Report No. 569-IN FILE COPDY Appraisal of Sindri Fertilizer Project India November 11, 1974 Industrial Projects Department Not for Public Use H Document of the International Bank for Reconstructionand Development International Development Association This report was prepared for official use only by the Bank Group. It may not be published, quoted or cited without Bank Group authorization. The Bank Group does not accept responsibility for the accuracy or completeness oi the report. Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized
Document of the International Bank for Reconstruction and DevelopmentInternational Development Association
This report was prepared for official use only by the Bank Group. It may notbe published, quoted or cited without Bank Group authorization. The Bank Group doesnot accept responsibility for the accuracy or completeness oi the report.
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CURRENCY EQUIVALENTS WEIGHTS AND MEASURE
Currency Unit - ludian Rupoes (Rs) All weights and meanres are In Metric Units,
US$ 1.00 Hs 7.50 1 Metric Ton (T) - 2,205 lbs.Rs 1.00 US$ 0.133 1 kilometer (KM) - 0.62 MilesRs 1 million US$ 133,333 1 Mile a 1.61 Kilomete
FAI Fertilizer Association of IndiaPCI, Corporation Fertilizer Corporation of IndiaGOI, Government, Central Government of ldia
BorrowerKWH Kilowatt HourK90 (Potash) Potassiunm Oxide Content in Fertilsers
MegawattsMWH Megawatt HiousN Nitrogenp PhosphorusK PotassiumNPK Complexc Fertilizer Containing N, P2 0 arnd K20P2 05 (Phosphate) Phosphorus Pentoxide Cntent in FertilizssPPM Parts per MillionSSP Single Superphospbate (0-18-0)TPD (Metric) Tons per DayTPY (Metric) Tons per YearTSP Triple Superhosphate (0-46-0)
FISCAL EUAR
April 1 - March 31
A3l years in the Report refer to Indian Fiscal Years
INDIA
APPRAISAL OF SINDRI FERTILIZER PROJECT
TABLE OF CONTENTS
Page Ng.
SUMMARY AND -CONCLUSIONS ....... i - iii
I. INTRODUCTION ................. .......... 1
II. FERTILIZER CORPORATION OF INDIA (FCI) .......... 1
A. Organization and Management.. ..... 1
B. Profitability and Debt Service Coverage ,* 2
C. Financial Position . .......... * ...... 3
D. Sindri Unit and Ongoing Investments ....... ,. 4
E. Historical Financial Analysis of the Sindri
Unit ... ..... *..................... 5
F. Financial Future of the Sindri Unit withoutthe Project ...... T ..... 8
III. FERTILIZER MARKET AND MARKETING ........ ,. 10
A. Supply and Demand for Fertilizer in India , 10
B. The Market for Sindri's NitrogenousFertilizer ............. ,..,, 11
C. The Marketing Qf Sindri's NitrogenogsFertilizer .,. ,.. 13
TV. THFE PROJECT .... ,......... ......... ... 14
A. Project Scope ...... 14
B. Raw Materials and Utilities . .... 14
C. Project Execution ....... 15
D. Employment and Training .................... 16
E. Ecology ...... 16
V. CAPITAL COST AND FINANCING PLAN ................ 17
A. Project Costs . 17
B. Financing Plan ..... 19
C. Procurement, Allocation and Disbursementof IDA Credit . .... ........ 20
This report was prepared by Mr. G. Evans, Mr. N. Petry, and Mr. A.
Tarnawiecki, all of the Industrial Projects Department.
TABLE OF CONTENTS (Cont'd)
VI. FINANCIAL ANALYSIS ............................ 21
A. Analysis of the Project .................. 21B. Incremental Financial Rate of Return 23C. Analysis of the Sindri Unit with the
Project .24n. Product Costs .25E. Major Risks .26
VII. ECONOMIC ANALYSIS .26
A. Raw Material an,l Fertilizer Prices .26B. Economic Rate of Return . . ,27C. Foreign Exchange Savings .28
VIII. AGREEMENTS .. 28
A. From the Government . .28B. From FCI .29
ANNEXES
1. Glossary of Technical Terns
2-1 Description of Fertilizer Corporation of India (FCI)2-2 Organisation Chart of FerLiliser Corporation of 'India (FCI)2-3 FCI,Consolidated Financial. Statements - Historical2-4 Projected FCI Consolidated Financial Statements2-5 Existing Facilities at Sindri2-6 FCI Sindri UJnit - ProdurctLon and Utilization History2-7 FCI Sindri Unit - Historizal Financial Statements2-8 Assumptions made in the FLnancial Analysis of Sindri without the Project
2-9 Financial Projections - SLndri Unit Without the Project
3-1 Fertilizer Sector in India3-2 State of Agriculture in Sindri's Marketing Area3-3 Marketing Sindri's Nitrogenous Fertilizer Production
4-1 Project Description4-2 Renovation Program4-3 Implementation Schedule4-4 Works Transformation and L,nvironmental Study
5-1 Project Cost Estimates5-2 Disbursement Schedule for IDA Credit
TABLE OF CONTENTS (Cont'd)
6-1 Assumptions used in the Financial Analysis of the Project6-2 Projected Financial Statements for the Project only6-3 Incremental Financial Rate of Return6-4 Sindri Unit Consolidated Financial Projections.6-5 Projected Product Costs
7-1 Assumptions Used for Calculating the Economic Rate of Return7-2 Net Incremental Annual Foreign Exchange Savings
MAP
IBRD 10453F -- Location of Major Fertilizer Plants and Refineriesin India.
I$RD 11235 -- Layout r Plant Site and Surrounds $indri FertilizerProject.
INDIA
APPRAISAL OF SINDRI FERTILIZER PROJECT
SUMMARY AND CONCLUSIONS
i. This report appraises a proposed project involving the constructionof a 900 metric tons per day (TPD) ammonia plant and a 1,000 TPD urea plantto be built at the Sindri works of the Fertilizer Corporation of India (FCI)in the State of Bihar. When the project comes into operation a number ofsmall uneconomic and now obsolete units at Sindri will be retired, givinga net gain 1/ in the works' production capacity of 136,000 TPY of nitrogen.The project will obtain its primary raw material, heavy fuel oil, fromthe Barauni Oil Refinery of the Indian Oil Corporation some 200 km distant,and its requirements of coal for steam and power generation from the nearbygovernment-owned Jharia coal mines. The project is estimated to cost US$188.8million (including initial working capital and interest during construction),of which US$77.7 million would be in foreign exchange. It is expected thatthe project will commence commercial operation by February 1978.
ii. With a cropped area of 164 million hectares, India is the thirdcountry in the world in area of cultivated land (after the USSR and US) andthe second in irrigated land area (after continental China). The Governmenthas set a target for foodgrain production by 1978/79, the end of its FifthFive-Year Plan period, of 140 million tons based on a somewhat optimisticestimate of production in the Plan's first year (1973/74) of 114 milliontons. As compared to an average annual growth rate of 2.6% during the de-cade ended 1971/72, this target implies a rather optimistic 4.2%, of which1.0% is to be achieved through an increase in cultivated land area and theremaining 3.2% through increased productivity largely arising from moreintensive use of agricultural inputs, especially fertilizer.
iii. Consumption of the three major plant nutrients (N, P and K) inIndia has increased at an average rate of 17% per annum over the last 20years reaching 2.77 million tons in 1973/74 of which 1.83 million tons wasnitrogen. Growth in consumption over the past five years however has tendedto lessen and in 1973/74 was strongly limited by scarcity on account oflocal fertilizer production falling short of expectations and imports beinghard to obtain and then only at high prices. The Government's current DraftFive-Year Plan projects nitrogen consumption to increase to 5.2 million tonsper annum by 1978/79 in order to achieve its foodgrain production target.More recent forecasts however put the most likely consumption by then at 4.3million tons which would still represent an increase of 2.5 million annualtons or 140% over that of 1973/74. India's production of nitrogenous fertilizerin 1973/74 was barely 1.1 million tons, representing a rather disappointing
1/ Over presently attainable capacity of all existing units.
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67/o of installed capacity, 1/ and necessitating imports during that year of0.7 million tons. To meet its increasing nitrogenous fertilizer requirementstne Government, in addition to making every effort to improve utilizationof existing capacity, is intending to undertake an ambitious program toincrease the country's installed nitrogen capacity from 1.9 million tons in1973/74 to 4.85 million tons by 1978/79 involving the construction of some20 new plants. The proposed a&mmonia/urea project of the FCI at Sindri isone such plant.
iv. FCI ihas five nitrogenous fertilizer plants presently operating andall are being expanded. It has a total of fifteen, including the proposedproject, either under construction or in an advanced planning stage; all arescheduled for completion by 1979, by which time FCI's fertilizer productioncapacity would be increased to about eighit times the 1974 level. As indicatedin the appraisal reports for the Gorakhpur, Nangal and Trombay projects FCI'soperations continue at this stage to be hindered by low capacity utilizationin some of its existing plants and by delays in commissioning new plants. Asa result, its recent earnings have been unsatisfactory at a return of lesstihan 1% on capital. Steady increases in earnings are however predicted ascapacity utilization of existirLg plants improves and the plants to be commis-sioned during the next few years achieve profitable operations more quickly.
v. The project will be essentially a duplicate of the Nangal ammonia/urea project for which an IDA Credit of US$58 million was approved on January30, 1973. This will allow re-use of the designs and specifications for theNangal project and in turn will permit the construction time to be reducedwith a commensurate cost reduction and earlier flow of benefits. Appropriatearrangements with the engineering firms who participated in the Nangal pro-ject have been made including the provision of adequate performance guarantees.FCI using its Planning and Development Division (P & D) will act as itsown general contractor for implementation of the project but will be assistedby the Nangal engineering firms who will check P & D's detailed engineeringdesigns and additionally assist with procurement of critical items of equip-ment. Furthermore, FCI will undertake with the assistance of foreign expertsaLn environmental survey of the Sindri works which will form a basis for under-taking an upgrading program concurrently with the construction of the project.Tne proposed IDA Credit will finance foreign equipment, spares, engineeringand consulting services, and equipment won by Indian manufacturers after inter-national competitive bidding. All IDA financed procurement will follow BankGuidelines.
vi. Few commercial risks are seen in the project. FCI has an establishedmarketing organization and with the shortage of fertilizer expected to con-tinue in India at least through this decade no difficulty is foreseen inmarketing the project's full output. Additionally with the project beingdesigned as a duplicate of the Nangal project presently under construction,on which FCI is playing a major role in design, procurement and construc-tion, and with the assistance of the Nangal engineering firms, there is
1/ Excluding capacity of new plants commissioned in 1973/74.
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reasonable assurance that the project will be executed without undue difficulty.The main risk would appear to be in the present very tight worldwide equipmentsupply position and in inflation; although ample provisions would appear tohave been made on both counts a worsening of the situation could cause higherthan anticipated price increases and lengthen equipment delivery periods witha consequential rise in project costs.
vii. The project will be financed by an equity contribution of the Govern-ment equivalent to US$88.2 million, by the proposed IDA Credit of US$91.0million which would be on-lent to FCI in Rupees over 15 years, including 5years of grace at an annual interest rate of 10-1/4%, and by US$9.6 million insliort-term commercial funds. The project would thus be soundly capitalized.Debt service coverage and liquidity would be satisfactory and the project's(incremental) financial rate of return would be 16% before taxes and isunlikely even under adverse conditions to fall below 11%.
viii. The economic rate of return is calculated on a probabilistic basisto reflect the uncertainty of future fertilizer and raw material prices, andit would most likely be about 16%, which is satisfactory. The risk thatthe return might drop below 10% would be only 10% while there is a 10% chancethat it would exceed 20%. The project shows a net annual foreign exchangesaving of about US$68 million, assuming a capacity utilization of 90%.
ix. In addition to the fertilizer projects already financed in Indiaby IDA (Cochin II, Gorakhpur, Nangal and Trombay IV) and IFC (Indian Ex-plosives and Zuari-Agro), the Bank was executing agency for a UNDP projectfor an evaluation of the phosphate rock deposits in Rajasthan. The Bankgroup intends to continue being active in this priority sector in India andis presently considering also a project sponsored by the Indian Farmer'sFertilizer Cooperative.
x. Based on the agreements spelled out at the end of the report, aUS$91 million IDA Credit to the Government of India is recommended for theproject.
I. INTRODUCTIOT"
X_'1 The Government of India (GOI) has requested an IDA credit of US$91
::i1ion equivalent to help expand and modernize the Siiidri unit of theFertilizer Corporation of India (FCI). The Sindri project will add a 900metric tons per day (TPD) anmonia plant and a 1,000 TPD urea plant to facil-ities now existing or about to be completed. These essentially produceammonium sulphate, ammonium nitrate, nitric acid and triple super phosphate(TSP), but also include a number of small uneconomic and now obsolete unitsproducing ammionia, urea and double salt 1/ which are due to be shut down assoon as the project becomes operable. Th1e project will bring about a netaddition 2/ of some 136,000 TPY of nitrogen nutrient. It will obtain itsprimary raw material, heavy fuel oil, from the Barauni oil refinery, some 200kma away, and its requirement of coal for power and steam generation from thenearby Jlharia coal field.
1.02 Sindri is located in an industrial district of the State of Bihar(lap IBRD 10453R) . The original plant was commissioned in 1952 3/ and wasthe GOI's first major fertilizer manufacturing enterprise. It has undergoneseveral expansions since then, the latest being for a new TSP plant whichis expected to be completed by mid 1975. Concurrently with the implementationof the project the Company will carry out a renovation program which willrepair and restore all services and utilities needed for the efficient oper-ation of the Sindri unit. By 1978, the Sindri unit will become a modern,large scale producer of urea, anmonium sulphate and TSP with a total pro-duction capacity of 235,000 TPY of nitrogen, which will contribute significant-ly towards overcoming India's deficit in fertilizer supply.
1.03 Following a number of prior discussions with FCI and the Government,this appraisal is based on a mission to India in May/June 1974 consisting ofMessrs. G. Evans (Chief) and N. Petry both of the Industrial Projects Depart-ment. The proposed credit would be IDA's fourth to FCI.
II. FERTILIZER CORPORATION OF INDIA (FCI)
A. Or-aniqt ion and Management
2.01 FCI was incorporated in 1961, merging two puI)lic sector companies --Sindri Fertilizers & Clhemicals (Sindri) in Bihar, and Hindustan Chemicals &Fertilizers Ltd. (Nangal) in the Punjab, which began production in 1951 and1961 respectively. FCI today has five operating units and is India's largestfertilizer producer, accounting for about 25% of nitrogen and 10% of phosphatecapacity in the country. During 1973/74, FCI produced 279,000 tons of N and32,000 tons of P 2 05 , operating at about 75% of capacity.
21 A ,lossary of techlnical terms is givetn in Ann%e 121 Over and above production presentlv attainable with existing units.3/ All yeurs refer tc fiscal years en(ding March 31.
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2.02 Major FCI projects under implementation (Map IBRD 10453R) are:(a) Durgapur, 1/ (b) Barauni, (c) Namrup Expansion, (d) Ramagundam, (e) Talcher,(f) Sindri Rationalization, ('g) Gorakhpur Expansion, (h) Haldia, (i) NangalExpansion (j) Trombay Moderni.zations and (k) Trombay IV expansion. 2/ Fourother projects are in an advanced planning state: (a) the ammonia/urea plantat Trombay (Trombay V, which is closely tied to the Trombay IV project), (b)Sindri Modernization (the sutject of this report), (c) Korba and (d) Paradeep.FCI is described in more detail in Annex 2-1. By 1979, when all these proj-ects are to be completed, FCI is expected to have a capacity of about 2.5 mil-lion TPY of N and 0.65 million TPY of P20 compared to the present capacityof 376,000 TPY of N and 36,001n TPY of P205 in its five operating units.
2.03 Total existing FCI employment is approximately 19,000, which is higheven though it includes staff for schools, hospitals, townships and trainingprograms. FCI recognizes overstaffing to be a serious financial problem,particularly at Sindri, and although no politically and socially acceptablesolution has as yet been found, the current expansion projects should enableFCI to better utilize its staff.
2.04 FCI has a 13-member board: six senior officers of FCI, two fromGovernment ministries, four from other public sector organizations, and oneretired head of a research institute. The Board functions as a control bodyand as a coordinating group between FCI and the Government, whose influenceon operations, finance and planning is strong.
2.05 There were changes in the top management of FCI last year (Annex2-2); in particular, there is a new Managing Director, Mr. K. C. Sharma,who was formerly responsible for the Corporation's expansion program. Heand five senior officers (Production, Marketing, Projects, Finance andPersonnel) are responsible for policy development and operations; they haveaccumulated substantial industrial experience within FCI and are consideredcapable. Each fertilizer plant operates as a separate profit center underits General Manager. The large expansion program now in progress has beenstraining available experienced staff in middle management for both projectexecution and operations, and the provision of adequate personnel and know-how is becoming an increasingly important consideration for each of FCI'sprojects and operating plants.
B. Profitability and Debt Service Coverage
2.06 Detailed income and cash flow statements -- actual and projected --
for the period 1969-1984 together with the major assumptions made are givenin Annexes 2-3 and 2-4, and are summarized below:
1/ Under Commissioning.
2/ IDA Credits of US$10 million, US$58 million and US$33 million, equiva-lent, respectively, have been made for the Gorakhpur (279-IN of January7, 1972), Nanagal (357-IN of February 9, 1973), and Trombay IV (448-INin May 20, 1974) expansion projects.
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FCI - Selected Income Statement Items(in Rs million unless otherwise noted)
/1 Based on the revised fertilizer and raw material prices of June, 1974.
/2 Total income less freight, excise duty and miscellaneous receipts.
2.07 FCI's net income was unsatisfactory in 1973 and 1974 primarily becauseof operational losses in Sindri and Namrup, and substantially higher raw mate-rial costs than were reflected in fertilizer prices. However, these financialindicators are projected to reach satisfactory levels in 1976 and to improvefurther thereafter.
2.08 The above income projections for FCI show increasingly large salesrevenues and profits as new plants come on stream. Howeveir, particularlyover the next few years, their achievement will depend on the actual perform-ance of these new plants and on increased capacity utilization in the exist-ing plants. It will be remembered that the plant improvement part of therecent IDA credit in connection with the Trombay IV expansion project (448-INof May 20, 1974) was designed to achieve the necessary operational improve-ments and accelerate plant commissioning.
C. Financial Position
2.09 Past balance sheet statements and projections for 1975-1984 arealso contained in Annexes 2-3 and 2-4 and are summarized below:
/1 The current ratio is calculated to reflect only the liquidity of FCI'soperating units and excludes current assets or liabilities pertaining toprojects under implementation which have not yet started production.
2.10 The very large expansion program that FCI is presently engaged inwill result in a 7-fold increase in net fixed assets between 1974 and 1978,requiring an investment of more than Rs 8,000 million (US$1,067 million) ofwhich Rs 3,000 million (US$400 million) have already been spent. It isprojected, however, that the expansion program will be financed on a soundbasis with a debt/equity ratio not exceeding 40/60, up from a strong 27/73at present. Commissioning of the new plants over the next years is also fore-cast to improve the current ratio.
2.11 To safeguard the financial position of FCI, the agreements, whichhave already been reached with GOI and FCI in connection with the projectspreviously financed by IDA, were reconfirmed. These require the Governmentto provide adequate funds to FCI to: (i) complete its ongoing and new projects;(ii) maintain a current ratio of at least 1.2; and (iii) assure that FCI willat any time have a debt/equity ratio of less than 50/50. FCI further agreed,that it will not prepay any debt or pay any dividends or make any other cashdistribution if, after such payments, FCI's current ratio would be less than1.5.
D. Sindri Unit and Ongoing Investments
2.12 The existing Sindri works has an annual design capacity of 355,000tons ammonium sulphate, 23,500 tons urea, 9,000 tons ammonium nitrate and121,900 tons double salt, together equivalent to approximately 117,000 TPY N.Intermediate products include ammonia and nitric acid, small quantities ofwhich are for sale. The Sindri complex includes all necessary ancillaryfacilities as well as a housing colony, and also accommodates the Planningand Development Division of FCI which by itself numbers some 3,230 employees.It is situated on the west bank of the Damodar river about 25 km from Dhanbad,Bihar and has good rail and road connections. Present plant facilities aredescribed in detail in Annex 2-5.
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2.13 Due to some of the production units having never reached theirplanned output, poor qualities of available raw materials and the old ageof manv of the units, the presently attainable annual capacities vary fromless than 60% for double salt to somewhat more than 90% for ammonium sulphate,or an average (in terms of N) of 84% of original design capacity. Theproduction and utilization history of the Sindri works is shown in Annex 2-6;it demonstrates that the physical condition of some of the plant units israpidly deteriorating which has resulted in overall plant utilization (interms of N) falling as low as 55% of present attainable capacity. In order toalleviate these problems, FCI in 1972 embarked upon a rationalization programinvolving the construction of a new 800 TPD sulphuric acid plant (to supple-ment the output of the 400 TPD unit completed in 1970), a 390 TPD phosphoricacid plant and a 1,150 TPD triple super phosphate (TSP) plant. These unitswlhich are expected to commence commercial production by mid-1975, will add346,000 TPY of TSP to the attainable works capacity and additionally produce,as a by-product from phosphoric acid manufacture, sufficient precipitatedgypsum to meet the full requirements of the existing ammonium sulphate unit.
2.14 The proposed new ammonia/urea facilities which IDA has been askedto finance will form the last phase of the Sindri Unit modernization program.They will essentially be a duplicate of the Nangal ammonia/urea project forwhich a credit of US$58.0 million was approved by the Executive Directorson January 30, 1973. Concurrently with the implementation of this projectFCI will undertake a renovation program of the works existing infrastructure,services and utilities. This program which is estimated to cost US$15.3million including US$3.8 million equivalent in foreign exchange is not partof the proposed IDA-assisted project, but its timely completion is essentialto the project. Accordingly, adequate assurances were obtained that (a) theGovernment will provide the necessary funds as and when needed and (b) FCIwill complete the program prior to completion of the project.
