities coming up in next 5 years.


15.25 Planning for Capacity addition
Ammonia - The present ammonia production capacity in India is 13.466 million MT and
the production in 2004-05 is 12.801 million MT, More than 95% of this production goes
for urea production in the country.         The production capacity will increase aner the
debottlenecking plans of various indigenous manufacturers are implemented. However all
the new ammonia capacities created will be utilized for urea production leaving little
additionality for production of complex fertilizers. Hence the present import demand for
ammonia as well as future requirements will have to be met through imports.




                                                   179
15.26      SustaineiLincre.ase   in rroduetivitLiIL-,!griculttJre   through. balans:~.use      of
fertilizers.

The growth in consumption of fertilizers during the 10'h plan period over the last year of
9'h plan period has been 19.55 °'0 in P and 38.51% in K nutrients. upto the penultimate
year of the 10th plan perioe!. During the 10th plan period the 1',0, comumption                per
hectare has steadily increased from n03 kg in 2001-02 to 2753 kg in 2005-20n/). The
K,O consumption pCI'hectare during the same period increased flOm IL76 kg to 12.13 kf,·
Illspile of abc've. the per hcctare consumption of P&K fertilizers in the country continues
to he below world av'crage and n~ee!s to be furth'~r increased to achieve                   higher
productivity. To meet Ih" increasing food requirement ,,1'the nation, it is necessary to aim
for sustained increase in productivity in agriculture through balanced use of fertilizers.

15.27 AgroServiee~

The industry also needs to move away from the production-oriented mindset to a service
approach. The fertilizer companies. taking advantage of their close links with the farmers.
could transform themselves into agro-service compaTlies providing a package of agro
inputs, insurance and marketing facilities to the farmers. These services are already being
provided by some of the leading fertilizer companies like IFFCO, KRIBHCO,                     Tata
 Chemicals Ltd., Coromandal Fertilizers Ltd., etc. In this manner, the fertilizer industry
 can facilitate informed input procurement          hy the farmer, help him achieve higher
 productivity and improve his returns and harness the increased purchasing power for even
 higher sales of fertilizer nutrients thereby creating a virtuous cycle for fanners, fertilizer
 companies and the countlY as a whole.



 15.28 Roadmap for OAP


 The import of OAP has risen sharply in 2005-06 and the trend is likely to continue in
 2006-07 with a total import of 2.5 million tones of OAP. The import of DAP during the
    1h
 11 Plan period will depend upon increase in indigenous production of phosphoric acid.
 increased supply of imported phosphoric acid, better capacity utilization in IFFCO's plant



                                                 180
at Paradeep,     smooth production           of phosphoric       acid by the Senegal joint venture, etc.                ]n

the event of above improvements,               it is likely that the impOIi of OAP will stabilise                during

the plan period at around             1 to 1.5 million tones in 2011-12.                   H,l\vever,   if there is no

further addition       to indigenous        pmduction,    the imports e3n go lip further to 3.9 million

tones hy 20! 1-12.



I he international       trade uf DAP is approximately               12.4 millillll tones per annum ;lm! the

Indian      import    constitute     approximately       20% of the trade.             An\     Il1crease!decreasc       in

Indian demand          has a major impact on the OAF prices                [b   lndi" is thc leading impl111cr "I'

[lAP in the world.          The world trade of [)AP is not expected                   lO   signifIcantly     increase? in

th\..'next 5-(, years and. then:f()fc. it is necc';sar:           that ou; deInan~ for P20S in the CPUlllr:

should n(lt he highly dependcnt              upon impOl1ed DAP .. \1 hest. it can continue                    at pre""l\t

Ie\ el with efforts to bring it down to approximately                     1-1.5 million tones of impol1 (\"Cry

year.



15.29 JV.sjQr Phosphoric             Acid

Approximately,           85%       of the    world    production         of phosphoric         acid     is for   captive

consumption          and only 15% is traded in the inteP.lationalmarket.                    Out of the total trade of

approximately         5 million tones of phosphoric          acid (as P,05). India imports                 more than 25

million tones every year.             It is found that the trade of phosphoric               acid is not a free trade

and more than 50% offhe international                 trade is by way       Ill'   long-term supply arrangements

 he tween the producers            and the importers.        It is evident :hat in case our country                  has to

 service     the increasing        demand     of P205     through        import     of phosphoric        acid. then the

 Indian companies         need to participate        in more joint ventures for production                 of phosphoric

 acid in phosphate         rich countries,      with long-term       supply arrangements_               Otherwise,      any

 inerease      in Indian       demand       for phosphoric        acid    without     corresponding          increase      in

 international       trade ofP205,      will lead to sharp increase in international               prices due to tight

 supply position.




