INDIAN FERTILIZER INDUSTRY

&

CHAMBAL FERTILIZERS AND CHEMICAL

LIMITED

Date of Submission: 25th September 2006

Submitted to: Submitted by: Group 8

Prof. Harish Jain Shalabh Agarwal C-4Sumeet Rattan C-62Kunal Abhishek 3C-10Shirish Jain 3C-16

2

TABLE OF CONTENTS1. INTRODUCTION........................................................................- 3 -

1.1 Fertilizer production..............................................................................................- 3 -1.2 Demand - Supply Scenario in Fertilizer................................................................- 3 -

2. MAJOR SEGMENTS IN FERTILIZERS.................................- 4 -2.1 Nitrogenous Fertilizers..........................................................................................- 4 -

2.1.1 Urea................................................................................................................- 5 -2.1.2 Other Nitrogenous Fertilizers.........................................................................- 7 -

2.2 Phosphatic Fertilizers............................................................................................- 7 -2.2.1 DAP (Di-Ammonium Phosphate)..................................................................- 7 -2.2.2 SSP (Single Super Phosphate).......................................................................- 8 -

2.3 Potassic Fertlizers.................................................................................................- 9 -3. ENHANCEMENT IN FERTILIZER AVAILABILITY........- 10 -

3.1 Economic Reforms and Its Impact......................................................................- 10 -3.2 Investment in fertilizer industry -Public, Private and Cooperative sectors.........- 10 -3.3 Imports of fertilizers............................................................................................- 10 -3.4 Distribution of fertilizers.....................................................................................- 11 -3.5 Fertilizer promotion............................................................................................- 11 -3.6 Quality Control of Fertilizer:..............................................................................- 12 -

3.6.1 Agencies involved in Quality Control of Fertilisers....................................- 12 -4. POLICY INITIATIVES............................................................- 13 -

4.1 Pricing policy......................................................................................................- 13 -4.2 Fertilizer subsidy.................................................................................................- 13 -4.3 Fiscal concessions...............................................................................................- 14 -4.4 Transport infrastructure.......................................................................................- 14 -4.5 Setting-up New Capacities..................................................................................- 14 -

4.5.1 Addition to Domestic capacities..................................................................- 14 -4.5.2 Joint ventures abroad...................................................................................- 15 -5. UREA IMPORT BY CHINA AND ITS IMPLICATIONS

FOR INDIA.....................................................................................- 16 -6. TOWARDS NEW FERTILIZER POLICY............................- 17 -7. CHAMBAL FERTILISERS AND CHEMICALS LIMITED- 19 -

7.1 Company Profile.................................................................................................- 19 -7.2 Manufacturing.....................................................................................................- 20 -

7.2.1 Manufacturing Process.................................................................................- 21 -7.3 Operations and Supply Chain Management........................................................- 23 -7.4 Environmental Protection...................................................................................- 23 -7.5 Awards................................................................................................................- 24 -

REFERENCES...............................................................................- 27 -BIBLIOGRAPHY.......................................................................... - 27 -ANNEXURETABLES................................................................... - 28 -TABLES.......................................................................................... - 29 -

3

1. INTRODUCTION

1.1 Fertilizer production

The Indian fertilizer industry in the past 50 years has grown in size and stature and presently ranks third in the world. In the planned economic development of the country, self sufficiency in food grain production was considered as the prime priority. Increase in fertilizer use along with irrigation facilities, use of improved seed and adoption of better agronomic practices paved the way for increasing crop productivity and production. Fertilizer use in India increased from 66 thousand tons of major plant nutrients in 1951-52 to 22.7 million tons in 2003-04. Fertilizer contributes 40-50% increase in food grain production and they have vital role to play in any strategy to meet the challenges of rising demand of food, fiber, forage and fuel.

Fertilizer consumption of plant nutrients per unit of grossed cropped area in India is still very low average being 91.5 kg/ha. Productivity of food grain crops in the country is also quite low, around 1.6 t/ha, which can certainly be doubled by enhancing per unit average fertilizer use. Fertilizer consumption has to increase substantially in order to achieve the food grain requirement of 220 million tons by the year 2002.

1.2 Demand - Supply Scenario in Fertilizer

The Demand-Supply scenario in fertilizers has been worked out by the Working Group on Fertilizers for the Ninth Plan (1997-98 to 2001-02) on the basis of the estimated demand and production projections in terms of N and P2O5 nutrients (Table-2). The increase in production (supply) will be 4.86 million tons, most of it is confined to nitrogen resulting from the commissioning of the expansions, new plants or joint ventures abroad. Production of N is expected to increase from 9.7 million tons in 1997-98 to 25.0 million tons in 2007-08. The Group estimated that the available phosphate supply will increase from 2.8 million tons of P2O5 in 1997-98 and reach 7 million tons in 2007-08. The demand for N, P2O5, K2O has also been estimated upto 2006-2007 (terminal year of tenth plan) at 16.35, 6.65 and 2.60 millions tonnes, respectively.

The Group also considered the details of estimates made by various agencies like Fertilizer Association of India (FAI), National Informatic Centre (NIC) and Department of Agriculture and Cooperation (DAC), Government of India and concluded that in the terminal year of Ninth Plan there is likely to be a surplus of N supplies to the extent of 0.63 million tons. However, it may be worthwhile to note that some of the projects have not materialised and finally N supplies might also show a deficit. There would be a short fall in phosphate to the extent of 1.34 million tons. The entire demand of 1.83 million tons of potassic fertilisers would be met from imports.