E. Historical Financial Analysis of the Sindri Unit
2.15 Historical income statements for Sindri are given in Annex 2-7and selected items are summarized below:
Sindri Unit - Summary Historical Income Statements(in Rs million unless otherwise stated)
Total Sales 170 164 142 139 156Operating Profit (Loss) (5) (22) (42) (62) (61)Net Income (Loss) before Taxes 0 (13) (32) (52) (61)Operating Ratio before 0.92 1.02 1.20 1.35 1.24Depreciation /1
/1 Defined as: Cost of goods sold less depreciation divided by total sales.
2.16 The reasons for the poor profitability of the Sindri unit aremostly to be found in the inefficiencies of the technologically obsoleteProcesses combined with the old age of most of the equipment and the factthat the quality of coal and gypsum has been consistently below the levelsrequired for efficient production. In addition, poor operating conditions inthe old plant sections which are badly leaking ammonia and other fumes havemade for more frequent plant outages than in other FCI units. All of theabove has led to declining and greatly varying production and to an un-satisfactory operating ratio of 0.92 or higher, whereas other FCI unitshave been operating at ratios of 0.75 and less.
2.17 Another cause for the declining profitability has been that salesprices for Sindri's products, most of which are controlled by the Government,have increased much more slowly than operating costs have risen. Thus whilethe average cost of production between 1964 and 1973 has increased by 255%sales receipts rose by only 165%, both on a per ton of product basis. Toensure that Government controlled prices for fertilizers are kept in linewitlh rising costs, agreement was obtained from the Government as in the caseof Trombay IV, that fertilizer prices will reasonably reflect production costsand give a reasonable return on invested capital under conditions of efficientoperations.
2.18 Historical balance sheets and fund flow statements for Sindri aregiven in Annex 2-7 and are summarized below:
C'urre't Ratio /2 3.6 2.3 1.9 2.2 2.2Pebt!Fquity a;tio n/100 /? 9 K 17/89Debt '%ervice Coveia~e (times) ---- no debt setvice --- -0.04 -0.04
/1 A positive caslh balance lhas been included in current assets, a negativeone under current liabilities.
/2 For computation of the current ratio the cash transfer balances toFCI's head office are excluded from the current assets and liabilities.
2.19 Of Sindri's fixed assets, 80% have already been depreciated and alllong-term debt originally incurred has been repaid, leaving the unit with onlya small amount of debt incurred for financing the TSP planit. The currentratio is satisfactory as long as transfer payments from FCI's head office areexcluded from current liabilities. The cash deficit of the last six yearshas been financed by cash transfers from the head office free of interestand under no specific repayment terms. This is consistent with FCI's policy,whereby surplus cash transferred to the head office is not earning any
interest either; it is used to finance operational losses of other units oris treated as a prepayment of debt.
2.20 Sindri's accounting and internal reporting systems are satisfactoryand the accounts are independently audited in addition to the Governmentaudit. FCI has agreed to submit detailed annual and quarterly production,income and cash flow statements, and balance sheets as well as annual auditstatements in a form satisfactory to IDA for its consolidated operations andthe Sindri unit.
F. Financial Future of the Sindiri UInit without the Project
2.21 As mentioned in para. X.01, most of the existing plants are expectedto continue operations only for EL further three to four years, so that with-out implementation of the project:, principally only TSP would be producedfrom 1978 onwards. The assumptions and details of the financial positionresulting from such a case are given in Annexes 2-8 and 2-9 and are summarizedbelow.
2.22 The financial projections are prepared by escalating costs andrevenues upto 1978, the start-up year of the project, and leaving them con-stant thereafter. Although the profitability is poor and at least three moreyears of losses (1975 - 1977) are anticipated, the alternative of immediatelyshutting down all the existing ammonia units would result in even greaterlosses, since the realization from fertilizer sales is still exceeding variableproduction costs. In addition, total fertilizer production costs are signi-ficantly below the present very high international prices making it alsoeconomically necessary to continue production in the old plants. The finan-cial position is expected to improve as TSP production and sales build up.TSP prices are not controlled by the Government and FCI has decided that itwill sell the product at a 1975 ex-plant price of Rs 1,842 per ton (equivalentto an average retail price of Rs 2,239 allowing for excise duty, distributionmargin, and freight) which is in line with the current price of phosphatefertilizers manufactured in India and with present TSP prices in the inter-national market which run at about US$300 per ton (Rs 2,250) and above. Withsuch ex-plant price the financial rate of return on the investment in the TSPplant would be 12%.
2.23 However, the manufacture of TSP is rather material-intensive andthus very sensitive to changes in price and operating cost levels. It would,for example, take only a reduction in the price of TSP of 5-7% to eliminateprofits and one of 7-9% to wipe out cash surpluses. Although the liquidityand debt servicing capacity would be satisfactory as projected, Sindri,without the project, would therefore require a very carefully determined TSPprice and tight cost control to make the unit stand on its own feet finan-cially.
Sumnar Data for Sindri without the Project(In Rs million unless otherwise stated)
Operating Ratio beforeDepreciatio 1.13 1.04 0.93 0.87 0.88 0.88
Current Ratio 3.94 4.20 2.26 2.24 2.07 2.08Debt Service Coverage -- 0.08 3.54 3.26 2.85 3.28Debt/Equity Ratio 49/51 53/47 51/49 42/58 30/70 20/80
1/ The Cash balance with FCI's head office is not included incurrent assets or liabilities.
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III. FERTILIZER t4ARKET AND MARKETING
A. Supply and Demand for Fertilizer in India
3.01 With a cropped area oE 164 million ha. India is the third countryin the world in terms of cultivated land (after the USSR and the US) and thesecond one in irrigated land (after Continental China). In the decade ending1972 the growth rate for foodgrain output was 2.6% p.a. of which 0.5% can beascribed to increases in cropped area and 2.1% to higher productivity. TheDraft Fifth Five-Year Plan (1974--1979) has set a foodgrain output of 140 mil-lion tons for 1979 based on a rat:her optimistically estimated production of114 million tons in 1974. 1/ This implies an average rate of growth of 4.2%annually, of which 1.0% would be brought about through an increase in croppedarea leaving 3.2% to be achieved through productivity increases largely due toincreased irrigation, more widespread use of high yielding varieties andincreased usage of fertilizer.
3.02 The historical growth of fertilizer consumption and production inIndia is analyzed in Annex 3-1. Consumption of the three major plant nutrients(N,P and K) increased at an average rate of 17.4% annually over the last 20years reaching 2.77 million tons in 1974. Growth in consumption of nitrogenalone has been only slightly less rapid -- 16.1% -- reaching an annual usage of1.83 million tons in 1974. During the last five years this growth trend hasdecreased but it must be recognized that in 1974 consumption was restricted byimport limitations on account of both the scarcity of fertilizers on the worldmakket and their high prices.
3.03 In the past a great number of demand projections were made, butactual consumption has always falLen short of predictions. The latest detailedstudv was a joint 1971 GOI-IBRD report prepared by W.B. Donde and Dorris Brownwhich, on the basis of data for the decade ending in 1969, forecast N demand torange between 2.40 and 2.91 million TPY by 1974 and between 4.00 and 5.16 mil-lion TPY bv 1979. The current Draft Five-Year Plan foresees a consumption of5.2 million tons of N, 1.8 million tons of P 0 and 1.0 million tons of K 0in 1978/1979. Based however on actual data i4ough 1974 recent informationsupplied bv Government officials, and taking into account possible limitationsin areas under irrigation, multiple cropping and fertilizer supplies, Ndemand projections have been updated to 4.3 million TPY by 1979 and 6.9 millionTPY by 1984 (Annex 3-1). These figures, together with data for the past fouryears, are summarized below.
1/ While the foodgrain output projected in the Draft Fifth Plan may haveto be revised downward, this will not affect the priority for theproject.
3.04 Starting from a low base, fertilizer production in India also in-creased rapidly over the last two decades averaging 16% per year but stillfailed to keep pace with demand. Consequently total fertilizer imports haveincreased fivefold from 261,000 tons in 1964 to 1.22 million tons in 1974.Production of nitrogenous fertilizers in 1973 was 1.06 million tons N repre-senting a rather disappointing 55% utilization of total installed capacity of1.94 million tons, or 67% excluding 0.47 million tons of capacity undercommissioning with its associated production, and necessitating imports of0.7 million tons. To meet its increasing demands for nitrogenous fertilizerthe Government is making every effort to increase the output from existingplants and is undertaking at the same time an ambitious program to add newcapacity. Plants already under construction or for which financing has al-ready been arranged number 20 and have a total capacity of 2.91 million TPYof N (Annex 3-1). If all these plants should be completed by 1979 the totalinstalled production capacity would be 4.85 million TPY of N as compared to aprobable demand of 4.3 million TPY (para. 3.03); however, many of these plantswould at best be only at the commissioning stage or in the initial year ofoperation so that production is likely to still fall significantly short ofdemand.
B. The Market for Sindri's Nitrogenous Fertilizer
3.05 Sindri was one of the earliest fertilizer plants in India and itsproducts were geographically widely distributed. As more fertilizer plantswere commissioned, Sindri's fertilizer sales were increasingly confined toareas close to the plant. The principal market where 81% of Sindri's pro-duction was marketed in 1973, now consists of the northern districts ofOrissa, Bihar, a large portion of West Bengal and some eastern districts ofUttar Pradesh and Madhya Pradesh.
3.06 The fertilizer consumption in Sindri's marketing area per unit ofcropped area (Annex 3-2) continues to be below the national average except forUttar Pradesh as given in the table below:
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Consumption of Fert:ilizer per Unit of Cropped Area in 1973(kg/hectare)
3.07 It can be noted from the table that in comparison to the utilizationof nitrogen, P 205 and K 20 are applied much below the generally advisable 4:2:1ratio. Greater amounts of phosphorous and potassium will therefore be requiredin the future and the production of TSP at Sindri will improve the availabilityof phosphate fertilizers in Sindri's marketing area. Since the ammonia/ureaproject under consideration will solely produce nitrogenous fertilizers onlythis demand/supply balance will be considered below.
3.08 Considerable population pressure in most of Sindri's marketing areais expected to lead to further increases in agricultural production mainlythrough improved farming techniques and by bringing more agricultural land underirrigation. The demand and supply position for nitrogenous fertilizers (Annex3-3) during the first three years of the project's production as comparedto 1973 is expected to be as shown in the table below:
Nitrogen Demand/Supply Balance in Sindri's Marketing Area /1(in 1,000 tons of N)
/1 Includes Orissa, Bihar, West Bengal, llttar Pradesh, Madhya Pradesh.
3.09 Thus, even when all the expansion and new fertilizer projects, whichpresently are under construction or planned in Sindri's marketing area are onstream, there would still be a shortfall in the overall availability of nitro-genous fertilizers particularly in Uttar Pradesh where a considerable deficit(in excess of 330,000 tons of N per year) is projected to persist. Beyond1980, the fertilizer shortage is expected to further increase due to an anti-cipated growth in demand and this will require the construction of additionalplants.
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C. The Marketing of Sindri's Nitrogenous Fertilizer
3.10 FCI has established four Marketing Zones throughout India withoffices in each of these zones. Each is responsible for promotion, publicity,market research, and the establishment of a dealership network. The marketingefforts are coordinated at head office level under guidance from FCI's Directorof Marketing in New Delhi.
3.11 Sindri is well connected with all parts of the country by broadgauge rail on which the bulk of Sindri's production has in the past beenmoved, road transport accounting for less than 10%. The situation is nowchanging somewhat with the Government encouraging movement of fertilizer by roadwithin a radius of 150 to 200 km. By the time the project is in full production,it is anticipated that about 15% of the production will be moved by road.Additional railway loading facilities will be required and are planned for inthe project cost estimate to account for Sindri's increased production. Noproblems are foreseen in obtaining about 40 additional wagons perday, but anappropriate back-up assurance from the Government has been obtained.
3.12 Storage requirements at present are modest because of the acutefertilizer shortage and it is expected that additonal storage will only berequired by about 1980 when the tight supply situation is projected to ease.Even at that time it would not be necessary to have godowns in nearby areas,since it is the Corporation's policy to meet all sales there directly from thefactory. The buffer godown requirement in distant areas would be relativelysmall and no problems are foreseen obtaining it as rented space.
3.13 FCI's dealership network in the Eastern Marketing Zone comprisesboth cooperatives and private dealers. In addition, the Corporation hasappointed about 300 otherwise unemployed agricultural graduates who areequipped to advise farmers on the proper use and application of fertilizer.Emphasis however is increasingly being given for distribution through cooper-atives and FCI has recently decided that a minimum of 50% of sales in eachState should be handled by cooperatives.
3.14 Fertilizer sales to FCI's dealers are presently against cash pay-ments with the exception of some areas where one month's fully secured creditis extended. The terms under which fertilizer is available to dealers is, ofcourse, greatly affected by the general supply and demand position and it canbe expected that more credit will need to be made available as supplies becomemore plentiful. Dealers can also obtain credit from commercial banks. Tothe farmer, largely two sources of credit are available: commercial banks andco-op "banks" which in turn obtain loans from commercial banks or from theCentral Reserve Bank of India. Interest rates to large farmers are about 10%while small farmers are helped by the Small Farmers and the Marginal FarmersDevelopment Agencies and pay only about 4% per annum.
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IV. THE PROJECT
A. Project Scope
4.01 The project will be! located within the confines of the existingSindri factory and will consist of a single train 297,000 TPY ammonia plantand a single train 330,000 TPY urea plant and all necessary ancillary facilitiesto the extent not already available on the existing works. The capacity ofthe ammonia unit in excess of that required for urea production (106,000 TPY)will be utilized for the production of ammonium sulphate, and small quantitiesof ammonium nitrate and nitric acid. The project in most respects will be aduplicate of the Nangal ammonia/urea project and will use the same designs wherepossible. These are all based on modern commercially proven technology to ensureefficient operation. A description of the production processes involved and theplant facilities to be provided is given in Annex 4-1. The project will notinclude any additions to the existing staff-housing colony and associated civicworks which are adequate to meet all requirements. As mentioned in para. 2.14,renovation of the existing works facilities necessary for the efficient opera-tion of the project - though not part of it - will be undertaken concurrentlywith the construction of the project and are described in detail in Annex 4-2.
B. Raw Materials and Utilities
4.02 The principal raw material required for the production of ammoniawill be heavy fuel oil 1/ (240,000 TPY) to be supplied by the Indian Oil Corpor-ation (IOC) from its Barauni refinery situated approximately 200 km north ofSindri. This refinery has a heavy fuel oil production capacity of 400,000 TPY.It is also scheduled to supply heavy fuel oil to the Nangal project until theMathura Refinery (140 km from Delhi) is completed in 1978 and will continue tosupplv the Tata Steel Company and the Barauni power station until both ofthese industries are converted to coal. The supply of heavy fuel oil is likelyto remain tight. 2/ Therefore assurances were obtained from the Governmentof priority of supply of fuel oil for the Sindri project, and from FCI thatit would make arrangements with IOC prior to December 31, 1975 for such supply.
1/ Produced as a bottom product from the refining of crude oil. Annual pro-duction of indigenous crude oil has been fairly constant over the pastfew years at just over 7 million tons or about one-third of the totalcrude processed in India's refineries. Indian refineries presentlyproduce about five-sixths of the country's total consumption of refinedpetroleum products.
2/ Although projected shortages of coal eliminate this as a possible rawmaterial at present, the FCI has made a detailed study of modificationsnecessary to the project to enable it to be converted to coal in thefuture should this become necessary. They have concluded that therewould be no advantages in including additional equipment in the initialplant.
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4.03 The project will consume up to 275,000 TPY of coal needed for thegeneration of steam and power in addition to the 430,000 TPY required by theremaining units of the Sindri complex. Coal is presently being supplied toSindri by the Coal Mines Authority (CMA) from the Raniganj coal field some60 km to the east of Sindri, directly to the works by rail and truck. However,the proposed project will take its coal from the Jharia field by road, a dis-tance of 15 km. Particularly since the existing demand for coal will beintensified by the drive to convert industries away from oil, similar assur-ances of coal deliveries to Sindri were likewise obtained from the Governmentand FCI.
4.04 Water will be drawn from the Damodar River situated approximately2 km south of the plant site as at present. The river currently serves up-stream of Sindri, one steel plant and some coal washeries, and downstream coalwasheries and steel and fertilizer plants in addition to the towns of Burnpurand Raniganj. As Sindri was drawing water from this river prior to the estab-lishment of the river's controlling authority (Damodar Valley Corporation, DVC),Sindri was never required to enter into an agreement with DVC for the supplyof this water. Demands on the river's resources are increasing. Consequently,assurances were obtained from the Government that the DVC would ensure thatthe Sindri unit would be able to continue drawing its full requirements ofwater from the Damodar River, and from FCI that it would make supply arrange-ments with the DVC prior to December 31, 1975. Power will be provided by theexisting thermal plant on the Sindri works. This has a total installed capa-citY of 80 MW to meet a continuous full load consumption of MW 54 of theexisting works. After the proposed project is completed, however, the powerdemand of the works will be reduced by about 10 MW. The existing power planttherefore, after renovation (para 4.01) will have no difficulty meeting theserequirements.
4.05 Phosphate rock needed for the production of TSP will be imported.Although this material is not directly used by the project a continuous supplyis nevertheless essential to utilize the project's 106,000 TPY ammonia for themanufacture of ammonium sulphate in excess of the requirements of the ureaplant. Accordingly, an assurance was obtained from the Government of adequatesupplies of phosphate rock for Sindri and that a satisfactory supply arrangementwith FCI would he completed by December 31, 1975. Sulfur ore necessary for theoperation of the sulfuric acid plants is produced locally.
C. Project Execution
4.06 FCI will be the executing authority for the project and has appointeda project manager who will assume responsibility for construction and timelycompletion. The Planning and Development Division of FCI (P & D) will bedirectly responsible for detailed engineering and procurement and in thoseactivities will be assisted by the same foreign engineering firms who areparticipating in the Nangal ammonia/urea project. Because the project willhe essentially a duplicate of the Nangal project, in which the FCI is playinga major role in detailed engineering, procurement and construction, it isjudged to be well fitted to assume overall responsibility for the Sindri proj-ect. Messrs. Friedrich Uhde GmbH (FRC) will provide the basic engineeringpackage for the ammonia plant inclusive of oil gasification technology by
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Shell and gas purification by Lurgi; while Messrs. Tecnimont (Italy) willprovide the basic engineering for the urea unit. Each of these firms willassume responsibilitv for the process performance of their plants and addi-tionally will assist P & D by checking their detailed designs, by assistingwith procurement of major and critical items using the facilities of theirEuropean offices, and by providing qualified advisors during the constructionand start-up phases to the extent required.
4.07 FCI has already reached agreement with Messrs. Uhde and Tecnimontfor the reuse of the Nangal armonia and urea plant designs respectively and forprovision of the supporting servi ces outlined in para 4.06. Suitable contractswith each of these firms on terms and conditions satisfactory to the Associa-tion have been entered into. Thus by reusing the Nangal project designs andspecifications which in turn allows procurement to be commenced earlier thanusual, it is anticipated that the project will be ready for commercial pro-duction by February 1978, or some 42 months after award of contracts to theengineering firms who prepared the Nangal project designs. These contractsinvolve about US$3.9 million. A detailed implementation schedule is given inAnnex 4-3.
D. Employment and Training
4.08 There are some 11,930 persons employed at Sindri, 8,700 in manufac-turing and 3,230 with P & D. Although the strength of the manufacturing per-sonnel is projected to decrease by 15% (to 7,490) by the time the proposedproject is completed, this is still considerably in excess of requirements.Consequently the project will no t provide any additional employment and willdraw its skilled operators from those plant sections which are due for retire-ment on completion of the project. Key personnel will be given training asrequired in other FCI operating units utilizing similar facilities and a studyof the training requirements and means of achieving an orderly redeployment oflabor onto the proposed project (para 4.10) is to be commenced by February 1975.(Annex 4-4). An allowance of USi$0.35 million local currency equivalent has beenmade in the project cost estimates to cover operator training. It is not fore-seen that there will be any need for expatriate operational assistance afterstart-up, but if unforeseen problems occur FCI will consult with IDA to secureoutside assistance.
E. Ecologv
4.09 The effect on the environment of a modern ammonia/urea plant of thetype to be constructed at Sindri is minimal, and no appreciable amounts ofharmful wastes will be discharged. Although a high sulphur fuel oil will beused as feedstock, the project will include sulphur removal and recovery facili-ties and recovered sulphur will be converted to sulphuric acid in the existingsulphuric acid plant. Liquid effluent from the plant will be treated prior todischarge to the Damodar River so as to conform to Indian regulations relatingto tolerance limits for industrial effluents discharged into inland-surfacewaters. At present, there are no Indian statutory regulations relating toatmospheric emissions and so in this respect the project will be designedto be compatible with European and U.S. standards. With the inclusion ofsulphur recovery facilities and equipment to recover fine urea dust which
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otherwise may be lost in small quantities from the urea unit, atmospheric pol-lution problems are expected to be eliminated. FCI has agreed to take allmeasures necessary to ensure that the execution and operation of the projectis carried out with due regard to ecological and environmental factors andto comply with environmental standards satisfactory to the Association.
4.10 The project will permit the retirement of many of the existing obso-lete manufacturing units at Sindri which are presently causing considerablepollution of the environment. The project will therefore have a positiveecological effect. Furthermore, an environmental survey of the remainingworks is being undertaken by consultants with a view to achieving, concurrentlywith the construction of the project, a considerable improvement in the degreeof pollution presently prevailing. The scope and nature of this study whichalso includes the replanning of the works after retirement of the obsolete units,safety features and new manning systems is set forth in Annex 4-4. Agreementwas reached that FCI will implement the major recommendations arising from thesurvey in a form and in accordance with a schedule satisfactory to IDA.