                                                           1X!
15.30 Buf(g' Stofking


The connotatio,l of bul1er stock had changed Irom that of stock lhat if. used to deal with
'exigent'   situations to the stock that :s used to addi'ess the 'emergent'   demand -supply
gap. There is a ',ast differef,c,· in buth these scenarios, and needless to say. buffer
slocking heing used to address I'olicy deficiencies. rather than exigent situations leads to
an inherently unstable condition     I hi, issu~ needs a thorough review.


To ensure adequate availabi!it:     "r   phosphatic & potassic fertilizers in all parts l>t the
country during the peak deman,j pcrilld. the Government has pursued the pnlicy of hufkr
stocking of DAP/MOP on «(,Iernmcnt              account, in most of the states.       rhis has
minimised shortage of the main phosphatic fCnilizer, i.e., DAP from any part of the
country. Due to the uncertainly of imports by private players, this special arrangement
has helped to cushion the impact of sudden spurt in demand of these fertiliz~rs in any part
of the country and may be continued for the I I ,h Plan period also. Till such time as
private enterprise is able to fully meet the demand of phosphatic fertilizers all over the
country, the buffer stocking operations should be continued.           The state institutional
agencies    need to be involved in this operation and state governments             should be
encouraged to pro-actively partj.:ipate in the gap-filling effort between assessed d~m3nd
and availability , in each sea~on


15.31 Infrastructure capacities at ports
Low cost investments for upgradationl modemization of the mechanical equipment cap
however, provide an additional 25% throughput in the existing capacity due to im;m:lVed
performance.     Although, the fenilizer companies situated near the port area are using
mechanical facilities created at Paradeep, Cochin and Vizag for unloading of cap'!'.'e
cargo, the use of these facilities is however not permitted (for handling of tertili7.el's) by
,)thcrs. Thus the available capacity at port is being underutilized. Corrective action in this
direction needs to be taken urgently. Most ports are severely constrained to handk high
 volumes on sustained basis. Excepting Mundra port, no other port, currently is ,k:2 deal



                                                182
with panamax vessels. With the sea movement from CIS countries and lJS gulf
increasingly being taken up through these large vessels, accepting and hGndling them at
Indian ports has become a severe limitation. While paradcep port has the draft t,) handle
panamax vessels. it is limited by the lack of necessary infrastrudure       to handle and
evacuate material to the hinterland. With increasing pressure on demand side and filced
with a static indigenous production capacity, it is only natural that the impol'ts \,-,'uld
assume a significant role and as sueh there is an urgent need to review ,nfr,"trllctnre
capacities at ports for discharge and evacuation of fertilizers.


15.32 ivIQdemi.!dtiof1.s:>.tj,llOIS:~'!PPort
There is a pressing need Iflf upgrading and modernizing the shore support (,.,   .ichiL'VIIl)2

higher discharge rates through mechanical unloading and bagging facilities. raising the
numher and quality of barges at the anchorage ports and an increase in godown
capacities. There is also an imperative need for creating facilities for handling panamax
vessels at selected ports. Ennore pOtt near Chennai proposed to create deep drali berths to
accommodate      panamax vessels carrying fertilizers during the XPlan period and was
expected to be operational in 2003!4


J.ollowing are some additional suggestions to improve port handling:-
a)      New Mangalore and Cochin ports should ensure working of all three shills and
        also augment the warehouse capacity.
b)      Chennai port should address the problems relating to frequent shifting of vessels
        between berths to improve th~ performance and also avoid berthing of fertilizer
        cargo in a contaminated jetty.
c)      Use of deep water port at Kakinada port needs to be opened up for fertilisers to
        improve the handiing capacity at this port,
 d)     The minor ports performance needs to be upgraded on acquiring self propelled
        barges! boats in good numbers supported by good storage and evacuation
        facilities.
e)      Widening of National and State Highways with proper matting to reduce transit
        time and transportation cost.