4

2. MAJOR SEGMENTS IN FERTILIZERS

The Indian fertilizer industry is broadly divided into nitrogenous, phosphatic and potassic segments. In addition to these, nutrients are combined to produce several complex fertilizers. To express the nutrient constitution of fertilizers, the grade of a fertilizer is expressed as a set of three numbers in the order of percent of Nitrogen (N), Phosphate (P) and Potash (K). The straight nitrogenous fertilizers produced in the country are urea, ammonium sulphate, calcium ammonium nitrate (CAN) and ammonium chloride. The only straight phosphatic fertilizer being produced in Sector Report: Fertilizer Industry India /Economics the country is SSP. The complex fertilizers include DAP, several grades of nitrophosphates and NPK complexes. Urea and DAP are the main fertilizers produced indigenously.

2.1 Nitrogenous Fertilizers

The total installed capacity of nitrogen in India as of 31st March, 2005 is 12 mtpa. This includes the nitrogen capacity corresponding to the urea capacity of 20.2 mtpa. The use of urea dominates nitrogenous fertilizer consumption in India, consuming almost 85 percent of the total nitrogen capacity. DAP consumes about 5 percent of the nitrogen capacity, CAN - 2 percent and other complexes the remaining 8 percent. The production of nitrogen increased from 10.08 million tonnes (m.t.) during FY2000 to 12 m.t. during FY05. This was led by the increase in the production of urea, which increased, from 18.6 m.t. in FY98 to 20.2 m.t. in FY05.

INDUSTRY STRUCTURE

5

2.1.1 Urea

Currently, the urea capacity is about 20.2 m.t. while consumption is about 21.7 m.t. The demand is expected to grow at a CAGR of 4 percent and by next few demand would grow to around 23 m.t. while the estimated production would be about 21 m.t. The top six producers of urea in India are

1. Indian Farmers Fertilizers Co-operative Ltd. (IFFCO)2. Krishak Bharati Co-operative Ltd. (KRIBHCO)3. National Fertilizer Ltd. (NFL)4. Rashtriya Chemicals and Fertilizers Ltd. (RCF)5. Nagarjuna Fertilizers and Chemicals Ltd. (NFCL)6. Tata Chemicals Ltd. (TCL).

Urea, the most widely used fertilizer, is under government control, as urea manufacturers are reimbursed on a cost plus basis under the RETENTION PRICE SCHEME. The farm gate price of urea is fixed at INR 4,600 per tonne w.e.f February 29th, 2000, excluding local levies, which is amongst the lowest in the world and is heavily subsidized.

The production of urea involves the production of ammonia, which is then converted to urea. Ammonia can be synthesized using any of the following feedstock: natural gas (NG), naphtha, low sulphur heavy stock (LSHS), fuel oil and coal. The urea segment of the industry is likely to be affected by significant changes in Government policy in the medium term. These changes can be broadly categorised into two types—those that affect profitability by modifying the current rules of competition and the more fundamental ones that replace the existing rules themselves.

Imports   Imports of urea significany lower in 98-99 due to large carry over stock at the

beginning of the year and increased production in the domestic sector

Urea is imported by designated State agencies based on estimates of domestic demand and production. The international price of urea is currently quite low. The c.i.f. cost of urea in July 2000 was around USD 140 per tonne. This implies that the import cost of urea is about INR 7000-7500 per tonn e at the current exchange rate after accounting for port handling and freight charges whereas the retention price of manufacturers varies roughly between INR 5,000 and INR 11,000 per tonne. In case the import of urea is decanalised the viability of Indian producers is likely to be threatened. However, one must keep in mind that the current low international price of urea is partly because of the reduced imports by India and China.

6

Once India enters the international market, urea prices are likely to rise again. It is estimated that a purchase of 2 to 3 million tonnes of urea from the international market by India, the purchase price of imported urea

would jump between 150 and 250 percent. However in the medium term the international price of urea is expected to remain depressed and the removal of quantitative restrictions (QRs) can hurt the industry.. A logical outcome of this demand could be the concurrent removal of pricing and distribution controls. The fertilizer ministry has already decided to decontrol urea completely in three phases by FY07. The transition period will be used to gradually reduce subsidy by increasing the selling price at regular intervals thus making the cost competitiveness of domestic urea units critical.

Sector Report: Fertilizer Industry India /Economics

7

2.1.2 Other Nitrogenous Fertilizers

The other nitrogenous fertilizers — CAN, ammonium sulphate (AS) and ammonium chloride (AC) — were decontrolled in 1991. They were brought back under the RETENTION PRICE SCHEME in 1992 but decontrolled again in 1994. As there are no subsidies on these fertilizers, the profitability of their manufacturers has been hit by the recent increases in feedstock prices. The total installed capacity of CAN in the country is 942,500 tonnes per annum (tpa). The major CAN producers in the country are NFL, Steel Authority of India Ltd. (SAIL) and Gujarat Narmada Valley Fertilizers Company Ltd. The total installed capacity of AS is 864,500 tpa. AS contains about 21 percent nitrogen and 24 percent sulphur. It has traditionally been popular in some parts of the country. The principal raw materials for its manufacture are ammonia, sulphuric acid and gypsum. The major manufacturers of AS are Fertilizer Corporation of India (FCI), Hindustan Fertilizer Corporation Ltd. (HFCL) and Gujarat State Chemicals and Fertilizers (GSFC). AC is used as a fertilizer for rice and some other crops. It is manufactured in India by Tuticorin Alkali Chemicals & Fertilizers, and Punjab National Fertilizers and Chemicals (PNFC).