V. CAPITAL COST AND FINANCING PLAN
A. Project Costs
5.01 Total financing required for the project is estimated at US$188.8million including US$77.7 in foreign exchange. The estimate is summarizedin the following table and shown in more detail in Annex 5-1.
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S_unary of Cpital Cost Estimate(in millions)
Indian Ruepes U.S. DollarsLocal Foreigr& Total Local Foreign=i Total %
Site Preparation 2.2 0 2.2 0.3 0 0.3 0.2Process Equipment
including Catalystand Chemicals 72.4 308.5' 381.3 9.7 41.2 50.9 34.8
Total FinancingRequired 833.5 582.5 1,416.0 111.1 77.7 188.8
1/ The foreign costs shown include best estimate of the cost of importedcomponents of items supplied loca) ly.
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5.02 These estimates were prepared by FCI based on recent estimates forthe Nangal project. They are updated according to actual prices received foreauipment and supplies presently being procured for that project and areadjusted to October 1974 price levels and thus take account of equipment priceincreases up to that date in major supplying countries due to the worldwideinflation and equipment supply shortage. Physical contingencies provided areapproximately 7.7% and 4.8% of local and foreign erected plant costs respec-tively. Price escalation rates beyond October 1974 have been taken at 14% for1974; 11% for 1975 and 7-1/2% thereafter for equipment, and 12%, 10% and 8%respectively for civil works. The escalation is based on a project constructionperiod of 42 months dating from award of basic engineering design contractsand including a 3-month commissioning period and assumes that most orders formajor equipment and supplies will have been placed by the second quarter of1975. Detailed contingency and price escalation schedules are included inAnnex 5-1. Import duty has been taken at 40% of imported equipment andmaterials.
5.03 Working capital requirements for the project are detailed inAnnex 5-1 and (in addition to the spare parts separately stated in the abovecost estimates and the initial supplies of chemicals included under equipmentcosts) are estimated at Rs 88.3 million (IJS$11.8 million). This is a localcurrencv cost, of which Rs 72.0 million (75% of inventories and receivables)is expected to be carried as short-term commercial credit from the State Bankof India.
B. Financing Plan
5.04 The financing plan for the project will be as follows:
Govt. of India 661.5 88.2 46.7Total 1,416.0 188.8 100.0
/1 Short-term borrowings.
The Government's equity contribution of Rs 661.5 million will come from thedevelopment budget Rs 407.7 (61.7%), duties on imported equipment and materialsRs 146.4 million (22.1%) and interest during construction Rs 107.4 million(16.2%). Exclusive of the short-term borrowings the project will be financed
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bv about 49% debt and 51% equity, which is satisfactory. The timely availabi-litv of this local cost financing, including the short-term loan from theState Bank of India, were confirmed during negotiations. Should there beany cost overrun it will be the responsibility of the Government to find theadditional funds both foreign exchange and local currency to complete theproject. It will also be the responsibility of the Government to provide thefunds required to complete the renovation scheme for the existing worksfacilities (para. 2.14) estiniated at Rs 114.4 million including Rs 28.4 mil-lion in foreign exchange which is not included in the above financing plan.Assurances on both these matters were obtained from the Government.
5.05 The IDA credit to the Government of US$91 million will be onlent toFCI at 10-1/4% interest, repayable over 15 years including 5 years of grace,during which period the Government would bear the exchange risk.
C. Procurement, Allocation and Disbursement of IDA Credit
5.06 All procurement on the project will be the responsibility of P & Dworking from their Sindri offices, assisted by Uhde and Tecnimont from theirrespective head offices in Germany and Italy (para. 4.06). All equipment andmaterials to be financed by IDA will be subject to international competitivebidding in accordance with IDAk/Bank Guidelines; however in order to expeditethe project, well defined long delivery items, (approx. US$12 million) willbe bid using the Nangal bidding list supplemented by other firms with knownappropriate supply capacity, and technically critical items (approx. US$8million) and small items estiriated to cost US$50,000 or less (approx. US$2million i. total) will have a restricted bidding list. The Nangal bidderslist, supplemented as above, will be used for bidding on all other items and,should advertisements approved by IDA and placed in suitable internationalpublications bring in response: from additional firms, post-qualification willbe applied at the time of bid evaluation. Bids will be evaluated by P & Dwith assistance, as required, by Uhde and Tecnimont in the case of specialitems procured through their European offices. A preference of 15%, or theactual customs duty if lower, will be granted to Indian suppliers for thepurpose of evaluating international bids.
5.07 Of the total C and F equipment and spares cost for the project esti-mated to be about US$95.0 million, 1/ it is expected that Indian manufacturerswould be awarded about 27.7% (about US$26.3 million) following internationalcompetitive bidding, 57.8% (about US$54.9 million) would be imported, and14.5% (about US$13.8 million), not included in the proceeds of the credit,would be reserved for local procurement. The allocation of the IDA credit ofUS$91 million will therefore be:
1/ Excluding physical contingencies.
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Allocation of IDA Credit US$ Million
Equipment and Materials, Spare parts andOcean freight 81.2
Services, Erection and Preoperational costs 5.8Unallocated 4.0
Total 91.0
5.08 The credit will cover the full foreign exchange cost of importedequipment, spares and engineering services, and the full ex-factory cost ofall equipment won by Indian manufacturers after international competitivebidding estimated to include US$16.4 million in local currency costs. Theestimated costs of locally supplied items whether reserved for local procure-ment or won after international competitive bidding is shown in Annex 5-1.It is anticipated that the credit will be disbursed by December 31, 1977 inaccordance with the schedule set forth in Annex 5-2. Any surplus funds remain-ing in the credit account after completion of the project will be cancelled.It is anticipated that advance contracting for services and equipment pursuantto the arrangements described in para. 4.07 will not exceed US$10 millionequivalent with consequent retroactive IDA financing of expenditures madeafter September 20, 1974 amounting to about US$3 million equivalent.
VI. FINANCIAL ANALYSIS
A. Analysis of the Project
6.01 The financial analysis of the project is done on an incrementalbasis for which the assumptions are listed in detail in Annex 6-1 and aresummarized below.
6.02 It is assumed that the project would start commercial operationsin February 1978 and that the capacity utilization would increase from 70%in the first year (1978) to 90% in the third year and thereafter. This per-formance is what may be expected from a project where close control is intendedto be exercised on critical design and construction factors and on the meansof production. The economic life of the plant is assumed to be 12 years andall assets have been depreciated over that period on a straight line basis.At 90% capacity, the project would produce 297,000 TPY urea and make possiblethe manufacture of 285,000 TPY ammonium sulphate and 9,000 TPY of ammoniumnitrate. Some 8,000 TPY of ammonia would also be available for conversioninto nitric acid or for sale as ammonia. Although the project provides onlyfor the ammonia/urea plants, the revenues and expenses associated with theproduction of ammonium sulphate and nitrate are included in this analysis sincethe latter two products would, without the project, not be manufactured. Theexpenditures required for renovating the existing ammonium sulphate plant andother existing facilities to take part of the project's ammonia, are thereforealso included in the financial analysis. The Government has agreed duringnegotiations to finance the renovation program with 50% equity and 50% in long-term debt.
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6.03 Straight nitrogenous fertilizer prices are controlled by the Gov-ernment and have recently (June 1974) been revised to the following valueswhich have been used in the analysis:
/1 Ammonium nitrate is produced exclusively for Indian ExplosiveLtd., at a negotiated price.
The Government also controls fuel oil and coal prices which account for morethan half of operating costs before depreciation. Costs and revenues areescalated to 1978 and left constant thereafter.
6.04 The principal raw material, heavy fuel oil for feedstock, accountsfor about 40% of operating costs before depreciation. Fuel oil for use asa fertilizer feedstock is at present priced preferentially at Rs 398 per ton,ex-refinery, (US$53.1) by omitting duties and taxes which are normally leviedand which bring the price up to Rs 647 per ton for other users.
6.05 The incremental financial projections for the project are givenin Annex 6-2 and are summarized below:
Sindri - Summary Financial Data for the Project(in Rs million unless otherwise noted)
Income (Loss) before Tax 4 141 185 231 254Income (Loss) after Tax 4 141 185 126 87Operational Cash Flow 45 338 374 308 246
Ratios
Operating Ratio beforeDepreciation 0.50 0.40 0.42 0.41 0.41
Debt Service Coverage 2.97 4.45 2.63 2.28 2.20Current Ratio 2.00 1.26 1.31 1.33 1.33Debt/Equity Ratio 51/49 44/56 36/64 31/69 17/83
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6.06 Sales are projected to increase from Rs 90 million (representingonlv two months production) in 1978 to Rs 705 million in 1981 and there-after. The exDected operating ratio would improve to 0.41 reflecting adrastic improvement in operatirg efficiency when compared to the existingSindri plants which operated at a ratio of 1.24 in 1974. Income before taxeswould, with declining interest payments, steadily increase. Indian taxlegislation, which allows the use of accelerated depreciation for tax pur-poses, would enable Sindri to postpone any tax liability to later years.However, taxes are not paid by Sindri directly, but they are presented hereto show the incremental tax liability as caused by the project to FCI's over-all requirement to pay taxes.
6.07 The project is expected to generate from the beginning of produc-tion enough cash to meet all its obligations. Debt service coverage, currentratio, and debt/equity ratio are all acceptable, but are more meaningfullyassessed in connection with Sindri's consolidated financial position which isdiscussed further below.
6.08 The financial performance of the project is mildly sentitive tochanges in fertilizer prices, operating costs and capacity utilization. In1982 at 90% capacity utilization fertilizer prices could fall or operatingcosts increase by about 34% to still break even profitwise. The cash break-even point would however be lower, allowing a 39% fall in prices or increasein costs. The profit and cash break-even points in terms of capacity utiliza-tion in 1982 would be 50% and 42% respectively.
B. Incremental Financial Rate of Return 1/
6.09 The incremental financial rate of return is calculated in realprices (Annex 6-3) and amounts to about 16% before tax. The table belowgives the relative change of the return resulting from a + 10% change inthe cost or benefit streams as indicated:
6.10 As is the case in other fertilizer projects, the return is mostsensitive to changes in fertilizer prices and least sensitive to a changein operating and capital costs . About 20% of the cash operating costs are
1/ In estimating the financial rate of return on the basis of 1978 prices,the investment cost including price contingencies has been converted to1978 prices.
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fixed which results in capacity utilization being the second most sentitiveparameter. Under adverse conditions, assuming a 10% cost overrun on thecanital costs, a 20% increase of fixed operating costs not controlled by theGovernment, a 10% lower than expected capacity utilization, and prevailingtertilizer prices, the return would be about 11% and thus still acceptable.The tax measures which allow deferring tax payments to the fourth year ofoperations result in an after-tax return of the project of about 12%.
C. Analysis of the Sindri Unit with the Project
6.11 The detailed financial forecasts resulting from the consolidationof the financial projections for: (a) Sindri without the project, and (b)the project on an incremental basis are given in Annex 6-4 and are summarizedbelow:
Summary Financial Data for Sindri Unit with the Project(in Rs million unless otherwise stated)
6.17 The project faces moderate technical, managerial, financial andcommercial risks. The potential for substantial delays and major cost over-runs during project executionr is rather low, because: (i) Sindri is basicallya repeat of Nangal; (ii) cost estimates and completion schedule are basedon actual experience so far gained during implementation of Nangal; and(iii) participation of the Nangal engineering firms to assist FCI duringproject implementation. The financial risks are largely determined by thepossibility that: (i) cost increases might not adequately be reflected infertilizer prices; (ii) the production build-up would be slower than assumed;and that (iii) the ultimate capacity utilization would be below the project-ed one. Given the assurances obtained from FCI and the Government and therelatively strong financial position of the Sindri unit after implementationof the project these risks are acceptable. The commercial risks are alsoacceptable since FCI has had long experience in the marketing of it's produc-tion, and the use of urea and ammonium sulphate produced by Sindri is wellestablished.
VII. ECONOMIC ANALYSIS
A. Raw Material and Fertilizer Prices
7.01 tWorld urea prices ia recent years have fluctuated sharply withsupplv/demand imbalances, new technology, petroleum prices and currencyrevaluations. A typical ammonta/urea plant capacity in 1974 is 5-10 timeslarger than in the early 1960s. This increase in size, in parallel withimprovements in technology, reduced production costs substantially, and alarge increase in supply in the late 1960s caused urea prices to dropsharply. In 1970, f.o.b. urea prices were about US$50-60/ton. During1970-1973, the increase in demand was not matched with increased supplyand at present there is a significant shortage of urea and other fertilizermaterials throughout the world. These shortages along with recent priceincrease of petroleum, one of the principal nitrogen fertilizer raw materials,plus changes in currency values have pushed up urea prices substantially.Current f.o.b. urea prices are US$200-300/ton.
7.02 W4ith expanding capacity, the shortage should be alleviated, atleast in part, by 1978, at which time it is assumed that a long-term equili-brium price will be reached. The actual price at which urea might be thenavailable, however, is quite uncertain. Estimates for the 1978 urea price(in current dollars) range from less than US$100 per ton to present pricelevels of US$300 and more, with most likely values of around US$150 per ton. 1/
1/ The Bank's report Price Forecasts of Major Primary Commodities, ReportNo. 467 of June 19, 1974 gives a f.o.b. bagged urea price of US$145per ton for 1978.
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The 1978 f.o.b. urea price (employed as the economic price in thisanalvsis) is currently estimated at US$145 per ton.
7.03 With respect to amonium sulphate and anmonium nitrate,1/ theassumption has been made, that their price relationship to urea would berational, i.e., that the three fertilizers would be at the retail level,comparable on a nutrient basis. Similar to fertilizer prices, shippingrates are currently high and uncertainty prevails with respect to the futurerates. The assumption made is, that shipping rates would come down in realterms from the presently high lev ls and would likely be about US$30 per tonof fertilizer which includes about US$5 for port fees and handling.
7.04 The economic cost of heavy fuel oil, the feedstock to be used forthe project, is taken as the expected world-market price in 1978. The pricefor heavy fuel oil in the world market is determined by the price for crudeoil and of the ratio of heavy fuel to crude oil prices. It is projectedthat the 1978 crude oil price would be US$10.90 per barrel (f.o.b.) 2/ andthat the ratio of heavy fuel oil to crude oil price would be 0.65.
7.05 Other economic costs have been determined by excluding transferpayments, and are given together with the assumptions made in Annex 7-1.
B. Economic Rate of Return
7.06 Based on the assumptions given above, the economic rate of returnwould be about 16%. 3/ Sensitivity analysis indicates further that theeconomic rate of return shows about the same sensitivity to changes in thebasic assumptions as the financiai return. A + 10% change affects theeconomic rate of return in the following way:
1/ Although the ammonium nitrate as produced by Sindri is used for indus-trial explosives, it can pricewise be treated as fertilizer, sincethere is generally very little price difference between the fertilizerand the explosive-grade.
2/ Commodities Report No. 467 of June 19, 1974.
3/ In estimating the economic rate of return on the bases of 1978 prices,the investment cost including price contingencies has been converted to1978 prices.
- 28 -
The rate of return is most sensitive to changes in fertilizer prices andleast sensitive to operating cost changes. However, the rate of returnwould even under adverse assumptions still be acceptable.
7.07 To reflect the prevailing uncertainties of future prices, parti-cularly for fertilizers, the economic rate of return was also calculatedon a probabilistic basis for which the assumptions are given in Annex 7-1.The probability analysis indicates that the project has only a 10% chance ofreturning less than 10%. On the upper side there is about a 10% chance thatthe project's economic rate of return would be 20% or higher, which makes itvery attractive and amply justified in economic terms.
C. Foreign Exchange Savings
7.08 The project requires an estimated offshore cost of Rs 583 million(US$78 million). In return, the project will enable the country to avoidimporting fertilizer whose gross annual bagged value is most likely of theorder of Rs 596 million (US$79 million) at 90% capacity utilization. Theforeign content of operating cost also at 90% plant utilization, mostly requiredto meet crude or heavy fuel oil, imports, is estimated only at about Rs 83 mil-lion (US$11 million) per year leaving the country with a net foreign exchangesaving Rs 513 million (US$68 million) per year (Annex 7-2). Such savings donot constitute an economic benefit additional to those included in the projectedeconomic rate of return.
VIII. AGREEMENTS
8.01 Assurances and agreemaents were obtained before or during negotiationsas follows:
A. From the Government that it will:
(1) provide adequate! funds to complete all FCI's on-going and newprojects (paras. 2.11 and 5.04);
(2) not take any action which would preclude efficient fertilizermanufacturers from meeting their expenses, servicing debt andearning a reasonable return on invested capital out ofrevenues (paras. 2.17);
(3) ensure that adequate rail wagons are allocated when requiredfor the transportation of Sindri's products (para. 3.11);
(4) assure an adequate and timely supply of heavy fuel oil toFCI's Sindri unit (para. 4.02);
(5) assure an adequate and timely supply of steam coal to FCI'sSindri unit (para. 4.03);
- 29 -
(6) allocate the forei gn exchange necessary to ensure the timelysupply of rock phosphate (para. 4.05);
(7) provide all funds , over and above funds provided by IDA, tocomplete the project, presently estimated at Rs 661.5 million,in accordance with the requirements of para. 5.04;
(8) provide to FCI funds equivalent to the cost of the RenovationProgram (paras 5.04 and 6.02) presently estimated at Rs 114million, of which at least 50% is in equity and the rest inmedium to long-term funds; and
(9) on-lend the Credit to PCI at 10-1/4% (para 5.05).
B. From FCI that it will:
(1) maintain a current ratio of not less than 1.2 for FCI anda debt/equity ratio of nqt more than 50/50 for FCI and theSindri unit (para. 2.11 and 6.13);
(2) not prepay any debt or pay any dividends or make any othercash distribution if as a result FCI's current ratio wouldbe below 1.5 or Sindri's current ratio below 1.2 (para. 2.11and 6.13);
(3) complete the works renovation program prior to completionof the project (para. 2.14);
(4) submit annual and quarterly reports including auditedstatements (para. 2.20);
(5) make arrangements for the supply of heavy fuel oil, priorto December 31, 1975 (para. 4.02);
(6) make arrangements for the supply of coal, prior to December 31,1975 (para. 4.03);
(7) make arrangements prior to December 31, 1975 to ensure anadequate supply of water to FCI's Sindri unit (para. 4.04);
(8) make arrangements prior to December 31, 1975 for theassured supply of phosphate rock (para. 4.05);
(9) consult with IDA on possible expatriate operational as-sistance (para. 4,08);
(10) undertake a works transformation and environmental studyof the Sindri works and conpult with IDA with a view to theimplementation of the major recommendations of such study(paras. 4.08 and 4.10); and
- 30 -
(11) to take all measures necessary to ensure that theexecution and operation of the project is carried outwith due regard to ecological and environmental factorsand to comply with environmental standards satisfactoryto IDA (para. 4.09).
8.02 Based on the above assurances, the project provides a suitable basisfor a credit of US$91 million.
Tndustrial Projects Department
Qctober 31, 1974
ANNEX 1Page 1
I2DIA: SINDRI FERTTILIZER PROJECT
GLOSSARY OF TECHNICAL TERMS
Ammonium Carbamate - An intermediate chemical formed in solution duringsynthesis of urea from carbon dioxide and ammonia. On reduction in pressureit decomposes into urea with the formation of byproduct water. AmmoniumCarbamate is a higly corrosive material and requires the use of specialmaterials in equipment required to handle it.
Ammonium Nitrate - A nitrogenous fertilizer containing 35% nitrogen madeby producing nitric acid as an intermediate by the oxidation of ammonia andthen reacting with additional ammonia.
Ammonium Sulphate - One of the earliest chemical fertilizers containing 21%nitrogen, now produced largely as a byproduct in chemical industry. Graduallybeing displaced by urea although still extensively used, and especially suitablefor certain crops notably tea.
Anhydrous Ammonia - (NH3 ) A gas containing approximately 82% nitrogen.tnder pressure, ammonia gas is changed to a liquid and is usually stored andtransported in this form. Anhydrous ammonia is used to make most of thesolid forms of nitrogenous fertilizers and also is used for direct applicationto the soil either as a gas or in the form of aqua ammonia.
Biuret - An impurity, NH(CONH2 )2, found in commercial urea, brought aboutby a partial decomposition of the urea to biuret and ammonia. For certainapplications, particularly when the urea is ultimately sprayed on citrus trees,the biuret content should be kept as low as possible, in the range 0.1 to 0.3wt. A.
Bulk Fertilizer - The term bulk fertilizer applies to commercial fertilizerdelivered to the purchaser, either in the solid or liquid state, in a non-packaged form to which a label cannot be attached.
Calorific Value - A measure of the quantity of heat given out in thecombustion of a fuel. A BTU is the amount of heat required to raise 1 poundof water through 1 fahrenheit degree at 60P fahrenheit. The calorific valuemay be expressed either as gro8s or net. The gross value is obtained when thewater vapor in the combustion products is condensed and the net when it remainsas vapor.
ANNEX 1Page 2
Double Salt - Amnonium Sulpnate Nitrate, a nitrogenous fertilizercontaining 26% nitrogen manufactbured by granulating ammonium sulphate andammonium nitrate.
Giammarco Vetrokoke - Proprietary name of patented carbon dioxidescrubbing locess using hot potassium carbonate solution as the solvent butwith the addition of small amounts of arsenious oxide to inhibit corrosion.Oneof the most efficient carbon dioxide removal processes but it suffers fromthe disadvantage of employing highly poisonous arsenic compound.
Merseberg Process - A proceEss for the synthesis of ammonium sulphate fromammonia and gypsum (calcium sulphate) by first converting the ammonia toammonium carbonate and then fornming ammcnium sulphate by double decomposition,giving precipitated chalk as a byproduct.