                                               183
I)       Warehousing capacities and Evacuation by the Railways :ire to be matched with
         the unloading capacity at each port.
g)       Coastal Shipping/Inland Water transportation needs encouragement for movement
         of fertilizer by providing liberal assistance The t()llowinf! needs to be addressed
         Ii)r effective usc of Inland Waterways:
         ~       Dcvelopmcnt       of inti·astructure        facilities   1(" loading   and unloading
                 tenninals.
         ~       Competitive water freights.
         ~       Integration of Inland Watn Transportation with co",tal shipping.
         ~       Night navigation facilities.
         -j.     R.ound-the   --year n;:"iiguhility.


15.33 ~oad Transpo!J.
The development       and maintenance ot road transport will have to be substantially
increased by way of widening and proper matting of road to withstand incredsing load on
thc national and Stdte highways.


15.34 port Railways facilitiesjll}!iport-rail connectivit'!
Port Railways facilities and flort-rail connectivity nced to be strengthened significantly
during the Plan period if timely availability of fertilisers has to be ensured.


15.35 InlanrLWater\y'~al1d        Costal Shipping
There is a need to provide a thrust to the development of Inland Waterways ~nd Costal
Shipping for movement of fertilizers. At present, it is being used only on a very small
scale by the fertilizer industry. For a country, which has experienced an appreciable
growth in industrial and agricultural sector in the recent years the existing vessels of the
costal merchant fleet are not adequate.


 15.36 Road Tankers
 Road tankers of 10-12 tonnes capacity arc recommended                      for transportation of liquid
 fertilizers.



                                                       184
15.37 }'{;lrehousing infra~tmcllH:.~
Tn view of competing demands It)r a number of agro-products. it wiil be desirable 10
strengthen the warehousing infrastructure t(l meet the requirement during the Eleventh
rive- Year Plan. This is more so because rcrtiliser demand has a deiinite peak and non
peak distribution of demand and is not amenable to 'iust in time' inventory planning.


15.38 ~()mp,1~Lh~~gjI1vcntorv              mOl1itorin~ysterIl
The        Department        l',f      Fertilizers     being       rile     apex-monitoring     £1!!-cnc:-.

manuti,cturers/illiporters          should be linked to it through an on line computer             b<lscd

in\'entory    monitoring     ~ystcm.      Besides    sllch   connectivity    needs   to be eXh::nucd    td

<.:onsumption centcr> and district, so that fertili7er demand can be met expeditiousl)                 and
in a tit11cly manner.



15.39 Handli'lli..Q.(ii:niii,cers
The rate at which our fertilizer consumption has been increasing makes it imperative                    III


bring about certain structUlal changes in the handling of fertilizers. Such a change is
necessary not only from the point of view of speeding up m0vement by rail transport but
also from the point of view of p~tting the logistics of fertilizers distribution on a tim1er
footing.


15.40 Innovative Packaging
Apart form sophisticated automatic arrangements for weighing a predetermined quantity
of fertilizers    (50 kgs) in the bags at the plants/main distribution centers,                  simpler
arrangement for volumetric packing has been designed by Norsk Hydro (Norway). There
is a small silo on top with a val'·e arrangement through which a predetermined quantit)
of fertilizer drops into a lower chamber and the valve closes automatically. A screen is
provided on the top of the silo to prevent jumps coming dowll. Thereafter, the bag is
placed below the nozzle and through another valve, when operated manually;                             the
fertilizers in requisite quantity drop into the bag from the lower chamber. There is a small




                                                      IR5
adjustable belt conveyor arrangement through which the bags can be loaded directly on
the road trucks. These machines can be effectively used at the ports/nl1dal points.


15.41   Bulk tr'!c!lSpOrL9iJertilizLOt:
At present fertilizers are moved in conventional wagon,. covered as well a" ()pen. Our
dependence on the general service wagons has at time resulted in a seriou,; constraint in
the availability    of wagons on aCCDunt of unbalanced paitern of traffic as we!1 as
utilization etc. If specially designed wagons felr handling or kni li7crs are introduced thc\
would work in closed circuit between the loading and consumption centers. as in case of
pctrokum tank wagons and thercbJ"ensure guaranteed ~n"(1ilahility.



