Context :
- India’s urea production has significantly grown, especially with the commissioning of new plants, aligning with the government’s Atma Nirbharta (self-reliance) goal.
Relevance : GS 2(Governance), GS 3(Agriculture)
- The expansion of urea production supports the New Green Revolution, particularly in the eastern states, aiming to boost agricultural productivity and reduce dependency on imports.
- The cost-effectiveness of “make” (domestic production) versus “buy” (import) urea is now central, influenced by factors like gas pricing, transportation logistics, and the overall impact of self-reliance initiatives.
Important Developments:
Expansion of Urea Production:
- India’s domestic urea production increased from 22 million tonnes (mt) in 2011-12 to 31.4 mt in 2023-24.
- Imports of urea decreased from 7.8 mt to 7 mt, with a 31.7% drop in imports in the current fiscal year, potentially dropping below 5 mt — the lowest since 2006-07.
New Urea Plants and Greenfield Projects:
- Six new plants installed since 2019, with a seventh under construction, have significantly contributed to the increase in domestic urea production.
- These plants include those by Hindustan Urvarak & Rasayan Ltd (HURL), Chambal Fertilisers & Chemicals, Matix Fertilisers & Chemicals, and Ramagundam Fertilisers & Chemicals Ltd (RFCL).
- These plants produced 7.55 mt of urea in 2023-24, with some plants exceeding their rated capacities.
Strategic Location of New Plants:
- New plants are located in states driving the New Green Revolution, such as Uttar Pradesh, West Bengal, Bihar, Jharkhand, and Telangana.
- Matix Fertilisers holds a 20% market share in Eastern India and is the sole urea producer in West Bengal.
- The Panagarh plant is India’s largest and most energy-efficient single-unit urea producer.
The Talcher Project:
- The Talcher plant in Odisha, under construction at a cost of ₹17,080.69 crore, will use coal gasificationtechnology — the first of its kind in India.
- The plant will use coal from the Talcher mines, blended with petroleum coke for efficiency.
Technology and Cost Efficiency:
- The cost of feedstock for new plants is $318 per tonne, based on natural gas priced at $15.9/mmBtu.
- New plants are energy-efficient, using 5 Gcal/tonne of energy for urea production and 0.25 Gcal/mmBtu of gas.
Make vs. Buy Decision:
Domestic Urea Production Costs:
- At a gas price of $15.9/mmBtu, domestic urea production costs approximately $493 per tonne.
- With customs duties and taxes excluded, the feedstock cost drops to $252 per tonne, lowering the total production cost to $427 per tonne.
Imported Urea Costs:
- Imported urea faces additional handling costs, such as stevedoring, bagging, transport, and interest expenses, adding $30-$35 per tonne for movement to northern and eastern India.
- This reduces the cost gap between domestic production and imports, making domestic production more competitive in certain regions.
Proximity to LNG Terminals:
- Seven LNG terminals across India facilitate the import of gas for urea production, especially in Western and Southern India.
- Western and Southern India find it more viable to import urea, while Northern and Eastern India benefit from domestic production due to the availability of natural gas infrastructure and new plants.
Economic and Employment Benefits:
- The Make-in-India strategy promotes domestic production for job creation and economic growth in rural and industrial areas, which would not be as significant with imports.
- By investing in domestic production, India creates a sustainable solution for its agricultural needs while fostering economic activity.
Shifting Focus and Future Strategy:
Hybrid Strategy:
- A balanced approach, with domestic manufacturing in Northern and Eastern India and greater importation for the Peninsular region, could optimize the urea supply.
- This could also involve shutting down inefficient plants and reducing urea consumption to streamline costs.
Pricing and Consumption Trends:
- Urea consumption in India grew from 29.6 mt in 2011-12 to 35.8 mt in 2023-24, driven by the frozen subsidized farmgate price of ₹5,360 per tonne since 2012.
- A rational pricing system could promote judicious fertilizer use by farmers, reducing overall demand and ensuring sustainability.
Conclusion:
- The Make vs. Buy debate in India’s urea industry highlights the evolving landscape of fertilizer production, shaped by advancements in LNG infrastructure and a focus on self-reliance.