2.2 Phosphatic Fertilizers

The total production of phosphate in the country was 3.36 mtpa in FY00 – a 6 percent increase over production in FY99. DAP consumes nearly 42 percent of this capacity and SSP around 32 percent while the remaining 26 percent is consumed by other complexes. DAP and other phosphatic fertilizers were decontrolled in 1992 following which their prices shot up. This resulting price differential between urea and phosphatic fertilizers led to the excessive use of urea, which resulted a distorted NPK ratio. Following the decontrol the consumption of phosphatic fertilizers fell from 3.32 m.t. in FY92 to 2.67 m.t. in FY93. To rectify the imbalance, the Government started announcing ad hoc subsidies on these fertilizers. While phosphatic fertilizers are officially decontrolled, in reality, the Government controls both the selling price and the level of concession on it.

2.2.1 DAP (Di-Ammonium Phosphate)

The top five producers of DAP in the country are Paradeep Phosphates, IFFCO, GSFC, SPIC and Godavari Fertilizers. Together with the domestic production of 4 m.t. and an opening stock of 0.9 m.t., the total availability of DAP in the country in FY04 was 8.2 m.t. with highest ever DAP imports of 3.3 m.t. in the country. The estimated sales of DAP in FY04 was 6.4 m.t. Thus, there was an excess supply of around 1.8 m.t. The DAP capacity of the country is expected to increase by 2.80 mtpa by the end of FY06 and the demand for DAP is estimated to grow by 10 to 12 percent. The subsidy is INR 4,450 per tonne on indigenous DAP and INR 1050 per tonne on imported DAP. With the selling price for DAP fixed at INR 8,700 per tonne, total realization for DAP manufacturers is at INR 13,100 per tonne. DAP is manufactured using phosphoric acid (PA) and ammonia. PA is either imported or manufactured. The manufacture of PA requires rock phosphate (RP) and sulphuric acid. Thus DAP units are either PA based or RP based. Also units can either produce ammonia in-house or purchase imported ammonia. In India, 69 percent of DAP capacity is based on PA, and 80 percent of this PA requirement is met through

8

imports. The balance 31 percent of DAP capacity meets its requirements of RP and sulphur largely through imports. Since phosphatic fertilizers are not subsidised on a cost plus basis, escalations in raw material prices have a major impact on the profitability of the manufacturers. The subsidy on phosphatic fertilizers is set on the basis of the prevailing international prices of ammonia and PA. Earlier, the subsidy calculation was ad hoc and subsidised only the P component. Under the new subsidy structure, both the N and the P component are subsidised. The subsidy on DAP is ascribed to both the nitrogen and phosphate content. With the new policy, it makes sense for DAP manufacturers to import ammonia, given the low prevailing international price. Since the subsidy is linked to international prices of ammonia, units using indigenous ammonia have suffered, as they do not get compensated for the increase in the costs of production. DAP is imported by India in significant quantities. The concession on indigenous DAP is higher than that on imported DAP, which keeps the Indian industry competitive. The differential concession acts as a kind of import duty. In the past the differentials were about INR 1000 and INR 1500 a tonne. In the first two quarters this year, they were INR 3400 a tonne and INR 2350 a tonne respectively. However, even this differential cannot prevent DAP imports from being relatively more profitable when the international prices fall sharply. Since DAP imports are decanalised and with the international price of DAP in FY00 falling by USD 50 per tonne in two months led to a glut of imports and an ensuing price war in the domestic market on account of large imports competing with local supplies.

2.2.2 SSP (Single Super Phosphate)

The total installed capacity of SSP in the country is 6.48 m.t. per annum. Unlike urea and DAP, the concentration of major players in SSP is low, with the top five players contributing to barely30 percent of the total production. At present, about 79 medium and small scale units are engaged. The major raw materials for SSP are RP and sulphur. The current level of subsidy on SSP is INR 700 per tonne.

9

2.3 Potassic Fertlizers

In the absence of potash deposits of commercial significance in India, the entire requirement of potassic fertilizers is imported. The major potassic fertilizer consumed in the country is Muriate of Potash (MOP). The major importers of MOP in India are Indian Potash Ltd. (IPL), Paradeep Phosphates Ltd. (PPL), Southern Petrochemical Industries Chemical Ltd. (SPIC), IFFCO, and Hind Lever Chemicals. The quantity of imports is governed by the international price of MOP and the subsidy given by the Government to MOP traders. In FY99, 2.58 m.t. of MOP was imported compared to 2.38 m.t. in FY98. The increase in subsidy on MOP announced in December 1998, from INR 2000 per tonne to INR 3000 per tonne, triggered this growth. The growth would have been higher had the subsidy been announced earlier in the financial year. Concession on MOP was increased from INR 3000 to INR 3250 per tonne in FY00, which would provide a further impetus to MOP imports.

10

3. ENHANCEMENT IN FERTILIZER AVAILABILITY

3.1 Economic Reforms and Its Impact

When the Indian Economic Reforms Programme was launched, the liberalization and macroeconomic stabilization was high on the Government’s Agenda. The Fertilizer Sector was also affected because of these reforms which resulted in increased prices of fertilizers initially and decontrol of P&K fertilizers subsequently. With effect the Government implemented three major policy decisions

(i) decontrol of ammonium sulphate and ammonium chloride (ii) increase in the selling prices of all other fertilizers by 40% and (iii) introduction of a subsidy ceiling on SSP.

However, within a span of three weeks the Government revised the extent of the price hike to 30% w.e.f. 14th August, 1991 and exempted the small and marginal farmers from it completely. With effect from 25th August, 1992 the Government decontrolled all phosphatic and potassic fertilizers and abolished the RETENTION PRICE SCHEME covering the former, brought back ammonium sulphate, CAN and ammonium chloride within the purview of the control and subsidy and reduced the selling price of urea by 10 per cent while retaining this under control of the RETENTION PRICE SCHEME. These policy changes were expected to achieve

(i) reduction in subsidy(ii) continued growth in foodgrain production and (iii) keeping healthy soil intack. Unfortunately none of these could be achieved.