Monoethanolamine - An organic solvent made from ethanol and ammonia whichhas a high solubility for carbor. dioxide and which can be easily regenerated.w,idely used in carbon dioxide scrubbing processes particularly in cases ofsmall to medium scale operation.
Nitrogen - A colorless, inert gas that makes up about four-fifths of theair. Nitrogen for commercial purposes can be "fixed" synthetically from theair by several processes.
Nutrient (Plant) - Any element taken in by a plant, essential to its growth,and used by it in elaboration of its food and tissue.
Phosphate Rock - Phosphate-bearing ore composed largely of tricalciumphosphate. Phosphate rock can ;se treated with strong acids or heat to makeavailable forms of phosphate. Finely ground rock phosphate is sometimes usedin long-time fertility programs.
Phosphoric Acid - (H3 PO ). An inorganic acid used in the manufacture ofconcentrated calcium phosphates, ammonium phosphates and sometimes for directapplication through irrigation water.
ANNEX 1Page 3
Potash - A term used to denote the potassium oxide (K2 0) equivaLent ofmaterials containing potassium. Actually, K20 as such is never found infertilizer, but historically the potassium in fertilizer has been thus expressed.The term is also used as popular name for Potassium Chloride (KCl) the most con-centrated form of naturally occuring potassium.
PPI (Parts per million) - The concentration of a substance expressed as thenumber of units of that substance per total million units. May be measured onvoluyme/volume or weight/weight basis.
Prills - Spherical particles prepared by spraying molten material downwardthrough a countercurrent stream of cooling ar; this operation is performed in aprilling tower. The particles obtained have excellent storage and handlingproperties in that they are hard and have less surface area than crystals.
Primary Elements or Fertilizer Nutrients - The primary plant food elementsare nitrogen, phosphorus and potassium. They are called primary or majorelements because of the relatively large quantities needed for healthy plantgrowth, and are the most common constituents of commercial fertilizer. Whilethe plant food elements as such are phosphoruus and potassium, in the fertilizerterminology quantities are expressed in terms of their oxide equivalents -available phosphate, PO. and potash, K 0. Ratio - The numerical ratio among theconce-ntrations of the tr:mary plant foods in a fertilizer. For example, a5-l0-L5 grade would have a 1:2:3 ratio.
Rectisol Process - A proprietary commercial process for the removal ofcarbon dioxide and sulphur gases from synthesis gas by absorption in refrige-rated methanol.
Scrubbing - Process of ramoving dust and/or vapor from an inert gas streamby using an absorbing liquid.
Single Superphosphate - A product that contains 16 to 20 percent availablephosphoric acid and that is made by treating phosphate rock with sulfuricacid.
Superphosphate - Made by reacting sulfuric acid and phosphate rock. Theprincipal source of availablophosphate (P205) in fertilizer. There are twoprincipal kinds -- single superphosphate and multiple superphosphate.
ANTEX 1Page 4
Sulphuric Acid (H>SOL; Oil of VTitriol) - This strong acid is made fromvarious sulphur materials. Sulphuric acid is a common acid, and is used inthe manufacture of fertilizers such as ammonium sulphate and superphosphate.
Triple Superphosphate - M4ade by reacting phosphoric acid and phosphate rock.A product that contains 40 to 5( percent available P20s. Triple superphosphatediffers from ordinary superphosphate in that it contains very little calciumsulfate.
Urea (CO NH ) )- A white crystalline material produced synthetically fromammonia N NH3 J and carbon dioxide (002) under high pressure. Commercial ureacontains about 46 percent nitrogen. Urea is completely water-soluble butchemically classed as a synthetic organic nitrogen.
Indus-trial Projects DepartmentOctober 1974
ANNEX 2-1Page 1
INDIA: SINDRI FERTILIZER PROJECT
DESCRIPTION OF FERTILIZER CORPORATION OF INDIA (FCI)
A. Existing Operating Divisions of FCI
1. FCI is the largest fertilizer company in India with five operatingunits, plus the PlanxVing and Development Division, which are described below.Production capacities in these operating units as well as FCI's new projectsare summarized in Table 1. Historical performance of the operating divisionsis given in Annex 2-3. Capacity utilization has averaged about 70% for nitro-gen and about 55% for phosphate over the past three years (1970-1973). Gorakhpurand Nangal have had relatively little difficulty (except recent power shortages)and have consistently operated at high efficiency. Sindri and Namrup havecontinuing operating problems and operate considerably below desirable levelsof capacity utilization. Trombay has shown good performance in recent yearswith the net profit reaching about Rs 81 million (nearly US$11 million) in1973.
2. The overall performance of FCI has been relatively poor. As indi-cated above, the performance of its individual units vary widely for complexreasons and these are discussed below.
Trombay (Maharashtra State)
3. The existing Trombay plant has an annual design capacity of 240,000tons of NPK fertilizer (15-15-15); 99,000 tons of urea; and 30,000 tons ofmethanol. Intermediate products include anmonia, nitric acid and sulfuricacid. In addition, some minor quantities of industrial chemicals such asargon, concentrated nitric acid, sodium nitrate and ammonium bicarbonate areproduced. The Trombay complex includes necessary facilities such as mainte-nance shops, storage, utilities, offices and townships; it is near to theBombay port and has good rail and road connections. An expansion of theTrombay plant to add 355,000 TPY nitrophosphate production capacity has justbeen commenced and will be completed by mid 1977. IDA approved a credit cfUS$33 million for this project and other works in June 197h.
Gorakhpur (Uttar Pradesh State)
4. This plant, which produces urea only, began production in early1968. Goralhpur was financed with a Japanese credit plus funds from GOI andwas built by Toyo (Japan) at a total cost of about US$45 million. This cost isconsidered high due to imbalances and excessive spare capacity of some equipment.The plant units at Gorakhpur are ammonia and urea, with low-grade naphtha servingas the feedstock. The amnonia plant is designed to have two streams, each witha capacity of 175 TPD of ammonia. Partly because the plant uses electrically-driven reciprocating compressors, it has a relatively high operating cost andhigh dependence on outside power. The project operates well and can easilyexceed 100% of design capacity on a daily basis. Output has been seriouslyimpaired by power supply problems; were the reliability of power supply to improvein Uttar Pradesh, the performance of this plant should steadily increase.
ANNEX 2-1Page 2
5. In January 1972, IDA approved a US$10 million credit to Gorakhpurto increase its capacity from 180,000 TPY to 314,000 TPY of urea by 1975.
Nangal (Punjab State)
6. The Nangal plant produces heavy water and calcium-ammonium nitrate(CAN) fertilizer containing 25% N, using a process involving intensive use ofpower. Initial production began i'n 1961 with a rated capacity of 80,000 TPYnitrogen. Power supply has been severely restricted, thus limiting productionto 60-70% of capacity. Ammonia and urea capacity expansion is underway,utilizing an IDA credit of US$58 million. Included in the expansion programis a provision to reduce Nangal's heavy reliance on power by using a newprocess in the old plant.
Namuxp (Assam State)
7. The Namrup factory produces urea and ammonium sulfate. The plantstarted commercial production in January 1969 but has not achieved full pro-duction so far. The factory has small process units for ammonia, urea andammonium sulfate. A detailed evaluation of Namrup has not been made;but it isdoubtful if the existing facilities can ever be profitable without majormodifications. The plant is being expanded to produce 330,000 TPY of urea, withthe new units expected to go on str.eam in 1975. As the total market for ferti-lizer in Assam is limited,most of -he increased production must be shipped tothe neighboring States of Bihar and Uttar Pradesh.
Sindri (Bihar State)
8. The Sindri plant produces; ammonium sulfate, double salt, urea and someindustrial chemicals. Most of the existing production facilities are old and ineffi-cient, involving high maintenance costs; and the plant has an excessivelyhigh employment of about 8,700 persons. It operates at as low as 55% capacity,with major causes for low capacity utilization being plant and equipment failures;and the high cost of gypsum feedstock for ammonium sulfate is also responsiblefor the plant's operating losses. Sindri's financial performance has deterioratedsharply in recent years and it is a major reason for FCI's poor financial results.A rationalization program is underway for additional production facilities forphosphoric acid and triple superphosphate (TSP), and reduction in ammonium sulfateproduction costs. Present-plant facilities are described in detail in Aex 2-5.Niuch of the_existing plant will be retired when the new ammonia/urea projectcomes into operation.
Planning and Development (P&D) Division (Bihar State)
9. The P&D Division is the engineering and research and development armof FCI. It is located adjacent to i:he Sindri plant in Bihar. It has a totalstaff of about 3,200 with about 8D0 engineers and designers working directlyon engineering, planning and technical service functions for FCI units. Inaddition, the division develops and manufactures catalysts for use in ammoniaplants and has extensive pilot plant: and research development facilities. Thecatalyst manufacturing program is technically sound and some catalysts have
ANNEX 2-1Page 3
been sold for use in fertilizer plants in India. Over the next few years asthe catalyst consumption grows in the country, FCI catalyst production shouldbecome profitable.
10. The P&D Division has several license agreements with internationalprocess engineering firms, the most notable being: Montecatini-Edison, Italy$for ammonia and urea; Lurgi, Germany, for rectisol C02 removal; Shell, theNetherlands, for fuel oil gasification; Koppers, Germany, for coal gasifica-tion; and Nissan, Japan, for phosphoric acid. Licensing arrangements forother process technology are obtained when needed for other projects. TheDivision has developed its own process know-how for ammonium sulfate,ammonia synthesis gas purification and some others. For all of the presentammonia-urea plants under implementation, the Division has been responsiblefor engineering, design and project schedule as well as procurement based onprocess design packages from various licensors. Where suppliers' credits areinvolved, the foreign process collaborator handles most procurement from out-side India.
11. Project implementation responsibilities under the FCI's organizationin the past have not been clearly defined and, as a result, the completionof a number of projects has been delayed in some cases up to three years.Except for the Nangal and Trombay IV projects there have not so far beenproject managers for each project with overall responsibility; instead thefunction has been divided between a site project manager appointed by anddirectly responsible to the General Manager of the particular works operatingunit and a project coordinator appointed by and directly responsible to theGeneral Manager of P and D division. Under this system progress of the work atthe site has been under the control of the Works General Manager whereas P andD division has been responsible for maintaining the project schedule. Thisarrangement is now being streamlined however and in the case of the Sindriammonia/urea project the project coordinator will be responsible through theP and D General Manager to the Managing Director while the site projectmanager will be responsible to the Projects Director. This arrangement isexpected to result in improved coordination and more expedient decision making.The general engineering capability of P and D division however is sound. Typicaldesign drawings, specifications and general projects records for a number ofongoing projects were reviewed and appeared to be of a high standard.
ANNEX 2-1iage 0
B. FCI's Expansion Program
12. FCI will be one of the vorld's largest fertilizer producers after itsexpansion program is completed in 1979. It has eleven major projects (includingthree expansions) under implementation at present. The capacities,andexpected commissioning dates are given in Table 1. All these projects arebeing executed by the POD Division of FCI with the assistance of various processand engineering firms.
23;. Durgapur, Naurup (expansion) and Barauni are similar plants based onprocess designs obtained from Mon becatini-Edison (Italy), ind include processunits for ammonia and urea. These projects are being financed with Italiancredits and funds from GOI. Hald.La (capacity: 152,000 TPY of N and 75,000 TPYof P205) will be producing both u:'ea and nitrophosphates. The Sindri Rationali-zation Project includes a triple ;uperphosphate (TSP) unit and facilities forsulfuric and phosphoric acid production. Haldia is the first of the fuel oilbased ammonia plants under construction with an ammonia plant capacity of 600 TPDand facilities for the production of methanol. The ammonia is converted partlyto urea and is utilized partly for the production of nitrophosphates. The facili-ties include a soda ash plant based on the use of by-product chalk. The knowhowsused are from Shell, Lurgi, TechaimEt Stamicarbon, Nissan and Polimex. Theproject is scheduled for completicn by 1977. Much of the engineering for it isdomestic, including a subcontract with FACT. GOI is providing all funds includingforeign exchange from Belgian and Bulgarian suppliers' credits.
14. Talcher and Ramagundam ac well as the Korba plant (under planning)are large ammonia-urea units with ammonia to be produced by coal gasification.Montecatini-Edison is the major engineering collaborator with additionalassistance from Koppers (Germany), Lurgi (Germany), and Technoexport (Czechoslovakia).Coal gasification is a relatively unproven technology in large commercial plantsand the projects are ambitious undertakings. They are in the early design stageand, because of anticipated design problems, are not expected to be completedbefore 1977.
15. All the new projects wouLd be financed about half by equity and halfdebt. All expenses including interest during construction on new projects arebeing capitalized so that FCI's profit performance will not be affected by theseprojects until production starts. Three projects under construction - Durgapur,Namrup (expansion) and Barauni - have experienced about three-year delays inimplementation, primarily because of design, procurement, and project managementproblems. Work on the IDA-financed Gorakhpur and Nangal Expansion Projectsstarted in 1972 and 1973 respective(ly. Agreements on procurement between GOI andIDA are designed to prevent delays on these projects.
C. FCI Board of Directors and Management
16. The FCI Board of Management is shown in Table 2. Of the total 13 members,six are from PCI, two from Government Ministries, four from other public sector enter-prises and one retired head of a research institute. The influence of GOI, particularlythe Ministries of Finance, and PetrDleum and Chemicals is felt very strongly inthe FCI's management and operations. The organization chart of FCI is givenin ANNEX 2-2.
1/ These statements have been adjusted. A breakdown of the adjustmentsto the published profit figures is presented in Annex 2-5;, Page 2 ofthe Nangal Report (46-IN dated January 2, 1973).
2/ The comparative net profits of the individual units and consolidatedincome expenditure breakdown are presented in Annex 2-5!, Page 3 of theNangal Report.
/ Net of excise duty imposed from April 17, 1969.
iw' The large increase in Net Sales in 1974 is largely due to a comparableincrease in the import of finished goods (mainly DAP) for which FCI acts asthe distribator.
g/ Finished Product Inventories.
6/ Retroactive adjustments for increased power rates for the Nangal unithave been allocated to the respective years.
2/ The increases from 1967 onwards are due to the gradual shift fromdistribution through the Government Fertilizer Pool to direct marketingby FCI.
8/ Indirect expenses on repairs, power and fuel, etc., not charged underother heads of expenditure.
9/ Includes interest from Rourkela contract, and also compensation of Re 7million in Fn 971 and Rs 5 million in PM 972 from the Bhakra ManagementBoard to FCI for losses due to power cuts at Nangal.
10/ Iluludes retroactive adjustments for different heads of expenses andwrite-off for the Korba Project. For PI 973, this also includesadjustments for the previous year amounting to Rs 44 million to coverarrears of depreciation on plant and machinery since inception of theexisting operational units, as a result of the change in the rate ofdepreciation from 8 1/3% per year to 10% per annum for nine years and5!% in the tenth year.
L/ Includes a retroactive adJulatent for operating loss fro Oetober 1,1971 to March 31, 1972 of the sulphuric plant at Sindri.
12/ In FYi972 the depreciation base for processing equipment vas lowered from12 to 10 years. The resulting adjustment in depreciation for prior yearsamounts to Ra 36 million. Other adjusiments were Rs 14 million formaterials consumed, and Rs 11 million for salaries, wages and others.
13/ In FY 972, Rb 11.5 million selling and distribution expenses ofexsting units were capitalized by FCI for new projects; FCI may alsobe liable for additional excise duty on "Suphala" fertilizer (Trombay)up to Rs 17 million and on naphtha up to Rs 8 million, both reLated toFY1 972.
ANNEX 2-3Page 3
INDIA: SINDRI FETILIZER PROJECT
COMPARATIVE NET PROFIT OF FCI UNfITS/(In Rs Millions)
Fiscal Year Ended March 311969 1970 1971 1972 1973 1974
Debt Service Coverage (Times) 1.5 1.6 1.2 1.3 1.5 1.4
1/ These net profits are based upon published profit statements, corrected byredistributing expenses relating tc past periods.
2/ The adjustments discussed above have been incorporated in this breakdown.
3/ The large increase in this figure cver past years represents the purchase offinished products for resale.
W To calculate the debt service corwage as it applies to FCI's ongoing operaticnm,actual loan reayuents for rojects still uxader cmetmetion have to be ranovedfrom the total debt service. For the years 1972 - 1974 the amonts not includedare estimated at He 70 mn4lionsJ, Rs 90 millioas, and RS 110 millions. The amonttstbu removed wre financed tlrough Cavemut .ids.
1J/ ?ainly deforred revco.nie e-xpenditures such as sales promotion costs for newprojects plus defered chargex on Durgapur project.
2/ Includes c-pit.1 expendituires on township and other assets for providingAmenities Lo staff.
3/ Includes Rs 101 million utilized for project financing which has since beenreimbursed to the Corporation.
W/ To compute the current ratio of the operating units of FCI, the crentliabilities prtaining to the construction or expansian of plantx haa tobe subtracted. Likewise, the current portion of the long-tem debt relatingto expanion projects or new plants should not be considered a cuzrentliability of FCI's operations as long as there is a secure source offinancing other than from current assets., The current ratios shown are basedon the above assimptions for the years 1972 - 1974. The adjustments tothe curzent liabilities are shown belowt
1972 1973 1974
Total CurrentLiabilities 507 604 823
Less 4justmentsz,a) Adjustment Notel - 101 -
b) Accounts Payab:LeRelated to Constructionin Progress (Estimate) 41 101 190
c) Current Portiotn ofLong-Tem Debt Relatedto Construction in 90 110 450Progress (Estimate) _ 3 E
Adjusted Current Id.abilities 3 6 292 ___
Current Assets 452 8
Current Ratio 1.2 1.5 1.2
ANNEX 2-
",)A:A SINDRI FERTILIZER PROJECT
FCI G3)NSOLIDA'PLD) SOURG-(';`AMD APPLICATION OF FInDS - HIcAL
Year Eaded March 311969 1970 1971 1972 1973 197T
Sources of FundsNet Income DeTore Interest 51 55 43 34 26 5Depreciation 85 117 119 113 110 118
137 I77 T J7 1-3 123Increase in Equity 52 238 190 219 655 981Increase in Long-Term Debt:GOI 1/ 192 10 78 143 201 58US-AID - - --Suppliers'Credits 115 201 82 16 216 t
3077~ 211 Ti n1 7 Increase in 5iort-Term Bank Borrowings 9 9 13 58 (10) (21)Increase in Other Current Liabilities 34 (25) 38 43 75
Total Sources of Funds 538 605 563 6264 1,273
Application ot FundsIncrease in Fixed Assets - PlantsUnder Construction (197) 378 280 304 1,074 894
1/ All income and raw material estimates are based on price levels prevailing in August 1974, i.e., after the announcementby the Goverrment of its new fertilizer and raw material pricing policy.2/ Realization from sales is on the retail level and not on the ex-factory level.3/ FCI can make use of a number of tax measures (capital cost allowance, development rebate, concession for backward areas,tax holiday, and unlimited loss carry forward), to defer tax payments to later years.
1. The existing Sindri works has had as its major products ammoniumsulphate, double salt and urea and its production history of these threeproducts is given in Annex 2-6. The rated production capacity of each is:
TPY
Ammoniuxn sulphate 355,000Double salt 121,920Urea 23,470
2. The double salt unit however was never able to achieve its ratedcapacity and during its perfortance test produced at the rate Of only347 TPD compared to its design capacity of 406 TPD. For this reason andbecause of the deteriorating quality of available raw materials, theattainable capacity for these three prqducts has been reduced to:
% ofTPY Rated Capacity
Aaimmonium sulphate 320,000 90Double salt 87,000 79Urea 20,500 88
3. Recently, a plant f9r the production of 9,000 TPY explosive gradeammonium nitrate has been put into production and in addition to the threemajor products small quantities of ammonia and nitric acid have traditionallybeen sold.
4. The attainable capacity of the works therefore assuming no salesof ammonia may be restated as:
5. Due however to the old age of most of the manuafacturing units,the works is unable to achieve actual pr1 oduction outputs approaching theattainable capacities of the iraditional units and it is expected that theoutput of the existing plant will further deteriorate as shown in thetable on the following page:
6. During 1975, a new triple superphosphate plant will be commissioned
with a rated output of 3V4.(00 TPY which will be added to the works productioncapacity.
7. The Sindri works is situated on the West Bank of the Damodar Riverabout 15 miles from Dhanbad inL the State of Bihar. The construction of thefactory commenced in early 19118 under the sponsorship of the Government ofIndia, with direction of the project being entrusted to a "Chief TechnicalAdvisor". Subsequently, in 1952 when the factory had commencbd coirmmercialproduction, its management was entrusted to a Government-owned company"The Sindri Fertilizer and Chemicals Ltd." Later still on January 1, 1961,the assets and liabilities of this company were merged with those ofITindustan Chemicals and Fertilizers Ltd., Nangal, to form the FertilizerCorporation of India Limited. The Sindri works therefore has the distinctionof having been the first major enterprise of the Government of India for thenroduction of chemical fertilizer and the first operating unit of theFertil-Tzer Corporation of India. The initial installation at the Sindriworks centered' ,round gas generation, ammonia synthesis and ammoniumsulphate production units and included an 80 n! power station and nearbytownshin. For this project the Chemical Construction Company of USA were-,ppointed as consultants for designing and engineering the factory and the.ower Gas Corporation of the L5 were appointed as agents for the GOI fororocuremnent of equipment and for plant erection. The construction of thef'actory wps completed by the end of 19'0 and successful production ofa-nonium sulphate commenced from October 1951. In this initial scheme,coke was purchased from nearby steel plants and charged to Semi Water GasGenerators to produce a mixture of carbon oxides, nitrogen and hydrogenwhichl, after purification, was compressed to ammonia synthesis pressureand converted to ammonia in four separa-te ammonia converters. All ammoniaw,s produced for conversion to arnoniur sulphate via the 'Merseberg process.In this r,rocess ammonia is firlst converted to ainmonium car1bonate bydissolving in water and then reacting with carbon dioxide removed from thecrude ammonia synthesis gas. The ammonium carbonate solution is thenreacted with Gypsum slurry to form a solution of ammonium sulphate and achalk precipitated which is removed in rotary filters and then sold for usein cement marLfacture. The ammonium sulphate solution is then evaporatedin a triple effect evaporator and the resulting slurry of ammonium sulphatefiltered znd then the recovered ammonium sulphate crystals dried in arotary drier and then finally cooled and bagged. Very few Merseberg ammonium
ANNEX 2-!Page 3
sulphate process nlants have been built because the process suffers froma low conversion of ammonia (approximately 88%) and expensive materialof construction. The site for the Sindri works was originally selectedprimarily because of its proximity to the coal fields where a steadystream of empty rail wagons were returning from L'est Punjab and coul.d. beused to backload gypsum recuirements.
