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Iffco to set up $800 mn urea plant in Canada

The 1.25-million-tonne urea plant is likely to be built in three-to-four years, Iffco managing director US Awasthi told ET.

, ET Bureau|
Updated: Jun 28, 2012, 03.25 AM IST
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New Delhi: Iffco, India's largest fertiliser company, will invest $800 million to set up a urea plant in Canada where it can dip into cheap and abundant supply of natural gas and boost supplies for the country, which is a large importer of farm nutrients.



The 1.25-million-tonne plant is likely to be built in three-to-four years, Iffco managing director US Awasthi told ET.

"We expect to finalise the location in the next 2-3 months. Then we will have to get an environmental clearance which takes around 18 months. It will be a joint venture with a Canadian partner through an Iffco- led consortium of companies," he said. Iffco is in talks with a few Canadian provinces to finalise the location, he added.

India imports a quarter of urea it consumes, 100% of potash fertilisers and almost 70% of DAP consumed annually.

The company plans to tie up with a shale gas company for sourcing natural gas which constitutes 70-80% of the production cost. Shale gas production has led to a sharp fall in natural gas prices in America, where gas is traded at less than $3 a unit.

In India, gas is in short supply and is sold at $4.2 per unit to those which have access to domestic supply while others import LNG at four times the price.


Iffco to set up $800 mn urea plant in Canada

"We are looking at appointing global financial services firm JPMorgan Chase for identifying and steering the deal for securing shale gas," he said.

The company also plans to hedge its risks in the international market. "Prices of raw materials and commodities are extremely volatile which affect the firm's cash flows. We need to hedge this risk.

We have been doing this on national exchanges. Since raw materials are largely imported, we will be doing this on global markets as well once our plant in Canada goes on stream," Awasthi said.

 


The proposed Canada plant will be Iffco's fifth ammonia urea plant. It has three plants in India and one in Oman. The 2-million-tonne urea plant in Oman called OMIFCO is a joint venture between Oman oil company SAOC, Iffco and Kribhco.

Oman was India's biggest supplier of urea in 2011-12 providing around one-third of India's total import of 78.34 lakh tonne of the nutrient with most of the imports coming through OMIFCO.

The Indian fertiliser industry is dependent on imports. Indian companies are looking at joint ventures with overseas companies for getting an assured supply of soil nutrients at an economical cost.

"There is a need to secure supply as we are largely dependent on imports. Almost all fertiliser companies including Iffco, Kribhco, Coromandel and Zuari are out there with overseas joint ventures for firming up their supplies.

We need more such JVs keeping in mind the growing need of nutrients," said Satish Chander, director general, Fertiliser Association of India. Analysts say the scarcity of raw materials such as rock phosphate, phosphoric acid and natural gas has prompted fertiliser companies to scout for overseas joint ventures.

"Global suppliers know that India is dependent on imports for raw materials. So they don't lower the prices even when supply is not tight. Indian companies are dejected by their attitude and to source economical and continuous supplies of raw materials, they are tying up with global companies," said K Ravichandran, senior vice president and co-head of rating agency ICRA.

Recently, a delegation of fertiliser ministry and industry executives went to Canada for exploring investment and joint venture opportunities with Canadian potash companies. Ministry officials said that a couple of Indian companies including Indian Potash are into talks with Canadian firms for sourcing potash.

India imports around 5 million tonne, constituting 50% of the world's total potash production.

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