3.2 Investment in fertilizer industry -Public, Private and Cooperative sectors

The Indian fertilizer industry has witnessed a phenomenal growth in the eighties. However, the growth has tapered off in the nineties and in the recent past only public and cooperative sectors have made major investments in this industry. Presently public, private and coop. sector share 45, 33 and 22 percent of N capacity, respectively, whereas their share in P2O5 capacity is 26, 64 and 10 per cent respectively . New proposals to government for setting-up fresh capacities in country are mainly from Public and Cooperative sectors.

3.3 Imports of fertilizers

The fertilizer consumption in India has always exceeded the domestic production both in case of nitrogenous and phosphatic. The entire requirement of potassic fertilizers is imported, as there are no indigenous raw materials available. India has been a net fertilizer importer and the volume of fertilizer imports is also substantial. India mainly imports Urea, Di-Ammonium Phosphate (DAP) and Muriate of Potash (MOP). Imports constitute about 20% zof the total fertilizer consumption. Import of nitrogenous fertilizer in India is in the hands of Multi-import state agencies, although the government is attempting to coordinate buying based on the demand, international prices and warehousing capacity etc. The Government efforts would be to increase indigenous capacity in such a way that about one million tons of nitrogen could be met from

11

imports.With the decontrol of phosphatic and potassic fertilizers in 1992, import of DAP and MOP has been freed. Import of raw materials like rock phosphate, phosphoric acid, sulphur and ammonia has been also decanalised since then.

3.4 Distribution of fertilizers

In the beginning, Government of India established the "Central Fertilizer Pool" as the official agency to ensure equitable distribution of all available, imported and indigenous, fertilizers at fair prices all over the country. In 1965, the Shivaram Committee laid the policy foundation regarding production, promotion, distribution and consumption of fertilizers. In 1966, the manufacturers were given the freedom to market upto 50% of their production to the farmers. Fertilizer shortages in the early 1970s led the government to pass the Fertilizer Movement Control Order in 1973 which brought the fertilizer distribution and its interstate movement under government control and supply and distribution was regulated under the Essential Commodity Act (ECA). In order to encourage the availability of fertilizer in interior areas, the Government started the block level delivery scheme in 1980-81 in which the transportation cost upto block headquarters ,is borne by the government. Under ECA, supply plans were formulated by the government in consultation with the state departments of Agriculture and fertilizer industry during 'Zonal Conferences' held twice a year. The objectives of such exercises were to minimize transportation cost, avoid criss-cross movement of material and to ensure availability as per requirement all over the country.

In August, 1992 phosphatic and potasssic fertilizers were decontrolled and their distribution is- over taken by the manufacturer or importers. Government is, however, keeping a close watch and any imbalance is brought to the notice of the industry. Urea continues to be under control and its distribution is governed by ECA allocation.

3.5 Fertilizer promotion

The ideal NPK ratio, aggregated for the country as a whole, is 4:2:1. Prior to decontrol of phosphatic and potassic fertilizers NPK ratio was 5.9:2.4:1, however, after decontrol in 1992-93 NPK consumption ratio distorted to 9.5:3.2:1 and continued to remain quite wide at 10.0:2.9:1 till 1996-97. With measures like Centrally Sponsored Scheme on "Balanced and Integrated use of Fertilizers- and "National project on Development of Fertilizer use in Low Consumption and Rainfed Areas" and Concession on P&K have helped in restoring NPK ratio to some extent and during 1997-98 NPK consumption ratio of 7.7 : 2.7 : 1.0 was achieved. Fertilizer Industry has also contributed to a great extent in the promotion of balanced fertilizer use. Farmers' meetings, field days, crop seminars, farmers' training, field demonstrations and soil testing campaigns are organised to educate farmers on efficient and balanced use of fertilizers. Special efforts are made to promote the concept of balanced fertilizer application using mass communication techniques involving Radio, TV, Films and Printed Literature. Certain special projects were also launched for transfer of technology in dryland agriculture, tribal and backward areas. Use of bio-fertilizers and integrated plant nutrient management is being promoted by Government of India and the Industry.

12

3.6 Quality Control of Fertilizer:

To ensure that supply of good quality fertilizers to the farmers, strict check is exercised over the quality of fertilizers in the State, under fertilizer Control Order, 1985. All the Agricultural Development Officers (B.Sc.Agri.)/Agricultural Officers, Chief Agricultural Officers. Joint Director of Agriculture (Admn. Wing) have been declared Fertilizer Inspectors under FCO 1985 to check stocks of fertilizers and draw samples in their respective jurisdiction large number of fertilizers samples are taken every year from the stocks of fertilizers dealers, especially of those fertilizers which are more prone to adulteration i.e. DAP, SSP Complex fertilizers, Zinc-Sulphate and Ferrous Sulphate etc. Quality control campaigns are also organized in the State during peak consumption period of Kharif and Rabi seasons. There are two Fertilizer Quality Control Laboratories situated at Ludhiana and Faridkot with analyzing capacity 2000 and 1500 samples per annum respectively. The legal as well as administrative action is being taken against the defaulters whose samples are declared Non-Standard

3.6.1 Agencies involved in Quality Control of Fertilisers• Department of Fertilisers, MOCF• Central Fertiliser Quality Control & Trg Institute, Faridabad• Regional Fertiliser Control Laboratories (Chennai, Kalyani (Kolkata), Mumbai)• State Agricultural Departments• State Govt Quality Control Laboratories - 62