While efforts have to be made as mentioned above. in the short tenn there i, a need to
improve the usage of wagons that me currently available on the Indian ra:l\\ays. Design
and standardization      of covers to the open BOX wagons would greatly enhancc the
versatility of usage of existing railway stock and greatly improve the anilability          of rail
wagons      for fertiliser   transportation.   Mechanized   bagging   facilities   with   capacity
corresponding to discharge rates in each port need to be set-up on priority.


Bulk transport of fertilizers requires large capital investments for the terminals. and the
rolling stock. Large volume of transportation and certainty of such transportation              are
necessary pre-requisites.      However, to save costs, the industry, the ports and the railways
can jointly explore the feasibility of introducing this concept in some nominated circuits.


 15.42 professionalisatiol] of manpower for fertiliscr sector


 Therc is a need for centralized institute for training of new entrants as well as refresher
 courses/retraining of existing employees. A training and manpower development institute
 can be established for the purpose.       The institute may be established under the aegis of
 FA!.     An allocation      of funds from the 1 J th Five Year Plan should be made for
 establ ishment of such an institute.




                                                 186
15. 43 Industrial contributioJ1JgJ{fficD
Industry     may contribute         1% of its protits           to l1"ual agency    which shall take lip R&D

projects of interest to fertilizer           industry. Gov!. of India may also give matching               lijnds for

R&D from the subsidy funds.



15.44 Use ofindigenOUEaw                   mmerLab

Industry      must   prepare       itsdf      to be able to .:;c indigenous              raw materiaL;.         Suitable

technologyltnetbods         shall be de\T]"ped           so a, tl' '.iSe indigenous      rock"phosphate     and coal

to reduce dependence          on imports of fcedstock



15.45 Coordination         grouJ2.for       ~&D
A coordination       group for R&D may be set up in the Department                        of Fertilizers   consisting

of representatives        of other Departments           of the Go'/emment,        F AI, Industry and CSiR.



15.46 Fertilizer Research Institute
A fertilizer    research    institute may also be established              on similar lines as of road research

institute,    coal research     institute,      steel research      institute, cement research      institute     etc. to

carry out various researches               related to fe.1ilizer industry.



15.47 Altemate       Fertilizers

New and cost effective              altemate       products      like bio-fertilizers,    slow release      fertilizers

should be developed          which can replace conventional                product with ease



15.48 Matters related to Pollution
Pollution      standard      may     also      include    the     method    of measurement         to be        adopted.

Unrealistic     and unachievable             standards   should not be set. There should be one common

standard applicable         to entire India.




                                                              187
R&D efforts in all pollution related areas are rcquired to develop indigel10us tcchnologies
taking care of not only the CUITentrequirement but also likely emerging requiremcnt in
ncxt 10 years.


EfTorts need to be made to develop technology for rccycling, reproccssing, n.:-usc of solid
mattcrs generated in fertilizer plants.


VariClus statcs ~ay cxpeditiously identify and develop landfill sitc, and mCll1o,i, t(>r
disposal of hazardous wastes.


rhe   incentive like custom duty. free imports for pollUlion rclaled technoloi!'           and
machinery might be allowed till the time indigenous capabilities catch up with the world
standards.


GO\ernment of India may take immediate steps to get Indian Boilers (Amendment) I~ill
passed from the parliament.


15.49 Low analysis fertilizers
Low analysis fertilizers should also be treated at per with other fertilizers    011   nutrient
value basis.


15.50 Regulations for sale of ne\\! products
It is recommended that proper regulations may be formulated for the sale of new products
like plant growth regulators.


 15.51 Technical strengthening of Department of fertilizers

Department of fertilizers need to be strengthened technically as it can play an important
 role in promotion of the productivity in the new economic environment through R&D
 efforts.




                                               188
                                                                               APPENDIX


              FERTILISER PRICING AND SUBSIDY
                                     A Technical Notc

1 Introduction
There have been numerous committees on various aspect'; of rertiliser Policy. Over the
decades more than one committce has been set up to advise on the same issue. Yct thc
issue has deficd solution. perhaps becausc the transitional solutions arc convened into
permanent ones before a new committce is appointed. '\s the sector is riddlcd with
distonions. staning from pricing and supph of the b:isic Irpws-kedstock. to plant-wise
and group-wise prices/subsidies and ending 1:1 user suhsidies. it is very easy to get lost in
the detaik    It is theret;)!"e useful to st:irt with J hrn:id perspective to del;ne the main
lssue~.


