India's Rashtriya Chemicals & Fertilizers Plans $1.5 Billion Investment in Mozambique

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Researched by Industrial Info Resources (Sugar Land, Texas)--As the first step towards implementing its planned investment of $1.5 billion in Mozambique, Rashtriya Chemicals & Fertilizers (BOM:524230) (RCF) (Mumbai) has commenced identification of suitable opportunities for setting up a phosphoric acid production and granulation facility in the southern province of Inhambane. RCF is in collaboration with the Industrial Development Corporation (IDC) of South Africa, a self-financing development institution, and Foskor (Midrand, South Africa), a chemical manufacturing company. Gujarat Narmada Valley Fertilizers Company (BOM:500670) (Bharuch, Gujarat), National Fertilizers Limited (BOM:523630) (Noida, Uttar Pradesh) and National Mineral Development Corporation (BOM:526371) (NMDC) (Hyderabad, Andhra Pradesh) have also indicated interest in implementing the project with RCF.

In March of this year, RCF drew up plans to invest $1.5 billion for production of fertilizers in Mozambique and $300 million towards rock-phosphate mining in South Africa. RCF's plans include the development of a facility to produce about 1.2 million tons per year of urea, ammonia and complex fertilizers, and 700,000 tons per year of phosphate fertilizers. The proposed joint venture will ensure a supply of rock procured from the Phalaborwa mines owned by Foskor in South Africa. Rock-mining activities would be undertaken jointly by Foskor, NMDC and RCF while the ammonia, urea and complex fertilizer units would be jointly developed by National Fertilizers Limited, RCF, IDC of South Africa and the government of Mozambique.

RCF will hold a 51% equity stake in the joint venture, while Foskor and IDC will jointly own more than 40% of the firm. An equity representative of the government of Mozambique will also own a stake in the venture. IDC is also on the lookout for prospective sources of funds. Investments will be made in a debt to equity ratio of 2:1.

The government of Mozambique has consented to RCF's setting up the fertilizers plant subject to exploration and discovery of natural gas to power the project. Mozambique currently has gas reserves of 3.5 trillion cubic feet with potential exploration opportunities in Inhambane and central Mozambique. The joint venture is looking to procure gas at a cost of $2 to $2.5 per million British thermal units (Btu) of gas. Fertilizer units in India rely on naphtha or imports of liquefied natural gas (LNG) to power their plants. Oil firms supply naphtha at more than $14 per million Btu, while LNG costs $9 to $10 per million Btu.

Domestic production of fertilizers is being promoted by the Mozambique government to improve crop yields and reduce the nation's dependence on imports. RCF will purchase and import nearly 90% of the finished products to address requirements in the Indian market and for exports. The phosphoric acid that is produced will cater to the raw material requirements of RCF's facilities in India. The country is grappling with high costs of raw material and low capacity utilization of domestic fertilizer units. India imported nearly 10 million tons of fertilizer in 2007--08, with urea accounting for more than 50% of the imports. RCF, a public sector undertaking, produces basic chemicals like ammonium bicarbonate, dimethyl acetamide, dimethyl formamide, methanol, methylamines, and sodium nitrate. Its main fertilizer products include Biola, a bio-fertilizer; Microla; Sujala, a water-soluble fertilizer; Suphala, a homogenous mixture of nitrogen, phosphorous and potash; and Ujwala, a chemical fertilizer.

In 2007, global production of phosphoric acid was estimated at 36 million tons, a 5.6% increase over the previous year, with China accounting for most of the growth. In the same year, worldwide production of phosphate rock was 176.1 million tons, an increase of 4.6% over the previous year, with China accounting for 75% of the net increase. Phosphate rock capacity is expected to increase to 242 million tons in 2012, registering a 28% growth as compared to 2007. West Asia, East Asia, China, Brazil, Venezuela and Peru are expected to supply phosphate rock, with China accounting for 20% of the increase in supply till 2012. Production capacity of phosphoric acid is expected to increase to 53.1 million tons by 2012, with China, India and Saudi Arabia contributing to most of the addition. During this period, global supply is expected to surge to 46.4 million tons, while demand is likely to rise to 43.4 million tons.

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