13

4. POLICY INITIATIVES

4.1 Pricing policy

The fertilizer policy is aimed at increasing consumption to meet the food and fiber requirement of growing population through setting up required production capacities, ensuring that quality fertilizers are made available to the farmers throughout the country at uniform and affordable price. It was also recognized that fertilizer use should be profitable to the farmers for which he must get a certain minimum return for the produce. This led to the announcement of procurement prices and minimum support prices for several crops from 1970 onwards. The Marathe Committee was assigned the task of resolving the issue of keeping Farm Gate Prices (FGP) of fertilizers at an affordable level in the face of rising production/import costs. Its recommendations in 1977 led to the birth of the Retention Price Scheme (RPS). This scheme was intended to ensure that both the fertilizer producers as well as the farmers should find it worthwhile to produce and use fertilizers. The policy aimed that each manufacturer is able to get 12% post-tax return on investment on efficient operation regardless of the location, age, technology and cost of production. In addition, the government agreed to reimburse the cost of transportation from factory gate to railhead and also take care of the distribution margin. The RETENTION PRICE SCHEME is now restricted to urea only.

4.2 Fertilizer subsidy

The RPS system helped in achieving the objective of increased indigenous availability and supplying it to farmers on affordable and uniform price. The difference between FARM GATE PRICES and RPS is paid to the industry as subsidy. With the growth in fertilizer production along with escalation in price of raw material and plant cost, the subsidy amount swelled to huge proportions over the years. In an attempt to reduce the burden of subsidy, the government has increased urea price by 10 % w.e.f February 2005.

As a result, domestic urea prices have risen from Rs3320/t (US$ 83/t) to Rs3660/t (US$ 91/t) for bagged deliveries to farmers. The average subsidy pattern of urea is around US$ 84/t. Prior to decontrol of phosphatic and potassic fertilizers (in the year 1992) subsidy was available to all domestic and imported fertilizers. The fertilizer subsidy increased from US$ 418 million in 1999-00 to US$ 2446 million in 2004-2005. However, the

14

subsidy bill after the decontrol of phosphatic and potassic fertilizer declined and remained below 1990-91 level.

4.3 Fiscal concessions

Government of India announced a series of concessions as recommended by the PC to bring down the production cost of phosphatic fertilisers. These were :

1. Removal of custom duty on import of phosphoric acid w.e.f. August, 2002

2. Lowering railway freight on phosphatic fertilizers (except SSP) from September, 2002 which amounted to 35% reduction in rail transport.

4.4 Transport infrastructure

The increased fertilizer production has also necessitated development of infrastructure to facilitate smooth distribution of the material. The modem plants producing between 2500-4000 tons of fertilizers require at least one and ideally two goods trains per day. Transportation through trucks can not be a substitute for railways at it is costly and inadequate. Moreover, roads are primarily used for passenger traffic, it will also add pressure to the availability of diesel. The wagon fleet which stood at 480 thousand at the beginning of eighth plan is around 470 thousand, at the end of the eighth plan, whereas 80 thousand wagons were to be added during the plan period to carry the estimated 418 million tons of freight. The Government of India has opened participation from users by way of 'OWN YOUR WAGONS' scheme. Scheme is now becoming popular. Besides, imports of urea, DAP and MOP, the major intermediaries in the production of phosphatic and complex fertilizers viz. ammonia, phosphoric acid and potash are also imported. The congestion at the ports often leads to berthing delays. Government of India is also keen to create additional facilities at the major ports in the country and also opening this sector for privatization.

4.5 Setting-up New Capacities

4.5.1 Addition to Domestic capacities

Government of India has encouraged investment in domestic fertilizer industry to reduce over dependence on imports. The Eighth Five Year Plan Working Group had recommended that the gap between the indigenous production and demand of nitrogenous fertilizers should be kept at the minimum. The ceiling suggested for imports was one million tons of N. During the Seventh Plan period (1985-90) the raw material for the production of nitrogenous fertilizer was natural gas. During the Eighth Plan period with the installation of new capacities, stagnation in gas supplies and diversion of gas to power sector, dual feed and fuel capacities had to be adopted. New capacities were set using naphtha as raw material. In Ninth Plan period (1997-2002) dependence on naphtha would continue until LNG facilities are set up. However, concerted efforts would be made for use of LNG as feed stock. The plants would be designed to use either LNG or

15

naphtha. Hence, the new capacities would be encouraged to be set up in deficit or other feasible regions, based on naphtha but with specific provision to change over to LNG on its availability. The new capacities which have been set up recently and are under implementation during the Ninth Plan period are expected to yield an additional capacity of 3.9 million tons of urea .The Sixth and Seventh Plan Working Group on fertilizers had envisaged 75% self sufficiency through indigenous production of phosphatic fertilizers. The Working Group on fertilizers for Eighth Plan had recommended reduction of the dependence on imports to 15% of total demand of finished products (0.85 million tons P2O5 in 2001-2002). This Group also proposed that additional capacities to manufacture DAP should be based on imported phosphoric acid. For this purpose Indian companies should be encouraged to set phosphoric acid plants in countries where cheap raw materials are available.

4.5.2 Joint ventures abroad

Lack of availability of natural gas in the country has prompted investors to collaborate for joint ventures abroad. Gulf countries, due to abundant availability of gas, nearness to Indian shores and investment friendly environment, are becoming the first choice for joint ventures. In the phosphate sector also, increase in domestic capacity has to be supplemented by supplies from joint ventures abroad. It is heartening to note that apart from the operating plants for phosphoric acid in Senegal and Jordan, some more such joint venture projects and expansions are being contemplated by the Indian companies.