8. In 1952 it was decided to construct a coke oven plant at theSindri works in order to reduce its dependency on uncertain coke supplies.Carl Still of Germany were entrusted with this project and a 60 ovenbattery with auxiliary equipment was completed in 195h. Initially thecoke oven. gas produced in this plant was used for firing the ovens but itwas soon afterwards decided to utilize this gas as synthesis gas foradditional nitrogenous fertilizer manufacture. Accordingly, Montecatiniof Ttnlr was -awarded a contract for the supply and er6ction of a 189 TPDammonia plant using coke oven gas as raw material, together with a 406 TPDammonium sulphate nitrate (double salt) plant and a 71 T?.D urea plant toutilize the ammonia produced. Simultaneously as part of this expansionphase Powell Duffrey Coppee Ltd. of Germany was appointed to supply anderect a Lean gas plant of 21 million cubic feet per day capacity toreplace the coke oven gas hitherto used for firing the coke ovens. Thenew plants were commissioned in 1959 and considerably enlarged the numberof operational units in the works. Additionally the purification of theco'ke oven gas for ammonia synthesis was a relatively complicated operationinvolving removal of benzol and other liquid hydrocarbons, the use of lowtemperature fractionation for removal of gaseous hydrocarbons and theoperation of an air senaration plant for addition of nitrogen to thesynthesis gas. Farther the 189 TPD ammonia plant added two more ammoniasynthesis trains making six in all, while the production of double saltand urea added two new fertilizers to the sale of ammonium sulphate productpreviously manufactured. It was found however, that the double sale plantwould not produce its design output during production tests and would givea maximum rate of 3h7 TPD only. Additionally, the lean gas plant failedto perform, to design capacity which meant that some of the available cokeoven gas had to be conserved for coke oven firing and could not beconverted to ammonia. To correct this latter deficiency, two additionallean gas generators constructed by Koppers of Germany were put into servicein 1966.
9. The armmonium sulphate Plant as installed had been designed to usegypsum from West Punjab with a purity of 93% and above, being transportedin rail wagons otherwise returning empty to the coal fields of the Sindridistri.ct. Itfter partition hmoever, alternative supplies of gypsum had tobe obtained from Rajasthan where the purity was only around 88-90% and hassince deteriorated to around 80-82%. This had a very serious effect onthe ammonia conversion efficiency in the ammonium sulphate plant whichdropped from an originally specified 93.351 to around 84-86%. With theenforced alternative supply of lower grade gypsum and the discovery aboutthat time of pyrites conveniently located to Sindri- the decision wastaken by the Government to construct a 400 TPD Sulphuric Acid plant which
AN1EX 2-5Page Al
would compensate for the poor quality gypsum by producing the ammoniumsulphate partly by direct neutralization of ammonia. This plant was builton-the Sindri works premises by "rPhosphatic and Pyritic Chemicals", aGovernment Corporation coming under the ILnistry of Steel and Mines andwas conmissioned in 1970. In 1971 the Fertilizer Corporation of Indiawas directed to take over the plant and has operated it since that time..Although the plant was constructed by Simon Carves Ltd. (UK) a firmspecializing in this field, it is poorly designed. Pyrites crushing andhandling equipment is inadequate, causing an intollerable dust nuisanceand the height of the exhaust stack provided (for a single conversionprocess) is inadequate and would not meet minimum standards in a developedcountry. Additionally inadequate provision had been made for disposal ofacid sludge with the result that the surrounds of the plant becomes aserious health hazard during this operation. The FCI is presentlyendeavoring to make modifications to the plant to correct this latterdefect.
10. Over recent years thei Sindri works has suffered from its inabilityto obtain satisfactory qualities of coals necessary to achieve the dualobjective of producing a satisfactory hard, reactive coke for gasificationand at the same time sufficient quantity of coke oven gas to supply thetwo Yiontecatini ammonia plants., The result has been that it has beennecessary to reduce the production of coke oven gas in order to maintaincoke quality. As a consequencEI maximum output of the Montecatini ammoniaplant has fallen to around 130 tons/day. In an attempt to compensate forthis deficiency a small naphthk steam reforming plant with a capacityequivalent to 60 TPD ammonia was commissioned in March 1969. The cokequality since then however has continued to deteriorate preventing the fulloutput from the Montecatini amronia plant being achieved. The most recentaddition to the works has been a small (9,000 TPY) explosive grade ammoniumnitrate plant which was conaissioned in 1973.
11. Currently, the Sindri works is embarking upon its largestexpansion phase to date, involving the construction of a 800 TPD bSulphuricAcid plant,a 360 TPD Phosphoric Acid plant (expressed as P205) and a346,000 TPY Triple Superphosphate plant. This project is known as theRationalization Scheme because sufficient byproduct calcium sulphate willbe produced in the phosphoric acid production process to supply allrequirements of the ammonium sulphate plant and so eliminate the need topurchase mined gypsum from Rajasthan. This will not only eliminate thecosts associated with the purchase of gypsum but is also expected toresult in a markedly improved aamonia conversion efficiency. The 800 TPDSulphuric Acid plant which will supply the acid required by the phosphoricacid plant, is again a single conversion process with the process, basicengineering package and construction supervision being supplied by 'Techno-export", an association of Dulgirian industries. Detailed engineering isbeing undertaken by FCI. Provision for pyrites handling involving anexhaust system with cyclone separators, combined with a scrubber and electrostatic precipitator on the gas ;,ide are far superior to the existing 400TPD plant; additionally the stack height is 70 metres compared to some
ANNEX 2-5
25-30 metrea for the existing plant. The Phosphoric Acid plant isaccording to the Pragyn process with Prayon providing the basic engineeringpackage, and Fertilizers and Chemicals Travencore (a licensee of Prayon)doing the detailed engineering. FCI itself is doing all plant constructionand erection work. In the case of the TSP plant FCI is using its owntechnology and is handling basic and detailed engineering as well asconstruction. The Rationalization Scheme was originally intended to comuenceoperation about mid 1974 but is running about 9 months to 1 year late withthe delay due in large part to late delivery of machinery and equipment byIndian azmfacturers.
12. The Sindri works since the first manufacturing units wereconstructed in the early 1950's has seen several expanrion phases with theresult that it now consists of a large number of individual units which areof uneconomic scale and additionally make for a difficult and complicatedoVerall manufacturing operation. Further most of the existing units arenow obsolete from the process technology view point, and their equipmentby virtue of ita advanced years is inefficient, unreliable and expensiveto maintain. It is projected therefore that the coke oven, gasification,avOtnia spthesis, urea synthesis, and double salt plants will reach theend Of their working life by about 1977 or 1978 and will be shut down atthat time. With the planned replacement of the ammonia facilities howeverwith the proposed new Ammonia/Urea project, the existing ammonium sulphatePlant will be coMpletely rehabilitated and kept in service. The detailsof the RnoWation and Rehabilitation program which will also coveresaential services and utilities facilities on the existing works aredescribed in A*nen 4.2. Aside from the fact that the existing manufacturingunits have become obsolete and are no longer economical their environmentalfeatures no longer are compatible with present day standards. Accordinglyit is intended to undertake concurrently with the Renovation Scheme aprogram for upgrading the environmental, safety and working standards ofthe works as a whole. This program will commence with a surrey study ofthese aspects which is described in detail in Annex 4-.4
Industrial Projects DepartaentOstober 1974
_ a :+ ~~ ~~~~~~~~~~~~~~~~~~ ~~AM1IIX 2-6
_0 0
_.. 40004400I_V,0DV 04 N(O¢
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N1 00< _00-,'.N 0X _ N_n .N
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cQ~~~~~~~~~~~~~~~~~N IN ON9
004-.00 000 =SFj2OaogoN'<o°0_
=|nc oo>R>No 0 6 0 Ho a N O
z H 0 o* 0 '0o c0=NO ic - a- - - = N
NO lo 4 N 00HON m 0 0 N Nj
P | N < E@-=ts)* NO 00D.JR , . oX ___0 _ 0 _H____ NX,OON
1/ Results for the fiscal year ending March 31, 1974 are based on nine months actuals and on estimates for the remaining three months.
_/ Only a minimum cash balance is kept at the Sindri unit, all surplus cash being transferred to FCI head office. The unit does notreceive or pay interest on any positive or negative balance of such transfers. However, the unit does not have to payany interest on State Bank of India cash credits as long as the unit has a positive transfer balance with the head office.In this case the interest is paid by the head office.
3/ The Government of India in 1971 asked FCI to take over the operations of the sulphuric acid plant which was at that time ownedand operated by PPC (Phosphatic and Pyritic Chemicals), another GOI undertaking. The amounts shown are the expendituresincurred by the Sindri unit. The sulphuric acid plant has not yet been included in the fixed assets pending valuation ofthe taken-over plant.
4/ Suppliers credits from Bulgaria and Belgium channeled through GOI for the rationalization project.
Induatrial Projects DepartmentOctober 1 97li
INDIA: SINDRI FERTILIZER PROJECT
FCI SINDRI UNIT - HISTORICAL SOURCES AND APPLICATION OF FUNDS STATEMENTS
1/ Results for the fiscal year ending March 31, 1974 are based on nine months actual
results and estimates for the remaining three months.
Iad=triall Projecte Departaentoctobe 1974
ANNEI 2-8Page 1
INDIA: SflDRI FERTILIZER PROJECT
ASSUMPTIONS MADE IN THE F:NANCIAL ANALYSIS OF SINDRI WITHOUT THEPROJECT
A. General
1. The existing facilities to produce nitrogenous fertilizer can beoperated to about the end of 1577 before major refurbishment would berequired to extend their econoxic life beyond that date. Refurbishnent,however, would be so costly, that it would be financially and economicallymore attractive to stop production. It is therefore assumed that beyondJanuary 1978 no nitrogenous fertilizer would be produced except Triple SuperPhosphate (TSP) at 326,000 TPY.
2. All costs and revenues with the exception of phosphate rock andsulphur costs have been escalated to calendar mid-1978 and kept constantthereafter. The following percentages were used:
Nitrogenous Fertilizer Pricesand TSP
YEAR Oprating Costs Prices
1975 12% 6%1976 8% 4%1977 6% 3%1978 2.5% 1.25%
Phosphate rock and sulphur costE~ are assumed at very high levels and nosignificant deviation from these levels are expected over the next fouryears. Therefore TSP prices have been escalated at a lower rate.
B. Revenues
3. All revenues are ex-factory. Freight, excise duty, Governmentlevies, etc., are correspondingly not given in operating costs.
4. The 1975 price of TSP is assumed to be Rs 1,842 per ton ex-factorywhich corresponds to comparable phosphatic fertilizers retailed in India,and is slightly below the current international price of about $300 (Rs 2,250)per ton. The assumed ex-factory price would also yield about a 12% financialinternal rate of return which is in line with principles applied to Govern-ment controlled prices. Production of TSP would start September 1, 1975.
5. For assumptions with re3pect to prices of nitrogenous fertilizerssee Annex 6-1.
6. Although production of nitrogenous fertilizer would continue upto January 1978 it is expected that total nitrogen production will slowlydecline due to the increasing infeficiencies and maintenance requirementsof the old plants.
ANNEX 2-8Page 2
C. Operating Costs
7. The following assumptions have been made about the 1975 raw materialprices (all delivered Sindri):
8. Bags for TSP are Rs 3.55 per 50 kg polyethylene lined jute bagsmanufactured domestically.
9. Sindri without the project would have to absorb the total laborcost of the works. It is conservatively assumed that the labor force willremain about the same, although efforts to reduce it could result in loweroverall labor costs.
10. Depreciation beyond 1977 is for the TSP plant and some infra-structure. The TSP plant is expected to operate for about 14 years and iswritten off on a straight line basis over that period.
11. Taxes are deferred to later years by carrying Sindri's lossesforward and by applying a depreciation allowance for tax purposes of 20%declining balance to SL ndri's fixed assets.
D. Balance Sheets
12. Cash is maintained at a minimum cash balance with cash deficitsbeing financed through transfers from the FCI head office. Any cash surDlusis not kept at the unit, but is transferred to the head office.
13. Accounts receivable represent one month of sales. Beyond 1978,over 70% of the inventories are accounted for by imported raw materials forwhich a two months supply is projected to be kept in storage. The remainderis for finished goodkstorage (20%), spares (6%), and other raw materials(4%).
14. Other current assets are loans and advances to employees and whole-salers which are projected to stay constant at 1974 levels.
15. The only capital project foreseen is completion of the TSP plantwhich will be captialized in FY 1975 at an expected value of Rs 299 million.The financing will be Rs 132 million in equity and Rs 167 million in form ofa GOI loan repayable over twelve years (including two years of grace) at7½V interest. The sulphuric acid plant is assumed to be capitalized in 1975at a value of Rs 33 million, although the actual value might be higher, oncethe valuation process has been completed.
ANNEX 2-8Page 3
16. It is assumed here, thal; a cash credit with the State Bank of Indiatotalling Rs 80 million by 1978 is obtained and not paid back during theprojection period. Interest on this credit is 11% p.a.
17. Long-term debt, reaching it's maximum value in 1975, comes mainlyfrom aOI (repayable over ten to twelve years at 7V interest) and Rs 25 millionare supplier credits from Bulgaria and Belgium lent to Sindri for ten yearsat 5.5% p.a. interest rate.
18. Except for the additional equity for the TSP plant, no new equitycontributions are projected.
E. Ratios and Break-Even Points
19. For definitions of ratios and break-even points see Annex 6-1.
Industrial Projects DepartmentDotober 1974
IHJOrA:SIffDRI FFPTILI7FP PRnJFCTSINnPI UNIT U1ITHOUT THIF PPnJFCT
1. Sown area in 1969/70, the last year for which this informationis available, was 139 million hi. of which about 30 million ha. was irrigated.Irrigation was specially import;ant in the Punjab, Tamil Nadu, U.P. andA.P. Because of multiple cropp:.ng in some regions--and especially in theStates of Punjab, Haryana, U.P., Bihar, Orissa and Kerala - total croppedarea was 164 million ha. (Table 1), of which about 8% was under high yieldingvarieties (HYVs). The Punjab isl the leading State in use of these varieties.
2. In area, the most important crops in India are rice, wheat, jowar,bajra, gram and other pulses (leguminous crops), groundnut and other oil-seeds, cotton and sugarcane. Breakdown of crop areas by States is shownin Table 2.
3. The yields of the mairL Indian crops (actual for 1961/62 and1971/72, estimated for 1973/74 end planned for 1978/79) are shown in Table3. For the five main foodgrain crops the average yield has increased by26.7% (2.4% annually), but the yield of other cereals and pulses remainedpractically stationary. The grcwth rate for all foodgrain was 2.6%/year.There is ample margin for impro9ing average yields in India as compared tothose obtained in other countries. For example, yields of rice, wheat,maize, millet, sugarcane and cotton are all below the world's average(Table 4) and except for wheat in recent years, also below the averagesfor Asia. These figures do not take into account accomplishments in specific
areas, such as the growth in average wheat yields in the Punjab (whichreached 2,413 kg/ha. in 1971/72), way above the world average of 1,628kg ha.
4. The Fifth Fiye-Year Plan2/1974-1979 forecasts an increase of22.8% (4.2%/yr) in foodgrain output from 114 to 140 million MT. Sincethe increase in area is expected to be only 6.4% (1.0%/yr), the rise inoutput is largely based on increased productivity, the average yield beingprojected to grow from 901 to 1,353 kg/ha. (3.2%/yr). This is a substantiallyhigher rate of improvement than the 2.2%/yr rate registered in 12 yearsfrom 1961/62 to 1973/74. This growth is expected to be specially markedin the yield of rice (3.4%/yr) i'1 spite of having been only 1.4%/yr in thedecade from 1961/62 through 1971/72.
5. The area increase proj 3cted in the Fifth Plan is largely basedon increased cropping intensity as well as on new irrigation projects, andgross irrigated area is expected to rise by 11.2 million ha. as comparedto 7.0 million ha. in the Fourth Plan. According to the latest countryBank report,1/ the Fifth Plan asgumptions, however, seem optimistic
1/ Economic Situation and Prosp9ets of India (402-IN), April 1974.v Draft Fifth Five Year Plan 1M74-1979, Government of India, Planning
Commission.
ANNEX 3-1Page 2
and 7 to 8 million ha. is given as a figure more likely to be attained by1978/79. In what follows crop production and fertilizer consumption fore-casts are based on the Economic Report's estimates of cropped area increasesof 5 million ha. in foodgrain and 3 million ha. in other crops, i.e.,77% and 68% respectively of the Fifth Plan's figures. Estimated 1973/7hfoodgrain crop has also been scaled down from the Fifth Plan based of 114to about 104 million MT.
6. During the Fourth Plan, area under High Yielding Varieties (HYV)grew from 9.2 to 25.0 million ha. and it has been estimated that by 1971/72more than 30% (33 million MT) of foodgrain was from HYVs. However, yield in-creases are dependent not only on the introduction of HYVs, but also on theappropriate management of water supplies, use of fertilizers and plan protectionagents (insecticides, herbicides, etc.), time and form of application of fert-ilizers and other inputs, use of tractors, availability of fuel and electricpower, avoidance of losses during harvesting and collection of crops, etc.UNIDO has pointed out that use of pesticides in India and Africa in 1963was considerably lower than in other countries and regions and that yieldswere also lower.1/ Thus use of pesticides in that year was 0.15 kg/ha. inInida, 1.5 kg/ha. in the US, and 10.8 kg/ha. in Japan. Corresponding averageyields were 820, 2,600 and 5,480 kg/ha. respectively.
B. Historical Development of the Fertilizer Market
Consumption
7. Consumption of nitrogenous fertilizers in India has grown in thelast 20 years at a rate of 16.1% annually (Table 5) which is higher thanthe worldwide trend, which was 10.4% annually. The speed at which Indianconsumption of phosphatic and potassic fertilizers has increased in thesame period is even higher (Table 6).
8. A decade ago, approximately one half of the total nitrogen con-sumption was as ammonium sulphate. The trend towards higher nutrient-content and complex fertilizers which was characteristic of the situationthroughout most of the world also swept India and at present 64% of thenitrogen content of fertilizers distributed in India (Table 7) is as ureaand 14% as various fertilizers containing both N and P, such as DAP, NPKcomplex fertilizers and nitrophosphates. The same trend is applicable tophosphatic fertilizers (Table 8). Although the volume of superphosphatedistributed in India has increased by 54% from 1962/63 through 1972/73,consumption of phosphatic fertilizers other than superphosphate was insign-ificant in 1962/63, while in the last year only 24% of the phosphoric acidcontent was distributed as superphosphate and most of the balance was asdiammonium phosphate (DAP) and nitrophosphates (NP).
9. The distribution of nitrogen consumption by States is shown inTable 9. The largest consumers in descending order are the States of U.P.,Punjab, Tamil Nadu, Andhra Pradesh, Maharashtra, Gujarat and Mysore.Rapid growth of consumption in the last 5 years has been registered inMadhya Pradesh, Orissa, Haryana, Rajasthan and Oujarat, while there was
1/ TJNIDO, Industrial Production and Formulation of Pesticides in DevelopingCountries, New York, 1972, page 15.
ANNEX 3-1Page 3
a small drop in Andhra Pradesh. As for phosphatic and potassic fertilizerconsumption, the six highest consumers are the same States as for nitrogen,although in different order (Table 10).
10. Leaving aside Pondicherry and Delhi, which have very small areas,intensity of fertilization (TabLe 11) is highest in the States of Punjab(59 kg/ha), and Tamil Nadu (45 kg/ha), followed by Kerala, U.P., and AndhraPradesh (all more than 20 kg/ha). In Assam and Rajasthan, on the otherhand, average chemical fertilizer dosages are less than 5 kg/ha. Even inthe same State, there are great variations in different districts. Averagedosages and per capita consumptiLon of fertilizers in several countriesare shown in Table 12. India's intensity of fertilization (kg/ha of arableland) is higher than the average for all developing countries but lowerthan for Asia and only about one third the world average. Because of thehigh population pressure on culltivated land, India's position is even moredisadvantaged if measured by per capita consumption of fertilizers. Althoughcomparisons of this type should not be made without consideration of typesof crops grown, extent of irrigation and agricultural practices, the Tabledoes indicate that there is undoubtedly a case for increasing use of fert-ilizers in India.
11. The distribution of various types of fertilizers among the Statesis not uniform. Thus, the largest share of urea distributed in 1972/73(23%) went to U.P. while the largest volume of CAN (also 23%) went to Punjaband 47% of nitrophosphates went to Maharashtra. Only a small portion ofcomplex fertilizers were distributed in the northern, central and easternstates, while 47% went to two southern states: Tamil Nadu and AndhraPradesh!/. The greater part of the fertilizers is used during rabi. Inthe case of nitrogenous and phosphatic fertilizers, the proportion averaged:57% in 1970/71, 58% in 1971/72 End 61% in 1972/73. On the other hand, theproportion of potassic fertilizer consumed in the rabi season, which was59% in 1970/71 and 61% in 1971/72, dropped to 56% in 1972/73 (Table 10).
