Iffco-Kazphosphate phosphate rock deal may hit speedbreakers

NEW DELHI: Fertiliser major Iffco's plans of accessing a steady supply of economically priced phosphate rock through its $1 billion agreement with Kazakhstans Kazphosphate Inc may hit speedbreakers unless the government agrees to foot atleast a fraction of the transport expenses for the commodity, a government official who did not wish to be named said. The agreement is expected to ensure India a steady supply of rock phosphate at discounted prices to cater to the country's massive fertiliser needs.

Iffco has done a due diligence on the proposal to ferry rock phosphates, a key input into both DAP and MoP, to India from land-locked Kazhakhstan. However, with the government pricing domestically produced DAP at import parity price (for finished DAP imports) Iffcos options of imports appear to be on the costlier side. This means that the company has to ensure that after factoring in the freight charges, the price of the DAP produced here (with imported rock phosphates from Kazhakhstan) is not higher than the price for finished DAP imports. That, though, is proving to be difficult.

For instance, finished DAP imports are pegged at $330-350 a tonne (below $370 after accounting for a five per cent duty) against a peak price of $1305/tonne in September. Compared with that, if a company has to import phosphoric acid and then manufacture DAP here, the relative costs work out to much more. At a landed cost of $1,200 a tonne on phosphoric acid (as demanded) and $150 a tonne on ammonia and adding five per cent customs duty on both, the cost of imported ingredients for every tonne of DAP works out to almost $615 a tonne. Conversion costs included, (water, power, sand, dolomite, sulphuric acid) of $60 a tonne, the cost of manufacturing DAP at the port comes to $675 a tonne. DAP manufacturers, mainly Iffco, Coromandel Fertilisers, Zuari Industries and Gujarat State Fertiliser Company, maintain that any price above $600 a tonne for phosphoric acid is not feasible today but phosphoric acid suppliers are sticking to the $1,200 rate without factoring in the crash in global DAP prices.

Similarly, any formula for pricing, including logistics such as transport, worked out for the rock phosphate from Kazhpbosphate should ensure that domestically produced DAP using that rock phosphate is economical compared to the price of imported, finished DAP.

This is an agreement that is crucial to meeting the growing fertiliser needs of the country. The governments of both India and Kazhakhstan may have to work out a formula by which they together foot the internal transport charges upto the nearest Caspian port within the country and thence through the gulf of Bhosphorous, from where other commodities are imported into India. Alternatively, we could ferry the rock phos overland through Iran but that option could be replete with political and other environmental problems, thus increasing costs manifold. That could make it highly unworkable, comparitively, a senior official in the know in Iffco stressed.

Given the importance of making the deal workable, an inter-governmental commission including minister Murli Deora met here last week to facilitate smooth flow of rock phosphate to India through Kazakhstan and to iron out all bureaucratic glitches in the path of the Iffco-Kazphosphate Iic JV that will allow the former access to the mines of the latter. But a government official in the know said that no proposal to consider an internal transport subsidy or any other form of subsidy to get the project off the ground had come under consideration.

The import of DAP increased from 0.6 million tonne to 2.7 million tonne but only a very small amount of DAP is produced here since rock phosphate only accounts for 10% of the countrys manufacturing needs. The other 90% of rock phosphate is imported by the industry, leaving producers completely at the mercy of pricing by global supplier cartels and the country saddled with a huge subsidy bill. South Asia, which includes India, Pakistan, Bangladesh and Sri Lanka, was the biggest importer of phosphate rock since 2006, according to the International Fertilizer Industry Association.