Indian Government Considers Coal Gasification for Revival of Defunct Talcher Fertilizer Plant

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Researched by Industrial Info Resources (Sugar Land, Texas)--The Indian government plans to revive a defunct fertilizer plant of The Fertilizer Corporation of India Limited (FCI) (Noida, Uttar Pradesh) in Talcher, in the Angul district of Orissa, within two years. The government is considering using coal gasification to address the fuel requirement of the unit. Bringing the unit back online and doubling its previous capacity will cost an estimated $2.15 billion.

The Indian Department of Fertilizers has entrusted Rashtriya Chemicals & Fertilizers Limited (BSE:524230) (RCF) (Mumbai) with the responsibility of reviving FCI's defunct fertilizer plants in Talcher and Durgapur. Based on techno-economic feasibility studies, RCF found the coal gasification route for fertilizer production to be economically viable. Two consortia developing coal gasification plants in the country have expressed interest in supplying synthetic gas (syngas) for the fertilizer plant.

Sasol Limited (NYSE:SSL) (Johannesburg, South Africa) and Tata Group (Mumbai), in an alliance named Strategic Energy Technology Systems, are developing India's first coal-to-liquids (CTL) plant, and have been allotted the north Arkhapal coal block in Orissa for the $8 billion, 80,000-barrel-per-day venture. Pre-feasibility studies for the CTL project are currently under way. The two firms are reportedly very interested in increasing CTL production for the fertilizer plant from their venture, but demand that FCI should seek an additional coal block to facilitate the expansion.

Another consortium interested in supplying syngas for the fertilizer unit consists of of GAIL (India) Limited (BSE:532155) (New Delhi), RCF, and Coal India Limited (Kolkata, West Bengal). In December 2007, GAIL and RCF entered into a memorandum of understanding, under which GAIL would develop a coal gasification plant and supply syngas feedstock to a fertilizer plant developed by RCF in Talcher. As part of the memorandum, GAIL and RCF agreed to conduct techno-economic studies for the coal gasification plant and the use of syngas for fertilizer production. At the time, GAIL's coal gasification project was estimated to require an investment of $516 million. Based on an earlier study conducted by construction services firm Uhde India Limited (Mumbai), it was estimated that the plant could produce 7.76 million standard cubic meters per day of syngas. The ammonia-urea project was estimated to cost $688 million for a production capacity of 3,500 tons per day, or 1.155 million tons per year, of urea.

In January 2008, GAIL entered into a memorandum of understanding with CIL for developing a surface coal gasification plant to produce syngas for use as feedstock for fertilizer production. The two companies agreed to establish a joint working group to assess the detailed project feasibility report prepared by GAIL. More recent reports indicate that the RCF-GAIL-CIL consortium has also drawn up a feasibility report for the proposed fertilizer complex in Talcher, which will produce ammonia, ammonium nitride, nitric acid, and urea. The washed-coal requirement of the facility is estimated to be between 3.2 million and 3.4 million tons per year. The consortium is reportedly seeking allotment of a coal block for the coal gasification project, which has an estimated requirement of 5,200 tons per day of coal and 546 tons per day of dolomite.

The Indian government approved the development of the coal-based Talcher fertilizer unit in 1969 at a project cost of $15.3 million. The facility was designed with a production capacity of 495,000 tons per year of urea and 297,000 tons per year of ammonia. Commercial production began in November 1980 and continued until March 1999. The facility produced 1.76 million tons of urea and 1.25 million tons of ammonia during this period. Production was suspended in April 1999 because of the economic non-viability of the unit.

The Board for Reconstruction of Public Sector Enterprises (BRPSE) proposed a plan to revive seven or eight public-sector fertilizer units of FCI and Hindustan Fertilizer Corporation Limited (New Delhi) at a cost of $10.8 billion through disinvestment. However, the Ministry of Finance rejected this proposal in September, stating that the government is currently reeling from a fiscal deficit of 8%--the highest in 16 years--and would not be able to spare funds for the revival of ailing public-sector fertilizer units. The BRPSE subsequently decided to adopt a public-private-partnership route that involves a revenue-sharing model, rather than resorting to budgetary support from the government. The government is likely to invite global tenders for this revival plan in December.

The fertilizer ministry was also scouting for gas-supply commitments of about 2.2 million standard cubic meters per day for each unit. The coal-based Talcher fertilizer unit is being converted to a gas-based facility. In addition to the option of employing coal gasification technology, the government is considering the alternative of procuring gas from the Krishna-Godavari (KG) basin through the Godavari-Haldia pipeline proposed for development by Reliance Industries Limited (BSE:500325) (Mumbai) from the KG basin to West Bengal via Orissa. The fertilizer ministry is in talks with GAIL for procurement of gas from the Godavari-Haldia pipeline.

However, coal gasification is thought to be a cheaper alternative, and the fertilizer ministry has held discussions with Mahanadi Coalfields Limited (Sambalpur, Orissa) for coal linkages of 5.7 million tons. Coal reserves of the Talcher coalfield were estimated to be 40.87 billion tons as of January 1, 2007. Production of coal at Talcher rose from 910,000 tons in 1972-73 to 53.67 million tons in 2007-08.

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