16

5. UREA IMPORT BY CHINA AND ITS IMPLICATIONS FOR INDIA

SINCE late 1970s, both China and India have emerged as dominant forces in the world fertiliser market. Between 1978-79 and 1984-85, they together accounted for 50 to 55 per cent of growth in the world consumption and imports of fertilisers, and nearly one-third of growth in the world fertiliser production. India and China have been major importers of urea. But the imports of urea to the two countries have fluctuated considerably from year to year. In recent years, the two countries together have accounted for more than one-third of the world imports of urea. Fluctuations in the imports have largely been due to varying rainfall in the two countries, as both the countries still largely depend on the rains for the irrigation. Political factors, like statal fixing of the prices of various fertilisers, have also contributed to skews in demand of urea in the two countries. While the issue of food security to meet the food requirements for the growing population has dictated the need to increase crop production in both the countries, emotions rather than the objective decision-making in the two countries have influenced many decisions. The long-term goal of self-sufficiency in supply through development of domestic industry has not received sufficient attention. Fertiliser import policy has been governed, more often than not, by short-term and ad hoc considerations such as clearing inventories, savings in foreign exchange, and such other institutional and infrastructural constraints. This has had influence on fertiliser production in both the countries. Recently China has embarked upon a strategy of achieving self-sufficiency in fertiliser production to attain food security, and replace some of its old plants of complex fertilisers with large-sized plants of urea. This means that China would vacate a large demand of import of urea from the international market. A portent to this has been in evidence as the volume of fertiliser imports by China during the last two years went down considerably. It is relevant in this context, therefore, to examine issues which have implications for a new orientation of fertiliser policy in India.

World capacity for the production of urea in 1995 was 102 million mts. This capacity is expected to rise to half a billion mts by the year 2010. But the world capacity has never been fully utilised mainly due to reasons of market. Technical reasons have also been responsible for this. In fact historically, the capacity utilisation of the world urea industry has been at an average of 87 per cent. In fact, in the past the domestic consumption has been only up to three-quarters of the world production. The domestic consumption of the world production in 1996 was 74 per cent, leaving a significant 26 per cent for international trade. The oil crisis of 1970s and 1980s saw a substantial growth in export-oriented urea capacity at low cost locations. This new capacity was largely built in the Arab Gulf, the former Soviet Union (FSU), central Europe, Indonesia, Malaysia, and Caribbean Gulf. All these locations have vast reserves of natural gas at low cost.

International trade of urea as percentage of world production remained consistently between 25 to 28 from 1970s onwards. Though early 1990s experienced a temporary fall in the trade following India’s absence from the import market and China’s reduction of the imports, from 1994 onwards there was a jump in the international trade by over 6 per cent due to buoyant demand by India. Another boost to international trade came in 1995 when Chinese imports expanded by almost three-folds. In absolute terms, it was imports close to 6 million mts. But the trade in 1996 once again fell by 2 per cent, as there was fall in imports both by India and China. The falling trend in the urea import demand continued even in 1997 and 1998. The fall in demand during this year is likely to be around by 10 per cent. This fall in import demand is largely due to lower imports by India and China.

The prospect for total fertiliser demand in India and China in the coming years depends on many factors which are not only economic and political but also climatic, given the rain dependency of the bulk of the agriculture.

17

6. TOWARDS NEW FERTILIZER POLICY

With the beginning of the economic reforms in early 1990s, there has been policy shifts with relation to fertilizer sector. Some of the major changes are as under:

Delicensing of Fertilizer Industry Decanalisation of imports of raw materials like phosphoric acid, sulphur,

ammonia, and rock phosphate. Decontrol of phosphatic and potassic fertilizers Decanalisation of DAP and MOP imports at zero duty Decontrol of naphtha

The Government also felt the need for review of the existing system of subsidisation of urea under the Retention Price Scheme (RPS) existing since the year 1977. For this purpose and with a view to suggest an alternative broad based scientific and transparent methodology, the Government of India constituted in January 1997 a High Powered Fertilizer Pricing Policy Review Committee under the Chairmanship of Prof. C.H. Hanumantha Rao, former Member of the Planning Commission. The Committee submitted its report on 3rd April, 1998. The Committee has recommended the discontinuance of the unit wise Retention Price Subsidy Scheme, which is presently applicable to the urea units and has suggested an alternative uniform Normative Referral Price based on the economic principle of Long Range Marginal Cost for the industry as a whole. The Committee has also recommended that in the interest of sectoral cohesiveness, phosphatic and low analysis nitrogenous fertilizers may also be brought within the ambit of this scheme. According to the Committee, this methodology would ensure enhanced efficiency in the production of fertilizers without affecting most of the existing units and would also encourage creation of new capacities. The recommendations of the Committee are towards phased deregulation and for progressive market oriented system.

The main features of the recommended framework are as follows:

(a) Government to fix maximum Farm Gate Price (FGP) based on its perception of urea prices considered 'affordable' by farmers. Fertilizer units will be allowed to fix retail prices subject to ceiling of FARM GATE PRICES.

(b) Subsidy levels would be determined with reference to Normative Referral Price (NRP) which will be determined on the economic principle of Long Range Marginal Cost (LRMC). Difference between NRP and FARM GATE PRICES would be given as subsidy to the industry.

(c) Feedstock Differential Cost Reimbursement (FDCR) for use of naphtha and fuel oil be given for a transition period of 5 years only over and above the NRP which would relate to gas based plants only.