Production
12. In the 10-year period from 1957/58 to 1967/68, the average rateof growth of domestic production of nitrogenous fertilizers 2! fell behindthe growth in consumption. In the years 1969/70 and 1970/71, increase3/in production was higher than increase in consumption; in 1971/72, rate ofgrowth of consumption again overtook that of production; and in 1972/73, anincrease in production of 11.1% over the previous year was much higherthan consumption (Table 5). Preliminary figures for 1973/74., based onApril/December data for all plants and preliminary full-year data for therest of the season, indicate that production kept practically level withproduction in the previous year. Growth of phosphatic fertilizer productionpractically parallels that of nitrogenous fertilizers, both having increasedabout 13-fold in the 15-year period from 1957/58 to 1972/73 (Table 6).Basic potassic fertilizers are not produced in India; although complexNPK fertilizers are manufactured domestically they are all made from imported
1/ F.A.I., Fertilizer Statistics 1972-73, Table 1.5.07.2/ Expressed as N.3/ On percentage growth basis.
ANNEX 3-1Page 4
potassium salts.
13. Until 1958/59, the only nitrogenous fertilizer produced in Indiawas aimmonium sulphatel/. In 1959/60, production of ammonium sulphatenitrate, ammonium chloride and urea was begun and a year later, calciumambonium nitrate (Table 13). At present (1972/73), 62% of the N contentin the Indian fertilizer output is in the form of urea, and that ofammonium sulphate has dropped to only 10.8%. A similar change has oeCcrredwith phosphatic fertilizers (Table 14). Production of fertilizers otherthan single superphosphate was not significant until 1965/66. In 1966/67,almost 18% of P205 content in domestic fertilizers was as amonium phosphate,s]Phate and nitrophosphate. In 1972/73, the proportion of P205 in fert-ilizers other than superphosphates had risen to 64%. Triple superphosphate,however, has never become an important item.
14. Production of nitrogen fertilizers by States is shown in Table15. Only four States Rajasthan, Assam, Orissa and Gujarat - producemore nitrogen in fertiLizers than they consume. Of the others, many aresmall consumers, but four - U.P., Punjab, Andhra Pradesh and Mysore - haveannual deficits of over 100,000 MT of N, and four others of more than50,O00 MT: Madhya Pradesh, Haryana, Tamil Nadu and Majarashtra. U.P.,Punjab, and Mysore also have substantial deficits in P2 0c (Table 16),while Maharashtra and Delhi have had surpluses in 1972773.
C. Fertilizer Market Projections
Consumption
15. There are several systems that can be used to forecast futurefertilizer damand and consumption. The first step is to differentiatebetween requirements and actual consumption forecasts. Unfortunatelyprocedures for requirement calculations are not yet generally available;estimates based on physical depletion of nutrients from the soil may becorrect for small plots under controlled conditions - and even in thesecases they leave many factors undefined - while calculations based oneconomically or financially optimum dosages for each crop are misleadinggenerally resulting in forecasts that are too high when compared withactual results. These optimum dosage levels must be tempered by consider-ation of the element of risk (the farmer may well forego the expectationof a higher return on his money in view of the potential loss of all ormost of what he has because of weather conditions), the lack of financingfor fertilizers and other inputs, the physical lack or scarcity of fert-ilizers when they are needed or general lack of education of individualfarmers.
16. One sy5stem frequently followed by market forecasters is toestimate future consumption on the base of trend lines (generally on asemi-logaritlmis scale, that is at a constant compoundedgrowth rate)which are either automatically extrapolated at the same rate, or atmodified rates to take into account varying conditions. This system hasthe defect of giving excessively high projections when applied to historicaldata for new products which begin at extremely low levels of consumption.
1/ By coke gasification or obtained as by-product from coke oven gas anda small quantity (about 10,000 MT annually) by wood gasification ti).
ANNEX 3-1Page 5
The generally observed fact of maturity obse-rved in the S-shaped long-termtrend lines of many growth phenomena can be introduced into the calculationby observing whether the annual growth rate is accelerating or not duringthe period covered by actual data; unfortunately determination of theinflection point in many cases is not precise. Another widely used systemis based on recommended dosages for and areas under each crop. This metkodshould be the mest accurate shwrt-term but experience shows that farmersdo not apply fertilizer at the rates recommended and therefore an elementof subjective evaluation enter3 the calculation of effective as comparedto recommended dosages. A com3arison of food and fertilizer requirementsbased on forecasts of populati,n and per capita income and food intake fordifferent countries has some times been used for fertilizer requirementprojections. However, relatioiships between volume of crops and use offertilizer are not well defined; they vary considerably not only from countryto country but from region to :r'egion and even in small areas within onecountry. Furthermore, it does not take into account genetic improvements,use of herbicides and other pe3ticides, avoidance of losses after harresting,etc.
17. On one occasion or a.aother, various forecasting systems have beenused in India but actual figur3s have never matched and have always beenlower than predicted consumpti n. The Donde-Brown projections were primarilybased on district-by-district :-egression eqtuations for the period 1959-1969. The technique used, as tlescribed by the authors, involved making someassumptions on various factors,
"Projections we:e based on a close examination ofthe factors that influenced changes in sales duringthe ten years up to 1968/690 During this period,demand was influenced most by the cultivator 1 s previousexperience from the tlse of fertilizers (the learningprocess) and the ara. irrigated and planted to selectedcrops known to have oonsumed most of this material.These factors explained 70 to 90 percent of the changesin demand. Other faotors, not measurable with theavailable data and aasumed to be important, includedthe availability and use of agricultural credit, marketand transport facilities and promotional efforts.
"The above factors were used to project demandfor N plus P2 05 for oach district after makingappropriate assumptions regarding changes in theirgrowth rates. Inheremt in these assumptions werethe investments needod and time required to expandirrigation resources, develop and adopt new technologies,increase the availabf.lity of agricultuLral power andexpand the agricultural input and commodity marketingsystems. It was assumed that cost/benefit relationshipswould be about the same as observed during 1967 to 1969.In some districts assumptions included improvements inagricultural credit znd transportation resources.1/"'
1/ Trombay IV Expansion and P-ant Operation IhAprovements Project, May, 1974.
NES 3-1
For 1973-749 the following actual (preliminary) and torecast figures can becompared:
I4illion MT NutrientsTotal P205 K20
F A,I.(1968) Straight Line Trend 7.31 h.22 2.32 0.77of 11 Population Nutrition 5.37 3.07 1.53 0.77it' Crop Areas & Dosages 7.55 3.68 2.20 1.67it "t Needs for Agr. Growth 6.19 3.54 1.77 0.88
Draft Fifth Five Year Plan, Base Estimate 3.00 1.97 0.62 0.41F.A.I. Estimates (Jul.Nov. 72), High -- 2.22 0.70 --
Ii ii ), Low -- 2.10 -- --
Actual Consumption 2.71 1.63 0.61 0,3_
18. Projections for 1978/79 have also ranged widely:
Million MT NutrientTotal N P205 K20
F.A.I., 1972 Estimates 7.94 5.10 1.92 0.92F.A.I., Revised Estimnates 6.72 4.31 1.63 0.78Draft Fifth Five Year Plan 8.00 5.20 1.80 1.00Donde-Brown, High 7.78 5.16 2.62 --
it it , Low 6.oo h.00 2.00Revised IBRD Estimates 7.12 4.60 1.52 1.00
19. A new attempt has been made to forecast fertilizer consuption in1978/79 based on more recent information on crop areas, land under irrigation,areaw under MTVs, and limitationa in supply present at least in some areas.A most probable projection of actual consumption (and not demand which wouldbe higher) is for 4.31 million MTY of I by 1978/79 (Table 17), which wouldimply an average rate of growth of 15.8% annually from present level (usinga 3-year average centerAd on 1972/73 to avoid the below-the-trend figure for1973/74). For the next five years consumption has been projected to incrwaseat a more moderate rate of 10% annually to reach a level of 6.95 millionMT of N by 1983/84.
20. A very serious balanes of payments situation could have a fartherlimiting effect on fertilizer consumption. A "low" projection is ahovu inTable 17, below which foodgrain production would incroase at a lower ratethan population, forcing imports to rise considerably above the present level.Even this "low" projection, however, implies an average annual growth of13.8% in N consUmption, ibich is not far from the 14.2% rate attained inthe previous five years, when the full impact of rising petroleum and fert-ilizer prices had not yet been felt.
ANNEX 3-1Page 7
21. The proportion of the three main nutrients has been tilted infavor of nitrogen, both by the faster response obtained with this nutrientand also by the fertilizer distribution system. The ratio N-P 0 :K whichused to be about 10: 1.3:1 in 1953/54 is now 5.5: 1.8: 1, still higher inN than the ratio 4 : 2 : 1 generally considered desirable under Indianagricultural conditions. For 1978/79, the Fifth Five-Year Plan calls fora ratio of about 5 : 2.3 : 1, which may not be realized in five years.The following projections are based on a 5.5 : 2 : 1 ratio for 1978/79 and5 : 2 : 1 for 1983/84.
Million M.T.
N P205 K20
1962/63 Average 1/ Actual 400 87 381972/73 Average 21 Actual 1,790 587 322
_/ Three-year averages have been used to smooth out the relatively lowvalues registered in 1973/l74 as a consequence of the spur in fertilizerprices and the scarcity of foreign and domestic supplies.
D. Production, Imports and Distribution
22. Actual capacity of existing nitrogenous fertilizer plants isshown in Table 18. Utilizatiork of capacity has generally been low. For1973/74 it was only 55%I but if the FCI's Durgapur and Cochin plants andZuari Agro's Goa plant -- whichi were only being tested or had just beguncomercial production -- are excluded from the 1973t?14 figures, capacityutilization rises to 67%. Furthermore, fertilizer plants were hit lastfiscal year by disruptions in operation outside their control, mainly powerfailures and shortage of raw materials, which have been estimated to haveresulted in a loss of production about 112,000 MT of N or approximately9% of the installed capacity. An additional loss in output of about 45,000MT may be ascribed to obsolete equipment in old plants (mainly FCI's Sindri),about 28,000 tons to labour problems, and losses in production arising fromdefective design (Neyveli, Baroda).
ANNEX 3-1Page 8
23. Plants now under construction or ready for financing have atotal capacity of 2.9 million MT of nitrogen. 36% of this capacity isbased on fuel oil as feedstock. Considering the dates of commissioningof these plants and the difficulties in production that may be faced bysome of them, projected output fromri these plants is expected to be about1.9 million MT by 1978/79 and 2.5 million MT by 1983/84 (Table 19).Eight other plants have also been approved in princile by the GOI or areunder consideration for financing. Their total capacity is 1.96 millionMT annually distributed as shown below, but no more than one or two of theseplants at best is expected to be commissioned by 1978/79:
Still other plants are mentioned as being under consideration but no rapidimplementation of them can be seen. None is expected to be on-stream by1978/79 and no more than about 0.5 million MT capacity by 1983/84:
MT/year
Zuari Agro at Kamptee 228,000Mangalore Chem-&-Fert. Expansion 228,000IEL at a new site not yet chosen 228,000Andrew-Yule in U.P. 228,000Maharashtra Cooperative Fert. & Chem. 60,000New Central Jute Mills Co. at Varanasi, U.P. 20,000Tamil Nadu Industrial Development Corp. 10,000
1,002,000
24. Installed annual capacity of phosphatic fertilizer plants is0.57 million MT (Table 20). Average capacity utilization in 1972/73 was56t but some plants (DCM, FCI's Trombay and Coromandel) have attained muchhigher rates of utilization. One plant - Zuari Agro's Goa plant - has beenincluded in the total capacity but has not yet begun production. Thisbranch of the fertilizer industry also has a large proportion (30%) of verysmall superphosphate plants, for which fixed capital-related costs are notvery important and which show an average capacity utilization rate of only42%. Approximately 0.66 million MT of new capacity is expected to beadded in 8 projects under ccnstruction or ready for financing, while thereare 6 other projects which may be built (but probably after 1978/79) whichwould further increase P205 capacity by 1.02 million MT annually.
25. Production projections for 1978/79 and 1983/84 (Table 21) indicatethat the main problem in India is not that the market may not absorb theoutput of existing plants and those likely to be put in operation in the next10 years, but that supply - from both domestic sources and imports (limitedin turn by high prices and availability in the world market) - will not beable to meet demand.
ANNEX 3-1Page 9
20. Imports of fertiLLzer are the responsibility of the "CentralFertilizer Pool" a government institution established in 1942 as a tradingagency to give support to the "Grow More Food" campaign instituted as aresult of the famine in Bengal. By 1947, when the first public sectorfactory (owned by FACT) began operations, the Pool also undertook the alloc-ation of nitrogenous fertilizers to the State Governments. These fertil-izers were then distributed by the States through the cooperatives, privatedealers or agencies of their own. After 1966, except for 30% of straightnitrogenous fertilizers that can be reserved by the Central Government,domestic producers were allowed to market their own products or appointagencies of their choice. Statewide distribution of fertilizers is mainlycontrolled by the State government1/ and entrusted to cooperatives,manufacturers' agencies, prirate dealers and, in some cases, to Agro-Industries Corporations (which in turn may have a choice of dealers of theirown or work through private {healers). Some States have also developedtheir owm distributorships, for instance the Agriculture Supply Organizationin UP or have used other organizations such as the Food Corp. of India.FCT has been asked to sell 50% of its output through the State governmentsfor distribution through cooperatives and other public sector agencies.
7 The GOI irn times of scarcity has had to invoke the Essential CommoditiesAct to prevent State governments from impeding shipping of fertilizersproduced by factories located in their States to other States.
Ir.dustrial hrojecots DepartmentC'otober 1 974
INDIA - SINDRI FSRTILIZLH PRDJ E1T
CULTIVATED AREAS 1969/70(000's Ha.)
Cultivated Areas Irrigated Areas lmdi -atorsStyeIte Multiple- Total Total Distribution Gross Area by Main Crops Cropping I Share. Share
State _____ cropped sown cropped Gross Net Rice Wheat Maize Jow. & Ba;. Intensit1 / ia / Vy'shai
1/ As given in the Draft Fifth Five-Year Plan, Actual figures for 1973/74 are estimated to be 126 million ha., 104 million tons and 825 Kg/ha.2/ Includes only seven ailseeds and excludes cottonseed.3/ As sugar. (Approximately 0.1 ton sugar per ton cane).4/ Tons/ha.5/ Approximate figures based on estimated planted area (111,000 ha. in 1964/65).6/ Including mesta.21 Measured over tappable area (approximately 707. of total planted area).8/ 1970-71.
Source: FAI, Fertilizer Statistics, 1972-73Draft Fifth Five-Year Plan 1974-79.IBRD, Economic Situation of India No. 402-IN, May 1974.
1/ 26% in 1961/62 and averaging 21X3% n 1966/67, 25.4% in 1971/72 and 25.5% in 1972/73.2/ Averaging 26.3% in 1971/72 and 27.2% in 1972/73.3/ 16% in 1966/67 and averaging 16.4% in 1971/72 and 15.8% in 1972/73.12/ Averaging 15.2% in 1971/72 and 15.9% in 1972/73.:/ Including Chilean sodium nitrate, ammonium chloride and ammonium phosphate sulphate.
Source: FAI, Fertiliser Statistics, 1972/73, Table 5.08. Remarks: There is no breakdown of consumptionby type of fertilizer. There are small differences between total N distribution according to .this Table and quantities shown as distributed in Table 7.01 of the same publication.
Industrial Projects Department -i'IOctober 1974
IDIA SINDRI FMIL PIOJET
ANvamL DSmUwl(nc Br YPE or CNUICBL QUTIlIZE ]N I ImA(000 To)
1/ Average 1971/72 and 1972/73 compared with average 1968/69 and 1969/70.2/ Including Delhi, Goa, Pondicherr,Tripuri, etc., and geographically unallocated
amounts distributed to manufacturers for seeding programs.
Sources: FAI, Production & Consumption of Fertilizer, Annual Review 1972-73,Table 7a.FAI, Fertilizer Statistics 1972-73, Tables I. 7.02/7.04.
Industrial Projects DepartmentOctober 1974
STATEWISE AND SEASONWISE CONSUMPT(Ii o:; PO?sAD9019721N INDIA(tons)
-________________________ _ P209 9F20 _otal N +Zone/State Kharii Rabi Total nharif Rabi Total Kharif Rabi Total P'2O± + Kv
* July-June basis** Production of triple superphosphate started in March 1968* 17% Water Soluble P205.Source: The Fertiliser Association of India, Fertiliser Statistics 1972-73.Remarks: Total production of phosphatic fertilizers should include P205 contents of complex fertilizers (Table 8).
Industrial Projects Department aJuly 1974
ANE 3-1
Table 15INDIA - SINDRI FERTILIZER PROJECT
DEFICIT (CR SUR.FL1S) IN-CHIICL NITROGEOUS FUTILIZFRPROiXCiCN BY STA-TE(OMI's Tons of N)
1971/72 1972/73Region/ Consumption Production Deficit Consumption Production Deficit
Source: Hission estimates based on Draft Fifth Five-Year Plan figures modified by latest Country Economic Report evaluation of various agriculture sector programs. t
Industrial Projects DepartmentAugust 1974
'n- 3589iJ Y ILJZE a P_RROJ4T
CHZHICAL N1 C'i0GEli4.1&S FEUrILIZFR_L&tc fly 1J J CTION?A I 717 6I B 5TATES
V/ FCI - Fertilizer Corp. of India; IISC0 Indian Iron and Steel Co.; SCI - Shrirsm Chemical Industries; IEL - Indian Explosives Ltd; GSFC - GuJarat State Fertilizers Co.;FACT - The Fertilizers and Chemicals Travancore Ltd.2/ G - Central Governaent Agencies; P - Private; M - Mixed3/ Preli-inary4/ BP - By-product (from eoking); C - coke; F - fuel oil; K - potassic salts; L - lignite; N - naphtha; IC - natural gas; PA - phophoric acid; R - phosphate rock;RG - refinery off-gae; S - sulphur; Water and sir are used in all plants; in Nangal they (and power) are the only feedstocks.5/ AS, AC, ASN and APS - Aomoniuo nulphato, chloride, sulphate nitrate and phoaphete sulphate respectively; CAN = C-lciur amnooni-m nitrace; DAP - DiMonniu phosphate;
NPK - complex fe-tilizers (containing N, P2 05 and C20); U = orea; UAP - urea anm.nius pho-phste.B/ Ny-product plant.' capacity sot gives separately but included in totals.
7/ Production not given separately but included in total.8/ Capacity utilization not given separately. Average for 1973/74 wae 50_.3/ Including N for industrial (non-fertilirer) use.10/ Strictly speaking, PACT is a mixed conpany, but shares held by the priv-te sector sre loon than 5E nf total.11/ Not available12/ Technically under comsissioning.SOWces: F.A,I., Fertilizer Statistics 1972-73
G,O.I., Unpublished Co'monication
tndwtrS Froieeee DepwrtantOctob.r 1974z
AS=l 19
INDIA - SINDMI FBRThIIZR PROJET
NITROGEKWS FERTILIZER
PROJECTS UNDER CONSTRUCTION OR READY FOR FINANCINGIncremental IncrementalAnAnual Projected Production
Probable Date Capacity (000 tons of SjFeedstockl/ O!)jrhi 2 Status Corissionln 000 tOUB(N) 1978/79 1983184
PunjabFCI, Nangal F G Construction December 1976 152 130 137New orporation, Bathinda F G Financing June 1977 255 75 204
U.?.PCI, Gorakhpur N G Construction August 1975 51 46 46IFFCO, Phulpur F C Financing September 1978 228 136 205
RajasthanSCI, Kota N P Construction October 1974 42 32 38
Madhva PradeshFCI, Rorba C G Construction September 1977 228 136 182
AssamFCI, Namrup NG G Construction December 1974 152 122 137
BiharFCI, Sindri F G Financing February 1978 136 66 112FCI, Barauni N G Construction March 1975 152 122 137
OrissaFCI, Talcher C G Construction December 1976 228 160 182
W. BenealFCI, Haldia F G Construction June 1978 152 70 132
GujaratIFFCO, Kandla NG C Construction December 1974 215 194 194
MaLharashtraFCI, Trombay IV A G Financing September 1977 75 4/ 37 / 67 4/FCI Trombay V F G Financing December 1978 130 53 117FCI, Trombsy Modernization A G Construction August 1976 18 16 16Andra PradeshFCI, Ramagundsm C G Construction December 1977 228 114 160Coromandel, Visag. N P Construction June 1975 9 6 8
KeralaFACT, Cochin II A G Construction September 1975 40 A 36 41 36 4/
MysoreSPIC, Tuticorin N P Construction July 1975 258 206 233MC&F, Mangalore N P Construction March 1976 160 120 146
2.909 1 _2,490
1/ F = Heavy Fuel Oil; N- Naphthal c- Coal; Am AMpnia; NG- Natural gas2/ G Central Government Agencies; C- Cooperatives; P- Private3/ Plant-by-plant figures are given only as reasonable assunptions to reach a probable production estimate for all the plants.4/ Transferred ammonia ,ot included in total.