2 Analysis: Urea
    The most importam issue is to clearly defme and 'ieparale out the input. producer and
consumer subsidies (or tax if negative). For this we need benchmark prices for inputs.
primarily natural gas & naptha , and benchmark prices for output - Urea.


2.1 Benchmark
       The standard benchmark prices in an open economy and a globalised World are the
international prices of various items. There are two complications here. As oil price is
controlled by the oil cartel and national oil resources are often controlled by national
governments the oil price is not determined in a competitive market. In the case of
natural gas, though this problem is diluted, it is compounded by the large economies of
scale/sunk costs in transportation often result in hi lateral monopoly/oligopoly. In the case
of Urea fertiliser, it is sometimes asserted that the large potential demand from India
would convert the market into oligopoly. The presumption is that at that point prices
would rise and become higher than the price at whIch \\e could have continued to
produce.
       We ean define a benchmark that is either the import price of urea (P,,) or the cost of
the most efficient domestic producer (Pdc) assuming free imports of inputs and/or
domestie supplies at international prices. The fears expres5ed that if India became too
dependent on imported urea, a monopoly/oligopoly situation eould develop, imply that at
that point, P de < P". The appropriate benchmark in this case would be the efficient
domestic price. Therefore in general, the benchmark is given by

Po    =Min (P",    Pde)




                                              ]89
2.2 Conditional Prices

      The cost of thc most efficient dumestic          producer (Pde), assuming    free imports   of
inputs and/or domestic supplies at international       prices can be written as,




P" , the international price of lIfea (landed cost with zero duty) i.s conditional on thc oil
price (1',,). And I'd, is the long run marginal cost of feniliser gi"cn the intcrnational
prices of natural gas. 1.:-;(;, naptha tIe. whcn the price 01 oil is P"        In other words
whenever we rcfer to illlernalional prices ()f oil and gas and related product;, it should he
understood to he at some given price oroil (international and domestic).

2.2.1 Input Prices & Subsidy
         If input prices arc controlled and quantities rationed. the long range marginal co"t
is the (hypothetical) one that would proail in a free pricing scenario. It is an article of
faith that the most efticient way to produce urea is by using natural gas or LNC'. The
LRMC would therefore be the cost of producing urea through a new gas based fertiliscr
plant, where the gas is assumed to be priced at international price and is frecly available
at that price (I' g ).




If the domestic price of gas is controlled below the international       one. the implicit tax on
the domestic supplier of the gas is then givcn by,




Which is equal to the subsidy (Sg) for the fertil iser producer getting the domestic         gas at
the controlled rate,




2.3 Producer Subsidy

          Tfthe cost of the most efficient potential producer in India is higher than the impo11
price,     Pde .:>: Pw, then we can define a competitive import duty t as,

Pdc   =   (I +t) Pw

And the producer      subsidy can be defined as,




                                                 190
2.3.1 Cross-Subsidy
         There arc three types of domestic producers: (a) The ones with new, gas based
plants, falling into the efficient category, (b) Those with old. depreciated plants, which
lor this reason have a retention price lower than the cost elf production ofthe plants in (a)
and IC) Those using )ther feedstock besides gas, whose cost of production is higher than
(a).


If thc retention price system is abolished two things f(}lIow' I I) the cross-subsidy
currently provided by the plants in category (b) will be lost (21 Thc plants in cale~orv
(c) become uneconomical       and would become unprofitable.         Some of them would
however continue to run as long as the benchmark price plus the produccr subsidy
dctined above is greater than the variable cost. Consider the plants in calegury (c). 1 ,:1
thc retention price of the plant i in this category be P, Then the diseolll1ted valuc of the
subsidy that would be provided (forever) at the current cross-subsidy rate is.




 Where r i,; the interest rate on govcrnmcnts borrowing. Thus government could abolish
the retcntion price syskm by giving producers in category (c) a one time capital subsidy
S" , to switch ovcr to an efJicienl gas based plant without being any worse off. There can
also be an argument for limiting this subsidy to the loss incurred Lki. by junking the
current plant. In any case it should not exceed the cost of anew plant.
         The producer and falmcr subsidies given above would however continue.         The
incentive structurc for the industry would however. be completely transformed.