(d) New Pricing methodology should be extended to phosphatic fertilizers.

18

Note: Figures for NRP and FDCR as on January, 98 have been indicated by the Committee to be as follows:

Per ton

NRP Urea

Rs.6050 (US$ 151) DAP Rs. 11900 (US$ 297)

FDCR for Urea

Naphtha/coal Rs.1750 (US$44)

FO/LSHS Rs 1300 (US$ 32)

(e) Ending the present practice of allocating stocks to the states and monitoring their distribution under the Essential Commodities Act. However, additional freight and inventory cost to be reimbursed in respect of fertilizers distributed in remote and inaccessible places.

(f) Canalisation of urea import to continue for five years.

(g) Initiatives to set up Joint Ventures abroad near source of abundant availability of feedstock be encouraged as a matter of policy in the coming years due to the gas shortages in India and growing demand of fertilizers.

(h) Setting of a 'Fertilizer Policy Planning Board' to prepare policy options for the Government in order to provide a long term perspective for the industry. The Department of Fertilizers has initiated an intensive process of inter-Ministerial consultation and dialogue with the industry for assessing the impact of the recommendations of this Committee. The new fertilizer policy, which would seek to harmonies the interest of food security with growth and efficiency up gradation in the industry, would be formulated in light of this consultation exercise.

.

19

7. CHAMBAL FERTILISERS AND CHEMICALS LIMITED

7.1 Company Profile

Chambal Fertilisers and Chemicals Limited was promoted by Zuari Industries Ltd. in 1985. It is located at Gadepan, 35 kms. from Kota, on the Kota - Baran National Highway No.76. Kota is the hub of industrial activity in the state of Rajasthan. Chambal operates two hi-tech nitrogenous fertilizer plants and is the largest fertilizer complex in private sector in India.The two mega fertilizer plants having a total re-assessed capacity of 1.7292 million tons of urea per annum. Both Gadepan-I & Gadepan-II phases represent a total investment of over Rs. 2,500 Crores. Gadepan-I was commissioned in December 1993 and its commercial production commenced in January 1994. It is designed to produce 1,350 MT of Ammonia by Haldor Topsoe, Denmark technology and 2,348 MT per day urea based on Snamprogetti, Italy process. Commercial production at Gadepan-II started in October 1999. Its Ammonia plant is based on Kellog (USA) technology and the Urea Plant is based on ACES process of TEC, Japan. The Ammonia Plant is a single stream, having a design capacity of 1,350 MT ammonia per day, like Gadepan-I. The Urea Plant is designed to have twin streams, each with the design capacity of 1,175 tons of urea per day. Gadepan-I is based on natural gas as the feed stock while the fuel demand is met by naphtha. Gadepan-II is designed both for naphtha and natural gas as feed stock. Toyo Engineering India Ltd. has designed the Off-sites of both for Gadepan-I & Gadepan-II.

20

7.2 Manufacturing

Chambal operates two hi-tech nitrogenous fertilizer plants and is the largest fertilizer complex in private sector in India. The two mega fertilizer plants having a total re-assessed capacity of 1.7292 million tons of urea per annum. Both Gadepan-I & Gadepan-II phases represent a total investment of over Rs. 2,500 Crores. Gadepan-I was commissioned in December 1993 and its commercial production commenced in January 1994.

7.3 Technological Advancements

It is designed to produce 1,350 MT of Ammonia by Haldor Topsoe, Denmark technology and 2,348 MT per day urea based on Snamprogetti, Italy process. Commercial production at Gadepan-II started in October 1999. Its Ammonia plant is based on Kellog (USA) technology and the Urea Plant is based on ACES process of TEC, Japan. The Ammonia Plant is a single stream, having a design capacity of 1,350 MT ammonia per day, like Gadepan-I. The Urea Plant is designed to have twin streams, each with the design capacity of 1,175 tons of urea per day. Gadepan-I is based on natural gas as the feed stock while the fuel demand is met by naphtha. Gadepan-II is designed both for naphtha and natural gas as feed stock. Toyo Engineering India Ltd. has designed the Off-sites of both for Gadepan-I & Gadepan-II.

21

7.2.1 Manufacturing Process

Manufacturing process for organic compound fertilizer made from composted livestock manure

22

Manufacturing process for organic compound fertilizer

23

7.3 Operations and Supply Chain Management

Chambal Fertilisers and Chemicals Limited caters to the Northern and Western regions of India and supplies urea to nine states. The company markets urea under the brand name ‘Uttam Veer’. With ten regional offices, Chambal has a 1,000-strong dealer network and 14,000 village level outlets to assist distribution. Besides urea, other agri-inputs as other fertilisers, plant protection chemicals, seeds and bio-fertilisers are being made available to the farmers under the ‘single window’ concept. These products are being sourced from reputed suppliers and sold under the ‘Uttam’ umbrella brand.Extensive promotion activities are undertaken to promote ‘Uttam Veer’ by our dedicated team of field officers. Today, Chambal is India’s largest urea unit in the private sector. The soil testing facilities at Sri Ganga Nagar and Agra use sophisticated testing tools.

Chambal's website uttamkrishi.com, a website dedicated to the Indian farmer, has been launched by Chambal. It is both area and crop specific and is an endeavour to help improve farm productivity by providing online information on various agricultural practices. It answers queries that a farmer may have and provides information on market prices of farm produce as also the weather forecast. In order to assist the farmers access it, the company has set up kiosks and has an arrangement with Agriculture Universities, Agriculture Research Stations and Krishi Vigyan Kendras.

