|
|
|
|
by Vivian Fernandes New Delhi, August 10, 2000 The long-term price of urea that the Indian government has agreed to pay the Oman India Fertiliser Company (Omifco) compares favourably with the world prices that are likely to prevail in future, says a top official of the Indian Farmers Fertiliser Cooperative (Iffco). India has guaranteed to buy the entire production of 1.65 million tonnes at an average price of $126 a tonne. The price will be fixed annually and could vary between $150 and $80 a tonne to arrive at a discounted (at 10 percent) price of $114 a tonne. “The long-term price has been considered based on the assumption that the net present value will be cost neutral,” says U.S. Awasthi, Managing Director of Iffco. He was speaking to indiamarkets News Service for the first time about the project after Cabinet had approved it in June. “If you buy at the long-term price or at low cycle oil prices, which is the worst condition, you would have the same result. It is fair to both countries,” says Awasthi. The urea will be of granulated variety, which stays longer than the prilled variety and releases nitrogen slowly. Granulated urea roughly costs $10 a tonne more than prilled urea. Iffco will take a 25 percent equity stake (priced at $80 million) in the company, the same as Krishak Bharti Cooperative (Kribhco). (At 3.4 million tonnes, Iffco is India’s largest urea producer with a 17 percent share). The two will partner Oman Oil Company which will contribute the rest of the equity for the project to be based in Oman. The West Asian country will supply gas at $0.77 a million BTUs (British Thermal Units) which is around a fifth of the price of gas along India’s HBJ pipeline and a tenth of the price of naphtha. “That difference will get reflected in the cost,” says Awasthi. Iffco’s board is meeting on Aug. 22 to consider approval for the project, which seems a formality since the Cabinet has given its assent. The Cabinet nod came after a threat from the Oman government to cancel the project. The Indian government wants a commitment from Oman that it will guarantee gas supply. The Indian sponsors want tax exemption for dividend income in Oman. Dividend repatriated to India is tax exempt under a double tax avoidance treaty. The project will take three years to complete from the date of financial closure. The first consignment of urea could reach India earliest by March 2004. It will particularly benefit farmers in fertiliser-deficient south India. Urea can be moved from Oman to south Indian ports in four days and could arrive there at a cost of around Rs. 6,500 a tonne. The project could challenge local producers of urea but the government may not let that happen. It may use Oman urea to stabilise the prices, releasing it when prices are high and withholding supplies when prices are soft. Awasthi sees a trend of new fertiliser
plants being located in gas-abundant West Asia, once import restraints
are removed from April next year. “It is the right thing to do today. I
would support that,” he says.
|