There would also be a loss of the implicit                  tax Tko collected     from depreciated   plants in
category (h):

T"     =   (P,ic -   Pi.)/r   = (   ]1-t)P" -- P, l/r    if P" < Pdc",   1   in (b)


2.4 Farmer Subsidy
The efficient user/consumer               price   Pc, given the benchmark price Pb can be written a",

Pc     = Ph   + Cdist     ,


where Cd>s1is the cost of distribution.

If the government desires that farmers receive urea ferti!iser at the farm gate at a
subsidised price, Pr, then the farmer/user subsidy is,




                                                           191
The farmer subsidy could for example be provided either through the urea producers and
importers or through a Social Security Smart Card of the kind recommcnded in Planning
Commission Working papcr No. 2006-1 and being fleshed oat by the 11'" Plan Working
t iroup on "lntcgrated Smart Card."

3 Illustrative Numbers
Tablc ] ill~lstrates very sketchily 50me of the subsidics involved. rhus at the oil price,
prevailing in June 2004, Gas based urea producers were providing a cross subsidy of 'iX,
,:rores, while the Naptha and fuel oil basedurea producers were getting a subsidy of Rs.
3100 crore and 1139 crores respectively Of the total "fertili,er subsidy of7680 crore.
only Rs. 4425 crore or 58% was going to farmers. In addition to this 42% non-gas based
i\:rtiliser producers got a cross-subsidy from gas ba,'ed producers equal to 13% of the
total subsidy outlay.

Tahle I; Oil Prices and Suhsidies

                Prod      Prices    Price/cost I      Subs!Qy     I
                Share;    World     pon::restic Rate Amount
Inputs'                   USD         USD        gs./ton Rs crore
 Oil
Gas                        $27   $17
LNG                        $49
Naptha                     $9.5
                          MMBTU MMBTU
 Output: Urea             Rs.          Rs.
 Producer         1.00    6600                    1302       3256
  Gas based       0.63                   5976     -624       -983
  Naptha          0.27                  11192     4592       3100
  FO/LSHS         0.10                  11156     4556       1139
 Consumer
  Farmer                                 4830      1770      4425

 Total                                                       7681

 Note:' Date for prices    Jun-04      Jun-04

These numbers need to be urgently updated based on the latest oil prices and the
corresponding prices of LNG, Naptha, Urea etc ..

4 Recommendation
     Given the history of non-reform in this sector, the bes1 coursc would be to make the
entire system of subsidies connected with oil and gas production transparent. This can be
done by pricing all oil and gas based products at international market prices and defining
a complete system of subsidies and cross-subsidies. To stan with the latter could take the
status quo as given and merely put a transparent system firmly in place. What is to be
done to refoon the system can then bc worked ouTin a rational manner taking account of
all socio-economic arguments.


                                                 192
                                           Fertiliscr Policy

        Fertilizer policy must be bcnehmarked to import parity pricing, rejecting the cost
based approach comprer,ensively' and must be integrate different types of fertiliser. This
makes it possible to separate farmer subsidy issues from the issues/problems      of fertilizer
production,     suhsidy   and cross-tax   subsidy and deal with each separately             and
independently, without holding Qne hostage to the othcr.
        Numerous       committees headed by eminent pubiie personalities,       scholars and
retired officials have given their recommendations     on fertilizer policy refonn over the
past two decades. Implementation      has however. repeatedly heen stymied. The challenge
is to work out a simple, pragmatic policy and en-ure its implementation.             The key
clements of this approach call be the following:

    I.   Import price; to be used as a benchmark for all types of fertilizers (and oiL coal
         and other inputs into their production) for cstimating and evaluating subsidies and
         cross-subsidies.   Adjustments can be made to this b,:nchmark (l\)r instance for
         predatory pricing. or temporary global shocks), but unless such adjustments are
         accepted by all concerned and formally approved, import parity will remain the
         benchmark.

