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When feedstock change worked havoc...

Policy changes can make or mar fortunes. Alert administrations, both at the Centre and the states, can set up think tanks to look at the implications of changes in policies on technology and feedstock and effect needed modifications to ensure viability of projects that are set up at high cost and with great promise. Failure to do this have landed once profitable enterprises into terminal sickness.

When feedstock change worked havoc...

Wow, what a start!  Madras Fertlizers Ltd (MFL) was set up in the public sector in partnership with AMOCO of USA and the National Iranian Oil Company of Iran. Even when the project was under construction, the American partners employed the best of their marketing genius.  Being new to rural Tamil Nadu and unfamiliar with the Tamil language, they did not suffer any handicap. I remember the American experts frequently visiting villages and explaining to farmers the advantages of using complex fertilizers. Even while the plant was under construction, MFL imported fertilizers and embarked on a massive seeding programme. How effective was the Bommai mascot created by the sales experts! It was well-grasped even by the not-so-well-literate farmers. The factory was constructed at a modest cost and full production was reached in double quick time. The seeding programme was a big help to the company marketing the large addition to capacity made right from the commencement of production.

 

Most profitable public sector unit...

MFL was based on naphtha as feedstock supplied by Madras Refineries next door. In the 1970s MFL was the most profitable of public sector units declaring a dividend of even 50 per cent!

Along with MFL, three other coastal fertilizer plants were set up in the south – Cochin Fertilizers as a division of FACT, Mangalore Chemicals & Fertilizers (MCF) and Southern Petrochemical Industries Corporation (SPIC) at Tuticourin– all based on naphtha.

With agriculture production booming in the north post the green revolution of 1967, demand for fertilizers increased massively in the Gangetic plains. Engineers India Ltd (EIL) jumped into the fray in competition with the Planning and Development Division of Fertilizer Corporation of India and the Fertilizer Engineering and Design Organisation (FEDO) of FACT to plan, design and engineer fertilizer projects. With the slowdown of construction of steel plants, EIL was in search of new businesses and it found the fertilizer sector promising. Dr P K Mukherjee, Director, FCI, spent three hours with me at the Tamil Nadu House, when I was covering the Economic Editors’ Meeting in March 1973. He passionately and logically argued against EIL, another public sector undertaking, entering the fray. But EIL had its way and designed three large capacity fertilizer plants for National Fertilizers Ltd at Bhatinda, Nangal and Panipat based on fuel oil.

The strike of oil in Bombay High in the 1970s was a major turning point. A team headed by N B Prasad of ONGC established production in quick time. Oil platforms mid-sea 100 miles off the coast were constructed fast and production zoomed to 20 million tonnes p.a.

By the end of 1980s technology improved to collect and transfer the associated gas, an elegant and economic source for the production of petrochemicals, fertilizers, power and domestic fuel. This elegant, less polluting and more economical energy source quickly replaced naphtha and fuel oil as a feedstock. The

Hazira-Bijaipur-Jagdishpur (HBJ) pipeline was constructed in collaboration with world leaders like Spie-Capag and Snamprogetti. Six large capacity fertilizer plants, three gas turbines and three LPG fractionation plants were set up along the pipeline. There was a simultaneous and huge increase in the price of crude and petroleum products including naphtha and fuel oil.

 

The decline of the southern fertilizer plants...

These developments led to the neglect of the southern plants based on naphtha. The huge increase in price of naphtha with corresponding rise in the quantum of subsidies made production at these plants unviable. Neyveli Lignite Corporation closed down its fertilizer unit, initially based on lignite and later on furnace oil. SPIC, FACT, MCF and MFL turned sick.

MFL suffered from other problems. AMOCO that provided a kick-start to its operations quit MFL. After the revolution in 1979, Iran was in turmoil. MFL also suffered huge cost and time overruns on the revamp of its ammonia and urea plants. FEDO, entrusted with the task of the revamp, could not deliver the promised capacities on which over Rs 1000 crore was spent. The acute water shortage suffered by Tamil Nadu also crippled production for months. MFL had to spend considerable amounts on water treatment facilities.

 

MFL came under BIFR...

Thus, the pride of public sector in the 1970s turned sick and came under BIFR. Like several other old fertilizer plants, MFL also had to rely heavily on hefty subsidies. When these were cut on occasions, the company suffered more losses. For instance, from 8 October 2014 to 14 January 2015 the company had to close down its naphtha-based ammonia and urea plants. Operations in 2014-15 thus resulted in a loss of Rs 135 crore on a turnover of Rs 1702 crore. At the end of 31 March 2015, MFL had total accumulated losses of Rs 517.14 crore. Its capital was totally wiped out.

I referred to policy deficiencies which rendered the entire fertilizer industry in the south sick. Chief among these is the south missing out on access to natural gas/LPG. Gujarat provides the most striking example of the prosperity that could be built on gas. Gujarat is the largest consumer of gas, both produced domestically and imported. Four large fertilizer companies – KRIBHCO, IFFCO, GNFC and GSFC – are based on gas. Petrochemical and power units use gas; steel, ceramics and a host of other industrial units, public transport and domestic consumers have access to the elegant and economic source of gas.

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