08 November 2012 06:55 [Source: ICIS news]
By Ajoy K Das
KOLKATA (ICIS)--Indian Farmers Fertiliser Cooperative (IFFCO) may no longer pursue expansion of its urea production at Kalol in western India after three years of delay and failing to secure the government’s support on the project, a company official said on Thursday.
“The company’s plans for adding a 1.4m tonne/year urea plant to its existing fertilizer production facility at Kalol in western Indian province of Gujarat has been hanging fire for the last three years for failure to establish natural gas feedstock linkages,” the official said.
The $820m (€640m) project is lacking one crucial element – availability of feedstock natural gas.
“On paper the expansion project remains but there is no way that it can be implemented without allocation of required natural gas by the Indian government,” the official said.
There are no indications that feedstock will be allotted by the government. The initial project cost of $820 m too has escalated by about $100m from time overruns in project implementation,” he added.
IFFCO has sought from the Indian government a natural gas allocation totalling 2.9 million standard cubic meters per day (mscmd), including the 1.2 mscmd currently allotted to the company’s existing Kalol fertilizer plant for production of 1m tonne/year of urea, the company official said.
The Indian government has suggested using imported liquefied natural gas (LNG) for the expansion project, to which IFFCO has not agreed given much higher costs of using this feedstock for urea production, he added.
IFFCO is one of the major fertilizer producers in India.
India, which is currently facing shortage of natural gas supplies, allocates and sells the feedstock to various user industries through an administered price mechanism (APM).
Under the mechanism, IFFCO’s gas supplies from Krishna-Godavari Basin wells, which are operated by Reliance Industries Ltd (RIL) is priced at $4.2 per British Thermal Unit, while imported LNG is priced four times higher.
Given the difficulties in securing feedstock from domestic resources and the delays involved, the fertilizer major’s priorities have changed and now more focused on overseas investments, where it could leverage natural gas assets for fertilizer production with buy-back arrangements, the IFFCO official said.
IFFCO has signed an agreement with Canadian agri-food conglomerate La Coop Federee to invest $1.2bn to build a 1.2m tonne/year urea production plant in Quebec over the next three years.
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