Fertilisers are India’s lifeline :

The Right Equation

Fertilisers are India's lifeline. With enhanced availability of natural gas, India can create new capacities in urea, become globally competitive and reduce its dependence on imports

A BILLION-DOLLAR acquisition, capacity expansion and diversification into biofuels — Tata Chemicals (TCL) has seen it all in a short period of time. In a free-wheeling
chat with RAMKRISHNA KASHELKAR, TCL's managing director HOMI KHUSROKHAN discusses what lies ahead for the company...

Rising soda ash prices don't seem to have improved the performance of your chemicals business in FY08. How does the scenario look like in the current fiscal?
There were three specific reasons for the deteriorating performance by the chemicals business in FY08. First, a provision of Rs 75 crore had to be made for pension funds in the UK. This issue was not connected to the company's operations. Second, there were delays in ramping up volumes at the new pharma-grade sodium bicarbonate plant in the Netherlands, as well as delays in starting the pure ash plant in Kenya. And finally, last year, the production at our Mithapur facility was affected due to an excessively heavy monsoon, which diluted the brine. These one-time problems are now past us and going forward, we see favourable trends emerging, such as the appreciation of the yuan against the US dollar and rupee, and relatively higher energy prices compared to freight rates. On both these counts, we stand to gain as an integrated global business.
What is your outlook on the global soda ash industry?
The spot price of soda ash has jumped to as high as $450 per tonne, thanks to healthy demand growth. The outlook is still very positive as the slowdown in the US economy has been compensated by growth in developing economies, where demand is being driven by the requirements of the glass industry, particularly architectural glass. Some of the Chinese capacity, which had been flat over the past two years due to relocation of some companies, is expected to be back on stream by the end of this year. But so far, indications are that all the incremental capacity in China is being absorbed internally due to the country's brisk economic growth and its ambitious plans for infrastructure development. We expect the current demand-supply scenario to be maintained for at least another couple of years.
    However, here one needs to understand that high soda ash prices are attributed only to the spot market. Most of the business in this industry happens on long-term contracts. Over 80% of our European soda ash business and nearly half of our Indian soda ash business is on yearlong contracts. Hence, the benefit is proportionately lower. Further, one cannot ignore the rising costs of inputs and freight, which are also responsible for driving up prices. We have succeeded in maintaining absolute margins, but percentage margins have fallen.
How are the soda ash plants in Kenya progressing? Have you reached full capacity utilisation levels?
We have two plants in Kenya, one produces natural 'standard ash' and the other produces 'pure ash', where we eliminate the naturally occurring sodium flouride in the trona (which is the naturally occurring soda ash in mineral form). The older standard ash plant has performed extremely well, at over 100% of its capacity, but we have had a series of problems with the new plant even after it was commissioned. The political disruptions towards the end of '07 delayed commissioning and the plant operated at less than a quarter of its rated capacity during FY08. Today, the situation has improved and on an average, we run at between 55% and 60% of capacity. So, overall, we now operate at around 75% of the total capacity at Magadi, which is much better than last year.
    Additionally, out of our overall capacity of 5.5 million tonnes (mt), about 0.7 mt or 12.7% (i.e. 0.35 mt in the Netherlands and 0.35 mt in Kenya — the new pure ash capacity) is being affected by high energy costs, which depresses performance to some extent. We are taking steps to switch the new pure ash plant — which was earlier powered by fuel oil, the price of which has risen considerably over the past few months — to solid fuel.
How do you view the fertiliser industry in India?
This is a lifeline industry and its importance will grow with time, as the demand for food rises across the world. With the enhanced availability of natural gas, India can now create new capacities in urea, become globally competitive and reduce its dependence on imports (which have been rising of late). The industry has been assured that a new urea policy — which encourages fresh investment in urea capacities — will be announced soon.
    In case of the phosphatics policy in June, the announcement of import parity pricing was most welcome and will provide the industry much-needed relief. It will also give the domestic fertiliser industry an opportunity to grow by aligning itself to the global market place. However, the industry's ability to tie up key raw material supplies such as rock phosphate or phosphoric acid will be critical, since these inputs are not available in India.
Tell us more about your 'Khet Se' initiative…
For several years now, we have seen ourselves as a company that does more in the rural space, than just manufacturing and selling fertilisers. In our 600-odd 'Tata Kisan Sansar' outlets, we have now widened our offerings to services like soil-testing, farming advice, facilitation of crop loans, insurance, etc. Moreover, by building new businesses like 'Fresh Produce' on this platform, we will, in effect, be co-creating value with farmers, which is the actual purpose for our being in this business.
    Our model for the 'Fresh Produce' business goes far beyond just wholesaling of agri-produce. We work with farmers to improve the quality and yield of their produce. We advise them on better farming practices, correct harvesting time, cleaning and quick transfer to our cold storages etc. We also help to reduce wastage and most importantly, we ensure that farmers receive the right value for their produce. As of now, only one centre is operational in Punjab, and the other is being set up in Maharashtra.
    We partnered with Total Produce of Ireland because it has over 100 years of experience in this business and its learnings have been very valuable for us. We plan to set up around 30 such centres over the next three years. In some states, there are restrictions on a corporate marketing agricultural produce and hence, our progress will depend on obtaining the required permissions. On an average, these centres will need investment of Rs 10-20 crore each, depending on their size.
You are also setting up India's first sweet sorghumbased ethanol plant. What were the reasons behind entering the biofuels space?
Biofuels is an area which will become increasingly important for energy security, as reserves of fossil fuels diminish and prices climb. After experimenting with various feedstocks, we found that sweet sorghum was an excellent choice as a starting material. It is a four-month crop, grows well in semi-arid climates and uses far less water than sugarcane. Our initial choice of this feedstock was also based on the premise that our bio-ethanol will be competitive even at crude oil price of $65/barrel.
    However, over the long term, we feel that the best feedstock for bio-ethanol will be biomass from agriwaste, and conventional feedstock like sweet sorghum will help us gain an early entry into the bio-ethanol segment. The ultimate goal for most companies engaged in biofuels today will be the enzymatic conversion of lingo-cellulosic material and our innovation centre is working on these new technologies. We are setting up a pilot plant with a capacity of 30,000 litres a day in Nanded, where the feedstock is easily available. The plant can be further scaled up to 100,000 litres per day, based on its success.
    ramkrishna.kashelkar@timesgroup.com 

Homi Khusrokhan, MD, Tata Chemicals