Industrial Projects DepartmentOctober, 1974
ANN3C 3-1- nTable 20
INDIA - SINDRI FERIILIZEM R P3JECT
CHDECAL PHOSPHATIC FIERILIZ3R CA?CITr AND PRODUCTION (1972/73)
MaharashtraFCI, Trombay G 36.0 100 36.o A,R DAPDharmasi Morar4iChem.Co., Ambernath P 35'.3 38 13.3 R,PA,S TSP, SPSmall Plants (IL) P 10.4 57 5.9 R,S SP
.SOUTHTAndhra PradeshCoronandel, V. P 73.0 85 62.3 A,R,S DAPSrall Plants (1) G 6.7 16 1.1 R,S SPSmall Plants (3) P 19.9 36 7.1 R,S SP
KeralaFACT, Alwaye G 13.7 32 lh.1 A,R,S APS, SP
ltrsoreSmall Plant G 5.h 2h 1.3 R,S SPSmall Plant P 6.5 - - R,S SP
Tamil NaduMadras FertilizersLtd.. Manali Pi 85,0 63 53.5 A,PA,K N?KE.I.D.-Parr' Ltd.,Ennore P 10 3 811 8.6 A,R,S APSSmall Plants P 38.7 42 16.)h
Sultotal G 107.5 58 62.5Subtotal P 327.1 52 169.9Subtotal M 136.8 62 85.3
T-tal 571-4, 516 317.7Of whIzh Small Plants 173.? )12 72.1
1/ A =ArnoniaR Phosphata Rock; S = Sulphur; Other sy bols are in Table 3.'/ SP - Superphosphate; TSP Triple Sunerphoephate; Other symbols as in Table 3.I/ DCM Chemical Works.
InduBtrial Projects DepartmentOctober 1974
INDIA - SINDRI FERTILIZER PROJECT
C&PACITY AND PRODUCTION PROJECTIONS FOR INDIA(million tons of Nutrients)
1/ Assuming some small plants would be retired7/ Deducting plants scheduled to be commissioned in 1978 and which may slip
No attempt has been made to combine "probablef" consumption and "low" production projections because to aconsiderable degree consumption will depend on the availability of domestically made fertilizers.Therefore, "probable" consumption projections are matched with "probable" production projectionsand "low" consumption projections with "low" production projections.
laMbstrial Projsot. Dow~qtkst$October 1974
* 91't~~~~~~~~~~-
ANNEX 3-2Page 1
INDIA: SINDRI FERTILIZER PROJECT
STATE OF AGRICULIURE [N SINDRI'S MARKETING AREA
A. Land Utilization
1. Sindri's economic marketing area includes the States of Bihar, a largeportion of West Bengal, some district; of Uttar Pradesh (U.P.), the northern dis-tricts of Orissa and the eastern districts of Madhya Pradesh (M.P.). There arepossibilities for further intensive cultivation in these different States. Theland utilization in the concerned Staites is as under:
(Million _a)
Particulais Bihar W.Bengal U.P. Orissa M.P. Total India
1. Geographical Area 17.4 8.8 29.4 15.6 44.3 115.5 328.02. Reporting Area 17.3 8.9 30.0 15.5 44.3 115.6 305.83. Forests 3.0 1.1 4.0 5.0 14.4 27.5 65.14. Not available for
cultivation 2.6 1.3 4.5 1.8 4.4 14.6 47.45. Other cultivated land
- Permanent pastures 0,2 1/ 0Ol 0.7 3.1 4.1 13.0- Land under Misc. Crops 0.2 0. 0.8 0.4 0.2 2.2 4.0- Cultivable waste 0.5 1/ 1.4 0.8 2.2 4.9 15.7- Total 0.9 T 2.3 1.9 5.6 11.3 32.7
6. Fallow land- Short fallow 0.9 0.3 o.6 0.1 0.9 2.7 9.5- Current fallow 1.5 2/ 0.8 o.6 0.7 3.6 12.0- Total 2.4 630.7 21.5
7. Net sown area 8.4 5.6 17.5 6.1 18.4 56.o 139.18. Area sown more than once 2.7 1.5 504 2.3 2/ 2.0 13.9 24.89. Total cropped area 11.1 7.1 22.9 8.4 20.4 69.8 163.9
Population density(Persans/kim') 325 500 300 141 95 220 177
PercentagesCropped ]eia/Geographical
Area (%) 63.8 80.7 77.9 53.8 45.9 60.4 50.0Net Area Sown/Geographical
Area (%) 48.2 63.6 59.5 39.1 41.5 48.4 42.4Area Sown more than once/net Area Sown (X) 32.1 26.8 30.9 37.7 10.9 24.9 17.8
1/ Included under land misc. crop.2/ Included under short fallow land-3/ Adjusted.
Source: Fertilizer Statistics of Indian, 1972/73, FAI, Delhi.
ANNEEX 3-2Page 2
2. As the table indicates, the land use pattern in most of the States isbetter than the Indian average, particularly in West Bengal which has about 6h%of its total area under cultivation. This results largely from the existingpopulation pressure with densities considerably above Indian average of 182persons per square kilometer. The population pressure and the limited availabilityof cultivated land lead also to extensive use of multiple cropping as a means forincreasing agricultural production.
B. Climate and Soils
3. Substantial areas in the Sindri marketing area are in high rainfallareas receiving more than 1200 mm rain per year. In the five States taken to-gether, the area falling under such high rainfall exceeds 54% of the grosscropped area. More than 75% of the annual rainfall falls between June and Sept-ember during the kharif crop season, when a range of tropical crops are grownsuited to the hot and humid conditions then prevailing. The drier period betweenOctober and February, the rabi crop season, depends largely on irrigation togrow the more temperate crops. The table below gives some basic rainfallstatistics:
Natural 1ainfall as ofRainfall Jan- March - June- October-
4. The Ganges plain which covers a large portion of the area is the mostfertile region of India. The soils are essentially alluvial in character withrecognizable difference, from place to place. They have been subject to culti-vation for many centuries, and are capable of much higher and sustained yields inthe future, provided heavier fertilizer dressings, improved irrigation, floodprotection and drainage facilities are available.
ANNEX 3-2Page 3
C. Irrigation
5. In most areas, there ar'e ample supplies of groundwater of generallygood quality. Because of the heavy rainfalls during the monsoon season, thegroundwater resources receive ample recharge and provide thus the basis forlarge future expansions of the existing irrigation system.
.6. The table below indicates that the States which form Sindri'sintensive marketing area (Bihar, West Bengal, UP), have 25 to 40% of theirnet sown areas under irrigation, which compares to an Indian average of about22%. Given the rich groundwater resources of these areas, there is great po-tential for increasing the irrigE.ted area and provide year-round irrigation.
Cultivated' and Irrigated Areas(1969/70)
Net Sown Net Irrigated % of IrrigatedArea Area to Cultivated
Of the total cultivated area in these States 65 percent is underfood crops and 8 percent under comtmercial crops. Main food crops grown inthis area are rice followed by wheat, maize, sorghum and millet.
8. This area has the largevt proportion of cash crops in the country.Important among the cash crops are jute, sugarcane and tea. The area undermajor crops in the five States is given in the table below:
Gross Sown Area 11063 7054 22874 8382 20399 163922
Source: Fertilizer Statistics 1972-73. FAI, New Delhi.
The high yielding varieties program (HYVP) has made appreciablesIides in the five States. The main crops covered under the HYVP arerice and wheat, and to a lesser extent maize, jower and bajra. In FY 1973,as much as 9.5 million hectares in these States were under the program. Theprogress of the area under the HYVP for different crops in the five Statessince FY 1970 is given in the table below:
ANNEX 3-2Page5
('000 ha)
Achieved!Crop/Year Target Bihaa W. Bengal UP Orissa MP Tptal
Source: Fertilizer Statistics 1972-73, FAI, New Delhi.
E. Yield Rates
10. The major crop in this area is rice. The average yield of themRjor crops continues to be low and can be increased through higher use ofinputs like fertilizer and introduction of better farm practices. Theaverage yield of some of the rice, wheat, and jute crops in these areasvis-a-vis that of some of the agriculturally more advanced States forfinancial years 1962 and from 1968 -;o 1972 is given in the following tablewhich gives a comparative position.
Page 63-
Statewi9.e Yield Rates (Kg/Hect.)Crop Year Bihar W.Bengal Orissa- UP N MP Punjab A.P. Tamil Nadu
ii. It can be seen from the table that there has been an appreciableincrease in yield rates of food grains in this area. The increases in yield
rates were largely due to progressive improvement in agricultural practicessuch as intensive cropping, use of high yielding variety seeds, fertilizers,
pesticides, improved irrigation, etc.
12. The use of fertilizers in these States have been increasing rapidly
in recent years. This may be seen from the following table which gives theper hectare consumption of fertilizers in this area during FY 1962, FY 1969
and FY 1973.
ANJIEX 3-2Page 7
(Kg/hect.)
Consumpticn of NPK Fertilizerper Unit of Cropped Area
Source: FCI and Ferti:Lizer Statistics of India, FAI, Delhi
13. The per hectareuse of tertilizer in these States, it may beenseen, continues to be even below the national average except in the caseof U.P. is the national average itself is very low, in comparison toother countries, (See table belou) the potential for increased use offertilizers is very large.
Consumption of _NPK Fertilizer per Unit of Agricultural Land
Europe : (kg/ha) 1968/69 1970/71 1971/72
Belgium 293 324 313
Finland 139 157 172
Netherlands 255 278 296
United Kingdom 97 81 97
North America:
Canada 16 12 12
USA 32 33 35
Asia:
Taiwan 302 308 295
Japan 347 347 329
Phillipines 16 14 22
Australia 2 2 2
Source: Fertilizer Statisticfg of India, FAI, Delhi
Industrial Projects DepartmentOctober 1974
ANNEX 3-3Page 1
INDIA: SINDRI FERTILIZER PROJECT
MARKETING SINDRI' S NITROGENOUS FERTILIZER PRODUCTION
A. Past and Present Demand and Supply in Sindri's Marketing Area
1. The Sindri Unit of the Fertilizer Corporation of India was thefirst major fertilizer unit in the country. Because of this it wasnecessary for Sindri, in the early years of its establishment, to distributeits products over a wide area.
2. As Sindri's products gained popularity in many distant areas, itwas difficult for the Corporation to withdraw its marketing operations fromsuch areas as and when fertilizer availability improved there. This wasroarticularly so for the reason that the Corporation had large-scaleexoansion programs in most of these states and sudden withdrawal of suchoperations from these areas would have adversely affected the Corporation'simage.
3. However, as products became available from other units of theFCI, the Corporation has gradually reduced its marketing activity to areasnearer to producing units to a large extent. From the table given below,it may be seen that about 80% of Sindri's present production in terms of'N' is now sold in the economic marketing area of Sindri, i.e., in theStates of Bihar, West Bengal, Orissa, U.P., and M.P.
4. This is so for all products except double salt, which traditionallyhas found. a market in the distant States of Andhra Pradesh, Maharashtra,and Cujarat. Double salt continues to be supplied to these relativelydistant areas on account of the specific suitability of the product for thesoil and crops there.
There has been, however, an increase in recent years in the off-take of double salt in Bihar and nearby States which trend, if kept up,will help in further confining Sindri's market to nearby areas.
A,TNEX 3-3Page 2
Statewise Distribution of Sindri's Product in Terms of N.
6. At present, there are four major and six smaller plants inSindri's marketing area which produce nitrogenous fertilizers. Theirlocation and capacities are as unders
7. The actual production and consumption of N for the five States isgiven in the table below, which also ohows the respective supply or deficitposition for FY 1970 to 1973:
ANNEX 3-3-Page 4
(000 Tons)
__BIHAR WEST BENGAL ORISSA U.P. M.P. TOTAL
FY 1970
Production 74 6 32 93 6 211
Consumption 70 34 18 306 34 462
Surplus (Deficit) 4 (28) 1-4 (213) (28) (251)
FY 1971
Production 77 6 25 180 6 299
Consumption 75 47 20 291 51 484
Surplus (Deficit) 2 (41,1 5 (111) (45) (190)
FY 1972
Production 60 6 48 209 5 328
Consumption 88 56 37 346 79 606
Surplus (Deficit) (28) (50) 11 (137) (74) (278)
FY 1973
Production 59 4 51 230 6 350
Consumption 89 52 41 373 93 648
Surplus (Deficit) (30) (48) 10 (143) (87) (298)
8. fvram the above table it becomes clear that a significant amountof' fertilizer had to be imported fran producers in other Indian Statesand from sources outside India to meet the deficit arising from insufficient
Droduction in the five States hetre considered. Uttar Pradesh has had, byfar, the largest deficits followed by Madhya Pradesh and West Bengal whichhas hardly any manufacturing facilities at all. Bihar was self-sufficientup to FY 1971, but has become a deficit State in the last two yearslargely because of the lower output from the Sindri unit.
ANNEX 3-3Page 5
B. Future Demand and Supply in Sindri's Marketing Area
9. According to the conservative estimates o' the F.A.I./ the likelydemand for N in the five States during FY 1978 and 1960 is as under:
Qty. '000 tons
DEMAD FOR N
States FY 1978 FY 1979 FY 1980
Bihar 268 330 410
West Bengal 172 214 264
Orissa 88 109 134
U.P. 620 690 770
M.P. 170 200 235
TOTAL: 1318 1543 1813
10. As for future supplies within these States, some of the existingunits have plans for expansion and, in addition, there are a number of newprojects which are expected to be commissioned by FY 1979. An analysis ofthe production perfoimance of the existing units in these states showsthat it has been of the order of about 60%. Most of these units are oldPlants and cannot be expected to produce any better. Hence, it is assessedthat the existing units will utilize their capacity in future years to thesame extent as now. As for the new uni',s it is assumed that they willproduce at 50 per cent of their capacity in the first year, 75 per centin the second year, and 90 per cent in the third year and thereafter. Onthis basis, the likely production of nitrogenous fertilizer during thefinancial years 1978 to 1980 in the five States will be as shown in thefollowing table:
1/ Fertilizer Association of India.
ANNEX _Pageyz
Qty. '000 tons of N
Date vf Production EstimateState Project Cormissioning Capacity (N) FT 1976 FY 1979 FT 1960
1/ For the sake of consistency in the marketing projections the output of the SindriModernisation project is taken as 50%, 75% and 90% in the first, second and subsequentyears. In the financial projections for this project, howvere, an improved start-upresult is anticipated.
Source: Fertilizer Association of India
ANNEX 3-3Page 7
11. Taking the above likely demand and supplies, the actual avail-ability is estimated to be:
Qty. 1000 tons of N
Year
State Particulars FY 1976 FT 1979 FT 1960
Bihar Demand 268.0 330.0 410.0
Supply 249.4 304.1 337.1
Surplus (Deficit) (18.6) (25.9) (72.9)
West Bengal Demand 172.0 214.0 264.0
Supply 256.3 279.1 279.1
Surplus (Deficit) (814.3) 65.1 _1_.1_
Orissa Demand 88.0 109.0 134.0
Supply 218.8 426.0 512.0
Surplus (Deficit) 130.8 317.0 378.O
U.P. Demand 620.0 690.0 770.0
Supply 245.9 359.9 416.9
surplus (Deficit) (374.1) (330.1) (353.l)
M.P. Demand 170.0 200.0 235.0
Supply 1.0 115.0 172.0
Surplus (Deficit) (169.0) (85.0) (63.0)
TOTAL: Demand 1,318.0 1,s543.0 1,813.0
Supply 971.4 1,484.1 1,717.1
Surplus (Deficit) (346.6) (.58.9) (95.9)
Source: Fertilizer Association of India
ANNEt2L-3Page 8
12. Thus, even when all tae expansion programs both under constructionand envisaged are on stream the-re would, by 1980, still be a shortfall inthe overall availability of nitrogenous fertilizer in the States includedin Sindri's marketing area. Berond 1980, this shortfall will furtherincrease due to an anticipated 2urther increase in demand which willrequire the construction of add:Ltional plants.
13. As in the past, Uttar Pradesh, Bihar, and Madhya Pradesh areprojected to remain deficit States, while West Bengal and Orissa areexpected to be in a surplus position. Orissa, in particular, will havesignificant excess production ontce the Talcher and Paradeep plants startoperations. Both of these plants have been planned so as to minimize thetransport of raw materials. Talcher will be a coal-mine-mouth plant andParadeep will receive its oil from the new deep-sea port and refinerycomplex planned there.
114. The large number of plants and the different demand and supplyposition of the States belonging to the Sindri marketing area make itdifficult to determine the likely distribution pattern of Sindri'sproducts. One study done by the FCI assumes that the distribution patternis only affected by economic distance which gives producers an advantagein the markets close to their plants. The assumption is also made thatcompetitors will not experience difficulties in selling their productsin their own markets, that competitors will have the same production costsas Sindri and that no fertilizer will be sold below its production costs.Under such simplifying assumptioas, the likely distribution pattern in1979/80 would be as follows:
15. The distrioution pattern reflects the competition from thevarious olants in the Sindri marketing area, which forces the SindriProduction to be marketed beyond a 750 km radius. Beyond 1979/80,nowever, the share of production marketed outside the secondary marketis likely to become smaller because of anticipated further increase indemand in Sindri's primary and secondary market.
16. It should be observed that most likely a different distributionpattern would result by using assumptions different from the onesdescribed above. Because of the fact that by 1980 FCI plants are expectedto account for 80% of the total production in the Sindri marketing area,FCI can greatly affect the distribution pattern of all the fertilizersales in the five States, and thus also of the individual plants. Todevelop a distribution pattern which could minimize FCI's distributioncosts a complex study would have to be undertaken which would take intoaccount the production costs of the various plants, storage requirements,rail and road transportation costs, district-wise demand for fertilizer,the activities of FCI's competitors, the sources of raw materials, andmany other factors. Such a study would be of great complexity and cannotbe expected in the near future. However, even without such a study, itbecomes clear, from the data presented above, that Sindri should have nodifficulty in marketing most of its nitrogenous fertilizer production innearby markets, particularly in Uttar Pradesh, where it is expected thata significant fertilizer deficit wlll persist.
C. Transport
17. Sindri is well connected with all parts of the country by rail onbroad-gauge. The analysis of the data on movement of fertilizers fromSindri's unit in the past has shown that the bulk of the quantities producedat Sindri is moved by rail. The situation is now changing and the Govern-ment of India, in order to avoid congestion on railways is insisting that,as a policy, nearby areas to all producing units should be served by road.
18. The present policy of the Fertilizer Corporation is also toencourage as far as practicable movement of fertilizer within a radius of150 to 200 kmi, by road. By the time the Sindri project is in full pro-duction, it is anticipated that about 15 per cent of the production willbe moved by road, reducing the congestion on railways.
19. The past and estimated future mode of transportation is givenon the following page:
ANNEX 3-3Page 10
(Fiscal Years)
. ~~PAST FUTUJRE
1971 1972 1973 1978 1979 1980
('000 tons)
Road 10.3 21.8 0.3 48.3 69.3 91.9
Rail 350.5 256.6 235.8 276.7 418.2 493.1
TOTAL: 360.8 278.4 236.1 325.0 487.5 585.0
Road 2.9 7.8 0.1 14.9 14.2 15.7
Rail 97.1 92.2 99.9 85.1 85.8 84.3
TOTAL: 100.0 100.0 1(0.0 100.0 100.0 100.0
D. Storage
20. The storage requiremenl; for the Sindri project has been workedout taking into account the tota- likely production and the month-to-monthvariation in demand for fertilizers. It will not be necessary to havegodowns for meeting sales requirements in nearby areas as the Corporation'spolicy is to meet all the sales in such areas within six weeks of placingthe orders and directly from the factory. The buffer godown requirement indistant areas would be:
('000 tons)
FY Godown Requirement
1978 9.01979 13.51980 11.3
ANNEX 3-3Page 11
E. Distribution and Sales
21. FCI's dealership network includes both cooperatives and privatedealers. As for cooperatives, mainly the Apex level societies are thedealers who distribute through their large network of lower levelcooperative units. In the case of private dealers the policy is toencourage small dealers handling about 500 to 1,000 tons a year. Thereis also a scheme under which the Corporation has appointed a number ofeducated young men as its dealers after giving them preliminary trainingin fertilizer sales. Most of these young men are agricultural graduateswho are equipped to render better service to farmers of their area.The total number of dealers in each of the five States is as under:
Cooperatives/ 1State Institutional Buyers Graduates Private Total
Bihar 1 65 213 279
West Bengal 15 133 313 461
Orissa 1 32 91 124
U.P. 4 63 132 199
M.P. 1 21 116 138
TOTAL: 22 314 865 1201
I/ The institutional buyers shown here include only the Apex organization.There are hundreds of outlets under Apex institutions through which theApex institutions distribute the fertilizers.
22. The sales through the cooperative channels have always beensubstantial. The percentage share of distribution through cooperativeaand other institutional buyers in the Sindri's marketing area duringFY 1973 for different products was as under:
Product % Share of the Coop.and Institutional Buyers
Urea 52A.S. 37A.S.N. b5Suphala 21A.N.P. 95
23. More emphasis is now being given for distribution throughcooperatives now as the Corporation has taken a policy decision in July,1973, that in each State a minimum of 50% of the sales should be throughcooperatives.
ANNEX 3-3Page 12
F. Credit
24. The Corporation's policy at present is to sell, as far as possible,fertilizer against cash payment. In certain areas, however, one month'sfully secured credit is extended to institutional agencies.
25. In addition, to credit extended directly, FCI also helps dealersto obtain distribution credit from commercial banks.
26. In each district there is a lead bank, which is one of thenationalized banks and the objectives of these lead banks are to promoteagricultural credit.
27. The farmers can also obtain loans directly from the cooperatives.The cooperatives at Apex level can, in turn, obtain loans from the StateBanks or from the Central Reservel Bank of India. Typical interest termsare:
Reserve Bank to Cooperatives 6.5%State Bqnk to Cooperative 9.0%Cooperatives to Farmers 9.5%State Bank to Farmers 10.0%
28. Ioans to farmers are usually made on a seasonal basis, i.e., forsix months or one year, and are granted according to the farmers abilityto produce rather than his securable assets. The small farmers arehelped by the Small Farmers Development Agency and the Marginal FarmersDevelopment Agency. These agencies are intended to provide 100% financingto about one million people at h% annual interest basis. Twenty-five percent of these funds will come from Agencies sources and the remaining fromCooperatives.