    2.   Based on these bcnchmark prices, subsidies and cross tax-subsidies            currently
         received by all categories of fertilizer producers and type of fertilizer must be
         calculated.  The subsidy currently received by fanners Oil each type of fertilizer
         (Urea, Phosphatic, Potash etc) will also be an output of this exercise. The taxes-
         subsidies inherent in controlled supply of inputs will also become clear during this
         process. In future all cabinet notes on fertilizer pricing or fertilizer subsidy must
         contain an estimate of all these subsidies: The cabinet should not consider any
         note that does not provide this calculation using the latest available international
         prices and the impact (on all these) of the proposed changes.

    3.   Producers of all types of fertilizers will have the right to a subsidy set at the peak
         non-agricultural    tariff (N/\. T) rate. The reasoning for this conferment of a 'right'
         is that fertilizer producers deserve as much protection as the producer of any other
         manufactured      good, but this general 'protection' is better provided by a subsidy
         so as to keep fertilizers to farmers at international kve\s. As the current 'peak'
         non-agricultural    tariff ratc is 12.5%, producers of al1 types of fertilizers will have
         the righ, to a subsidy of 0.125 Pw (Pw = import parity price per unit of fertilizer)
         on every unit of fertilizer produced and sold in India. If the peak tariff rate is
         reduced in the 2007 -8 and subsequent years this subsidy rate will also decline.

    4.   Central and State indirect taxes paid on inputs purchased by fertilizer producers
         would be in principle refundable to them (even though the CENVAT and State
         V A Ts do not currently allow for this. The normal process by which Vat paid on
         inputs is offset against V A T charged on output is not possible as there is no VAT
         on fertilizer output). These should be estimated and announced. As these refunds



                                                193
     can be justified        by   the   principles     of   VAT    they   have    some     eCOl.'il~
     rational ity /Iegitimacy.

5.   These economically      justltied protection and refund (3 & 4 abo\'<') shot,. "C
     subtracted freml the implicit subsidies at import parity pricing calculated i! '"
     determine the 'producer subsidies' being provided i,' eelch category of fc:           cr
     producer.    The 'producer subsidies' so calculated should be capped at the: '. \1
     the current linancial year. and be phased out during l~e 11th five year plan ,.' 'cr
     prc-detcrrnincd.   announced schedule to be put on the "eb).           rhl~; woul,      -
     producers sllfticit~nt time to change tcchnology (e.l' frllm coal/naptha \.          '
     expand/contract    output er,tel into long terrn con,racts If)r gaslraw material ' ,'1\
     and to set up joint venture plants in gas surplus c[\untrws or phosphate'             ,h
     rich countric\


6.   '1 he difkrl'i1ce between the curren! price p~jd by L'.nne" and the imp"l'
     price is the "1:.irJlll.'r/consurner subsidy' (caiculated in 1 ). First tho:.:' unii SUb~i,    ,'r
     each type of ICrtilizer should be calculated. Seecnd 'he rate of consumer s'                  .1:
     should be equalized for different types of fertilizer" ilh"l the same total SIi', 'v.
      Based on somc nonTIS for the lIse of different types of fertilizer (NPK) per!'              _ire
     and the number and average size of small and marginal fam1ers' holdine' ilC
     amount of subsidy per small and marginal farmer slwuld he determined.                   'It, :He
     of suhsidy would be adjustcd if oil prices fall.

7.   This Integrated smart card, should have a fertilizer subsidy module (in addi;, '1 to
     the PDS module, a cash/credit module etc.) that entitles each small & mw,'nal
     farmer to collect a subsidy per unit of fertilizer bought for each type of fer: Ier
     up to a pre-determined       total subsidy value limi, (determined       as t: h).
     Alternatively each eligible farmer the subsidy amoilnt calculated in 6 can be ... en
     in the form of credit in bank account or smart card. which (s)he can use f., my
     purchase (farm inputs etc.).

8.   If the number of small and marginal farmers entitled to the fertiliztr subs,:'. is
     determined for each State the subsidy entitlement of each state's farmers co; j be
     transferred  to the States for distribution      through their own admini,' ,uve
     machinery (this is similar to the pattern followed currently with respect to l" crty
     based PDS entitlements and distribution) or State specitle Smart cards. ';~tes
     could also be given the option of giving the subsidy in the fonn of cash/cr":"· III
     the bank aecollnt or smart card.




                                                 194

				
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