Growing rapidly with the best technology, proven systems and procedures, ‘Uttam Veer’ is positioned as a new age fertilizer for the new-age farmers. Chambal aims to be a partner in providing India’s food security and the Zuari-Chambal vision is to be one of the largest fertilizer combine in the world.

7.4 Environmental Protection

Chambal is deeply committed to environmental protection, pollution control and maintenance of ecological balance. A corporate conscious of its responsibilities, the Company have consistently taken upon itself major environmental projects. Zero affluent discharge, (the first in the fertiliser industry), afforestation programme to transform large stretches of barren terrain into strips of green, wild life protection are a part of its enterprise. Chambal Fertilisers has been certified as an ISO14001 Company as a result of its environmental practices.

24

7.5 Awards

Chambal Fertilisers and Chemicals Limited

Year Name of Award

Presentation Institute Achievement

1. 2006 Golden Peacock Eco Innovation

Award

MWorls Environment

Forum

The Eco-innovation award was

recieved for the bio-fertiliser

Vriksha Mitra that activates the dormant soil nutrients and increases resistance in

the plants against

drought and disease.

2. 2005 Five Star Safety

M/s British Safety Council,

U.K.

Our Safety Management System was

awarded with 3 star

rating(82.62% points) in Five

star audit conducted by

M/S British Safety

Council ,U.K. in Nov 2004

3. 2005 OHASA18001:1999

M/s Det Norske Verits

Occupational Health and

Safety Management System was successfully

implements at Gadepan site. In recognition

of this,Gadepan

fertiliser complex was

award "OHSAS-18001:1999"

certification by DNV

25

4. 2005 Greentech Environment

Excellence Award

Greentech Foundation

Gold Award

5. 2005 Global Corporate Excellence

Award

Amity Business School, Noida

For making indelible

impact on the Indian

economy6. 2005 Golden

Peacock Environment Management Award 2005

World Environment Forum (WEF)

Award in the category of

Large Industry (Fertilisers) for

its Environment Management

Systems .

7. 2004

Environmental Protection Award in 2003-04

The Fertilisers Association of India ( FAI )

The best environmental protection in

the nitrogenous

fertilisers group

8. 2003

Best Overall Performance

Award in 2002-03

The Fertilisers Association of India ( FAI )

Best Overall performance of any operating fertiliser unit for Nitrogen (Ammonia)

Plant awarded to Gadepan -II

9. 2003

Best Technical

Innovation Award in 2001-02

The Fertilisers Association of India ( FAI )

Best Technical Innovation

[Improvement in Energy

Efficiency of High Pressure

Boiler Feed Water Pump]

10. 2002

Best Annual Report

(2000-01) Award

The Institute of Chartered

Accountants of India

(Rajasthan Chapter )

Best Annual Report/

Management

11. 2002Golden

Customer 2001-2002

Western Railway

(Divisional Railway

Manager, Kota)

Freight Payment

beyond Rs.50 Crores in 2001-

02

12. 2001Environment

al Management

Det Norske Veritas,

Netherlands

Being revalidated

continuously

26

System Certificate

(ISO Cerification : ISO 14001)

and improvements

being achieved.

13. 2000

Shreshtha Pramanpatra (Certificate

of Excellence)

National Productivity

Council, India

For giving recognition to

production performance in

Fertiliser Industry

(Nitrogenous) category.

14. 2000

1st Prize in Production/T

echnical Discipline

The Fertilisers Association of

India

1st prize among the

papers published

during Sep’ 98 – Aug’ 99

15. 1999

Prize for best work in forest

development and forest

safety 1998-99

Department of Forest, Kota

Division.

District level award for best work in forest development

and forest safety.

16. 1998'Highest Tax

Payer in Rajasthan’

Tax Department,

Rajasthan

Ist Position in the category of

Highest Tax Payers

27

REFERENCES

http://business.mapsofindia.com/national-fertilizers/

www.osti.gov/servlets/purl/764326-cYI5RI/webviewable

www.eetd.lbl.gov/EA/IES/iespubs/41846.pdf

www.osti.gov/energycitations/product.biblio.jsp?osti_id=5173008

www. fertilizer .org/ifa/publicat/PDF/2001_sydney_awashti.pd

www. fertilizer .org/ifa/publicat/PDF/1998_biblio_56.pdf

www.catalogs. india mart.com/category/chemicals- fertilizer s.html

BIBLIOGRAPHY

1. Annual Review (1997-98, 1998-99). The Fertiliser Association. of India, New Delhi.2. Fertiliser Statistics, various issues, The Fertiliser Association of India, New Delhi.3. Narayan, Pratap and Gupta, Uttam (1996). Paper presented at the Seminar on

“Agricultural4. Development Perspective for the Ninth Five Year Plan, Ahmedabad 13-16 June, 1996.5. Paroda, R.S. (1999). The Hindu Survey of Indian Agriculture, New Delhi.6. Annual Review (2003-04, 2004-05). The Fertiliser Association. of India, New Delhi.7. Sunil Chopra and Peter Meindl. Supply Chain Management: Strategy, Planning, and

Operation. Pearson Education Asia, 2001.8. David Simchi Levi, P. Kaminsky, and Edith Simchi Levi, Designing and Managing the

Supply Chain, Irwin-McGrawHill, 20009. W.J. Hopp and M.L. Spearman. Factory Physics: Foundations of Manufacturing

Management, Irwin-McGrawHill, 199610. N. Viswanadham . Analysis and Design of Manufacturing Enterprises, Kluwer, 200011. N. Viswanadham and Y. Narahari. Performance Modeling of Automated Manuafacturing

Systems, Prentice Hall, 1992

28

ANNEXURE

29

TABLES

30

31

32

33

34