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Oman-India fertiliser venture cleared

Our Bureau

NEW DELHI, June 20

THE Government today cleared the long-pending Oman India Fertiliser Company project, involving the setting up of a world-scale fertiliser complex in Oman by Krishak Bharati Cooperative Ltd (Kribhco) and Indian Farmers' Fertiliser Cooperative Ltd (Iffco) in association with the Oman Oil Company (OOC).

The $969-million project, which was approved at the meeting of the Cabinet Committee on Economic Affairs (CCEA) here, is slated to manufacture 16.52 lakh tonnes of urea and 2.48 lakh tonnes of merchant ammonia annually. It is expected to be commissioned over a period of 35 months, the Union Information Technology Minister, Mr. Pramod Mahajan, told newspersons.

The debt-equity ratio for the project has been pegged at 2:1, with debt constituting $649 millions and the equity portion contributing the remaining $320 millions. While Iffco and Kribhco would together hold 50 per cent of the equity ($80 millions each), the OOC will subscribe to the other 50 per cent. The CCEA also approved Iffco's participation in the project in place of Rashtriya Chemicals and Fertilisers Ltd (RCF), which was the original promoter along with Kribhco.

Mr. Mahajan said that the OOC would supply natural gas to the project at a fixed price of $0.77 per million British thermal units (mmbtu) for a period of 10 years, which is way below the average $2 per mmbtu price that is currently being paid by domestic fertiliser companies for the gas they are sourcing from the Bombay High.

The project envisages Kribhco and Iffco lifting the entire urea that is produced. ``The buyback price would cover the cost of production plus a 10 per cent internal rate of return,'' Mr. Mahajan informed, even as he admitted that ``the minute details are still to be worked out.'' The Union Minister for Chemicals and Fertilisers, Mr. Suresh Prabhu, did not attend today's CCEA meeting.

The original memorandum of understanding for the project was signed on July 30, 1994. Based on a detailed feasibility report, the Government, on December 1, 1997, even approved the investment proposal of Kribhco and RCF to make equity contribution of $69 millions each. The project was scheduled to originally cost $1,106 millions, with a debt-equity ratio of 3:1.

But with RCF deciding to pull out of the project and international urea prices dipping, the Fertiliser Ministry was forced to revise the original project proposal and slash the cost to $969 millions, along with settling for a lower debt-equity ratio. The Finance Ministry, too, had opposed the project's clearance on basic viability grounds as well as doubts regarding the terms of compensation from Oman on non-availability of the committed gas and the price at which the buyback of urea is to take place.

Cotton procurement: The CCEA today also approved the extension of the monopoly procurement scheme for cotton in Maharashtra for a further one-year period till June 30, 2001, under the condition that there will be no financial commitment from the Centre o n this score. The scheme has been operational since 1972 and has been extended from time to time.