G. Market Research and Sales Pronotion
29. FCI's marketing operations are supported by active marketingresearch by a competent group of personnel who have knowledge Uoth of thefield and modern techniques of marketing research. There are marketingresearch cells both at headquarters and in the various regional zones.The Eastern and Northern MarketiAng Zones have research managers whoreport the results of various studies undertaken to the Zonal Managers ofthe respective zone. As the quanbity to be marketed in Sindri'smarketing area will increase sizeably with the expansion, the activitiesof the Marketing Research Wings he3re will also increase.
30. The Corporation's selling programs are supported by massivepromotional efforts. FCI has a till-fledged Agricultural Research andFertilizer Promotion Wing which i3 staffed 'by competent agriculturalscientists belonging to disciplines like agronomy, soil science andagricultual extension. This Wing has research laboratories at Sindri,Trombay, and Durgapur, which work in close collaboration with the StateAgricultural Department.
ANNEX 3-3Page 13
31. The following promotional activities were carried out by FCI inthe Sindri's marketing area during 1972-73.
(ii) Mobile laboratory 4,963 8,562 11,393 - 30,318
I/ Data for U.P. not available
32. The supporting services rendered by the Marketing Research andPromotional Wings help, not only in planning the sales activities, butalso in rendering effective services to the dealers and farmers.
Industrial Projects DepartmitOctober 1974
ANNEaX 4-1Page 1
INDIA - SINDRI FERTILIZM? PROJECT
PROJECT DESCRIPTYL-a
A. Process Description
The Sindri Ammonia/uraa pro'ect will have a daily capacity of900 metric tons anmonia (297,000 TPY) and 1,000 metric tons urea (330,COCTPY) with the excess ammonia (31S TPD) being used mainly fer the production ofAmrionium Sulphate. The following description is generally as given in theNangal Fertilizer Project/Appraizal Report (L,6-Th). The project includes a _Ne7loil gasification unit based on -ne Shell process, in which heavy petroleumfractions are partially oxidize(d with oxygen and heat recovered as steam.Gasification is followed by a Liirgi-Rectisol unit for desulfurization anddecarbonation and final traces of impurities are removed in a nitrogenwash unit. The synthesis gas is compressed and fed to the ammonia synt"es-ssection for conversion to ammoni.a over synthesis catalyst. The cx-ygen f 'rgasification and nitrogen for thLe nitrogen wash are obtaire-. from an al-fractionation plant. Ammonia arid carbon dioxide are fed1 to the un-- ea pl- twhich is based on the total recycle process of lontecatir-4_dison for theproduction of prilled urea. The plant sections are descrribed in gre;lterdetail below.
B. Feedstock
The project is based cn the use of heavy petroleum fraction.from the Indian Oil Corporation's Barauni refinery as the feedstoek.Fuel oil is shipped by rail, and loading and unloading require the t:nkwagons to be steam-heated. Afte2 heating, the oil is pum,ped to two steari-heated storage tanks (12.500 kiloliters each, which correspond to about 30days feedstock requirement). Unloading facilities can handle sixty tank w-s,,onsper day.
C. Fuel Oil Gasification
Shell's non-catalytic p:artial oxidatlon process with total recycleof carbon is used. It includes Three gasifiers. eachl with a ratei capai-ityof 700,000 Nm3 per hour of product gas (CO + H25. Oxygen (CB 92 _rc-f the
air fractionation plant is compressed tc 56 atm and precleated to f1002.Fuel oil, with recycle carbon di:ipersed in it, is preheated to 21A0OOC f1-piuped to the combustor guns on 7;op of the gasifiers. The combustor gursalso receive oxygen and steam. P'eedstock reacts with oxygen and stein! in t!neflame below the combustor to yield a gas rich irn carbon monoxide and hydrogen.The gas is low in methane and coriteins sulfur as hydrogen sulfide (H2S)and a small quantity of organic l:ulfur (COS). About 3% of the carbon presertforms soot, or solid carbon, which is recycled. Hot gas from the reactorflows into a waste heat boiler which adjoins the reactor shell. The wasteheat boiler design allows gas to pass through without soot deposition or theneat exchange surface. Heat fron the gas is recovered in the waste heat boilerto generate steam at 100 atm. Gas from the waste heat boiler is ouenched withrecirculating water and further scrubbed in a packed carbon scrubber. Carbondischarges from the quench systeR as a slurry and it is pelletized by agitationwith fuel oil. Carbon pellets are separated from water by screening andthen suspended in fuel oil and recycled to the gasifier.
ANEX 1,-1Page 2
D. Rectisol Wash (Sulfur Removal)
The Rectisol process (Lurgi), which uses methanol for the physicalabsor-tfor of hydrogen sulfide (H2S), organic sulfur (COS) and carbon dio-xiAe ((0X) is used in the gas purification section. Gas from the gasific-ation section with 0.8% H2S and 0.02% COS at 46 atm and N5°C is mixed withgas fromi the HoS tower and C02 absorber. It is cooled by indirect heatexchange with evaporating ammonia and the outgoing gas before entry into theH2S absorber at -35°C. The H2S and COS content is reduced to about 0.1'ppm by washing with methanol at -L9°C. From the bottom of the absorber therich methanol passes to the H2S tower, where it is evaporated in two stages.Gas from the first stage, which contains H2 and C0, is compressed along withthe gas from the 002 albsorber and mixed with incoming gas from the gasificationsection. Liquid from the tower is regenerated in the H2S regenerator.iquid from the regenerator whlich contains methanol and water, is pumped to the
methanol distillation column to recover methanol. A methanol and water sol-uti^n obtained by scrubbing out the C02 gas to go to the Urea plant is fedto the distillation column. The methanol vapor and gas from the distillatiorcolumn is mixed with H23 regeneration gas and cooled in heat exchangers from55°C to about 100C to condense the methanol vapor, which then can be usedas reflux for the H2S regeneration. The H2S is then processed to recoversul fur.
. Shift Conrersion
A-fter sulphur removal, the gas is treated to convert all carbon,onoxide to hydrogen. The process utilizes the high temperature carbon mono-xide conversion catalyst manufactured by the P & D Division of FCI. Thiscatalyst is in comnercial operation in several plants including Sindri,Trombay, 3"nrup and I-eveli. The catalyst is arranged in three beds withcooling between them. After the second and third beds heat is removed by'?xchange with the gas entering the first bed. After the first bed, heatis recovered for pre-heating boiler feed water. The gas leaving the shiftonvers-or section contains 2.5 CC.
.ar'c on 2Dioxide ?Remova-
Gas from shift conversion which contains about 34 00 and C.3'l1i'2S cd 03OS, enters the absorption refrigeration system at i900C and
' tm rad is cooled to -25°0. Cooled gas enters the C02 absorber, i-here' is reduced to less than 10 ppm. Gas from the absorber goes to thenitrogen wash unit. iethanol from the C02 regenerator is fed back to the'½72 absorber for C02 removal. The 002 rich methanol is flashed in stage and
n.lly stripped with impure nitrogen fromi the air separation plant, in the202 regenerator. The bulk of hydrogen absorbed in the methanol will comeo£f in the first stage. This stream is recylced to the H12S removal section.Carbon dioxide obtained from the regeneration column is sent to the Ureapli,nt. The methanol is regenerated by stripping with impure nitrogen whicheaz'riLes vitb i.w 'he i-erdaning C02.
AlMEX >-1Page 3
G. Nitrogen Wash
Gas leaving the Rectisol washing section is processed in thenitrogen wash plant for final purification, before entering the syrthes'-sloop. The process gas leavirg -he Rectisol decarboration section is cooledto _1900C. Nitrogen is cooled .o -190°C and is utilized in tile liuilinitrogen unit for scrubbing the gas. Gas leaving the unit is a nitrogel--hydrogen mixture (ammronia synthesis gas) which contains less than X pp,m of'carbon monoxide.
H. Anmonia Synthesis and Sto,rage
Synthesis gas frorl the! nitrogen wash unit at 38 atm ancd 350. iscompressed in a four stage centrifugal compressor driven by a stean turline.The gas is compressed to 235 atrm in three stages after which the ree egas from the synthesis loop is cdded and the total gas compressed to 27C0 :Lnand 1.60C. The catalyst in the convertor is arranged in three layers. Tlhoentering gas excl.-nges heat withl the outgoing hot gas and enters the 'irslcatalyst bed at about 50o°C. Waste heat is recovered after the first twostages by producing steam at 1CC atm. Gas from the last cataly-st ber1 ron-taining about 1c, amm.onia is cocled. by excharge wit. the ineorrirg gas anceleaves the converter at 880C. Amrionia is cooled and condensed in two staresin a water-cooled condenser and ammonia-cooled condensor. The condense"ammonia is separated and the renfainirg gas which contains about 3.3 17>is recycled to the recirculator. Armonia from the condersors is flas'e z-cabout 22 atin and then sent to storage.
I. Air Fractionatiorn
Oxygen for partial oxidation and nitrogen for the nitroger scru'-bing unit and nitrogen for synthesis gas are obtained from an air fr-(u'iLor,-tion plant. Air s compressed and cooled to about -1y00C and ox-ygen mcnitrogen are separated in a distillation column. The unit produces (>
pure oxygen and r-itrogen with not more tha- 20 ppm oxy-gen ar-i 100 ppm -argor.
J. Urea SZEthesis and Priling
*Jrea production will be based on the modified Montedison totclrecycle urea process. Ammonia aid carbon dioxide are cormlpressed at I fedto the reactor operating at 21C0 atm and 2000C. Part of the cirbon (.7 oxideis taken off at an intermediate stage of the conpressor at 80 atn andI sentto the first condersor. The solution from the reactor which1 consist,s ofurea, water, axmnonium carbainate and amioni:. is sent to the first distillerwhere most of the carbamate is deconposed at 60 atm and 15C0C int'! armmoriaand carbon dioxide and. most of the excess armmon:la is evaporated. Due to ti;ehigh ratio of arimonia to carbon dioxide used ir the syster, the de o2;posi`::::of the carbamate proceeds to 1-ts ecuilibriumi. The effluent from t'he firstdistiller enters the separator, :-r. which liouicl and vapor separate. Thevapor enters the first condensor and iis partially condensed as arir.oria anc.
AIUJ,:EX XI _1
TPageL
arumoniiY carbanate aquleous soluti½nc at about 135-1)t5o' and 80 atm. Thecon.'ens-.tion renerates low: iuressure stemri. The uncondensed gas is furthercooled 7wirth water tc about 115°C. The inerts discharged from the condensoe
,re 7.slei_ tC recover a-rnroria and then vented.
The solution produced in the first condenser is recycled to thereactcr througln a carbamiate pumy. The urea solution separated in the firstseparator passes through a second distiller and second separator operatingat about 12 atr. Gas to the second condenser is condensed as an aqueoussolution and then recycled to the first, condenser. The urea solution passesto t4e third distiller and separators. which operate at X,. atm, to yield a
'ureA soh;.-tior. The gas separated at this stage is condensed and recycledto the second stage condenser.
Urea soluticn is concentrated in two stages operating inder vacuux;.The gas effluent from the first stage is condensed and armmonia recoveredfror the solutior in a rectification colunn and recyclei. From the secondst,-ge F5.7?f mo',ten urea is obtained wh)ich is sprayed into the prilling towerto convert urea into spheres or "prills".
.X. Product. Handling ard Storage
Bulk storage for urea is provided. in a concrete silo with a capa-city of 20,000 tons. ReclaxLation from storage is by a mobile scraper which.-- i.sc.har-es the reclaimeO urea on to a conveyor and transpo-ts it to the bag-ging plan-t. The bag-ing planit has six lines.
L. Plant Facilities for Utilities
Steal} is generated by waste heat boilers after the Shell gasifiers,in the ammonia converter and in the first stage condenser of the urea plant.Phe stear in the first two instances is at 100 atm and will be supplementedby steam generatior frorm the service boilers at the same pressure. Theservice boiler installation consists of three coal-fired water tube boilers,two of which are adequate for meeting the net import steam requirement oft'-e process plants. Epch has a normal rated capacity for steami generation of105 tons per ihour at 1C0 atmi. The steam generation plant includes necessaryfacilities for coal uinloading and handling, coal grindirg., superheaters.economizers arnc ash. handling and disposal.
The net power requirement or sbout 21 7,kJ for the Arnionia/Ureaproject wTill be obtained from the existing, R10 MU power pltnt at the SinclriTcrh>.s wl.ich will have ade(quate capacity to, in addition provide all other powerrecuirenients of the works.
W,1ater for the project will be obtained from the Damolar river.'Tr'Ler treatment. it will be supplied as make-up to the cooling water circulationsystem. Facilities include equip,rient for treating the water for use inprocess and for the production of boiler feed water of suitable quality foruse in the generation of steaml at 100 atm.
'AI2TN* 4 -1Page 5
M. Process Licenses and Desig@
FCI using its P ani D division will act as its own generalcontractor for hxriplexiienting the project but will associate 'with a nurnberof proce. licensors who will provide the basic engineering packages fortheir individutal plants. In tiis connection, CI has the following pro-cess license agreements:
Proce3ss Licensor
(a) Partial oxidation of petroleum fractions Shell
The high temperature CO-conversion section will be based onFCIrs own catalyst. The air separation and nitrogen wash plants wil] beob.tained as package units by competiLive bidding.
I<. Shell Partial Oxidation Prcocess
The license agreement for this process will be with Shell Inter-national Research Naatschapij 1.V. of The NetherlandLs. Under this licenseagreement, Shell will provide <, royalty-free, non-exclusive license forthe adoption and use of the Shell partial oxidation process in the Sindri
project. Messrs Lurgi Mineralcltechnik GxbH (FRG) a licencee of Shellwill provide the following basic data for the Sindri. project, essentiallyas a repetition of the liangal project including:
(a) Plant layout;
(b) Process flow scheme and quantities, analysistemperatures and pressures;
(c) General piping and instrument diagram;
0. Rectisol. Process
The process license for the Rectisol process for desulfurizationand dec:rbonation of the raw synthesis gas will be obtained from LurgiGesell schaft fur Waerme-und Obanie-teohnik GmbH of West Germany. Underthis license agreement, Lurgi will grant a non-exclusive right and licenseto use the Rectisol process in the Sindri project. The technical know-how furnished by Lurgi will essentially be a repetition of that suppliedfor the arangal project and include:
ANNEx 4 -1Page 6
(a) Plot plan showing relative positionof the major equipmnt and machinery;
(b) Process flow sheet indicating flow, composition,temperature, pressure at the inlet and outletof each item of equipment;
(c) Piping and instrumentation diagram;
(d) Data sheets for all process equipment machineryand instruments.
Lurgi will supply design specification and/or typical drawingsfor the process equipment covering the above data, which normally would beessential for carrying out the detailed engineering design and drafting.Lurgi also will furnish any further clarification and additional informa-tion required in the design and engineering. Lurgiwill guarantee the cap-acity and performance of the Rectisol units.
P. Ammonia Process
The process license for amzmonia synthesis will be obtained fromWaldor Topsoe, as part of the Uhde contract for the ammonia plant engineer-ing and design. The process licensor will supply the following technicalknow-how, which will be essentially a repetition of ta-at supplied forthe Nangal project.
(a) Description of the process;
(b) Process flow sheet;
(c) Material and utilities balance;
(d) Engineering flow sheets;
(e) General layout.
The licensor also will supply design specifications covering the data whichare normally essential for carrring out the engineering design and drafting.These specifications will be supplied for each item of equipment, electri-cals, instrument piping, structures, etc., arf s9'-. show any special re-quirements which may have to be met ir fabrication. Uhde will check andrevise the engineering design drawings prepared by P and D and will alsoassist FCTI in procurement of critical and long delivery equipment. Uhdewill furnish technical assistance and advice with erection, start-up andperformance test runs as required to demonstrate the following processguarantees:
(a) The plant would produce not less than 900 tons pertwenty-four hour day of anhc3Lrous liquid ammonia.
(u) Synthesis gas consumption per ton of liquid ammoniawould be 2,750 Nm3 + 1% at the suction of the com-pressor.
ANNEx 4-1Page 7
(c) Recoverable heat in the form of steam from the syn -thesis reactor would be 560 x 103 k cal (minimum)per ton of licuid ammonia produced.
A. Montecatini Urea Process
The process license) for urea production will be obtained by theextension of existing licens:ing arrangements with Montecatini. The know-how furnished under the license agreement and the extent of assistanceavailable will be substantially the same as for the ammonia contractoragreement. The following process guarantee will be furnished by Monte-catini.
(a) Production of tncoated urea prills of not lessthan rated daily capacity
(b) Armmonia consumltion 580 kg + 1% (maximun)
(c) Carbon dioxide consumption 760 kg + 1% (maximum)(1001 basis)
(d) Steam, 800 kg + 2% (if all machinesare electrically driven).1,500 kg + 2% (if C02compressors, ammonia andcarbamate pumps are steamdriven).
Industrial Projeots DepartmentOctobw 1974
ANNEX 4-2
INDIA: SINDRI r'ERTILIZER PROJECT
RENOVATION PROGRAM
1. Concurrently with the implementation of the Triple Superphosphate
Project currently under construction (known as the Rationalization Scheme)and with the implementation of the proposed new Ammonia/Urea project, theFCI will undertake a Renovation program primarily applied to those plants andfacilities which will remain in operation as an integral part of the modernizedSindri works. This program is essential to the successful operation of the newAmmonia/Urea project but will not be considered as part of this project andconsequently its cost is not contained in the project cost estimate or thefinancing plan. The capital cost of this scheme, however, is included in thefinancial projections and in the computation of financial rate of return.
2. At its 155th meeting held on December 2, 1972, the FCI Board of
Directors approved a long-term Renovation Scheme to cost Rs 100.4 million.However, since then the decision has been taken to retire the coke oven planton completion of the new Ammonia/Urea project and so the cost has been re-estimated in a FCI Board paper of April 27, 1974 at Rs 84.31 million.
3. Set out below is the presently estimated cost of the entire renova-tion program. The cost of renovation of existing plant which will continue inoperation after modernization of the works remains at Rs 84.31 million.However, in addition it is now planned to install an additional steam boiler,modify the 400 TPD sulphuric acid plant to eliminate excessive pollution andmake provision for replacement of existing plant and equipment which may becomenecessary during the commercial operating period of the new Ammonia/Urea project.The table does not show the cost of renovation of plant and equipment which willbe retired on completion of the new project. This cost is estimated at anadditional Rs 8 million but is not connected with the project and may be regardedas maintenance.
Millions of Rupees
Indian Currency Foreign Exchange Total1. Renovation of plants which
will continue after worksmodernization 56.3 28.0 84.3
2. Additional Boiler 27.5 0 27.5
3. Sulphuric Acid plantmodification 2.2 0.4 2.6
4. Subtotal 86.o 28.4 114.4
5. Deferred renovation which 10.0 3.4 13.4may become necessary duringcommercial operation of newproject
6. Total 96.0 31.8 127.8
ANNEX 4-2Page 2
4The cosr' o,: ranovatlon of exiotfnv plants whichi will contiriue alterworks modernization (Hs 84-31 million) is further broken down as below show-ing that most of the expenditure will take place on the 80 TiW power plant andthe ammonium sulphate plant both of which will be key units in the modernizedworks.
INDIA - SINDRI FERTILISER PROJECT* IMPLEMENTATION SCHEDULE
1974 1 1975 1976 | 1977 1978ACTIVITY End April J A O D F A J A O D F A J A O D F A J A O D F A
1. Award Basic Eng. Contracts _ I -|-iIV-H2. Approval Basic Eng. Contracts I |
3. International Procurement Advert
4. Basic Engineering
5. Preparation Procurement Procedure
6. Approval Procurement Procedure
7, Detailed Engineering I
8. Ordering Critical Items
9. Ordering Major Items
100 Ordering Bulk Items - - - |
11. Equipment Deliveries |
12. Material Deliveries I I |
13. Site Preparation I |
14. Civil Works
15. Plant Erection r : | | ;
16. Training I
17. Plant Testing
18. Performance Testing : Comnissioning I
Industrial Projects DepartmentOctober 1974
ANNEX 4-4Page 2
INDIA: SINDRI FERTILIZER PROJECT
WORKS TRANSFORMATION AND ENVIRONM TAL STUDY
TERMS OF REFERENCE
1. Background
1.1 The Sindri Fertilizer Works, a manufacturing unit of the FertilizerCorporation of India (FCI), hereinafter called the Corporation, was the firstmajor chemical fertilizer works to be established in India. It is situated onthe West Bank of the Damodar River about 15 miles from Dhanbad in the State ofBihar and currently has an installed capacity of 320,000 tons per annum (TPA)Ammonium Sulphate, 71,500 TPA Double Salt (Ammonium Sulphate Nitrate), 21,000 TPAUrea, and 9,000 TPA explosive grade Ammonium Nitrate. Additionally a plant forthe production of 346,o0o TPA Triple Superphosphate (TSP) is presently underconstruction and is due for completion in 1975.
1.2 Construction of the works commenced in 1948 with the installation ofa 274 ton per day (TPD) Ammonia plant based on the gasification of purchasedCoke, and a 974 TPD Ammonium Sulphate plant according to the Merseberg processusing naturalmined gypsum supplied fiom West Punjab. The works which alsoincluded an 80 MW steam power plant was completed by the end of 1950 and success-ful commercial production of Ammonium Sulphate commenced from October 1951.
1.3 The first expansion of the works involving the construction of a 60oven Coke battery with auxiliary equipment was completed in 1954 and made theworks independent of supplies of Coke brought in from nearby steel works. Asecond expansion of the works followed soon afterwards and became operative in1959. This involved construction of an additional 189 TPD Ammonia plant, a 406TPD Ammonium Sulphate Nitrate plant, and a 71 TPD Urea plant with the Coke ovengas production from the first stage expansion being used as feedstock for theadditional Ammonia production; and newly installed lean gas plant supplying fuelfor firing the Coke ovens. In March, 19693 a small naphtha reforming plant wascommissioned with a production equivalent to 60 TPD Ammonia, which served toaugment the production of Coke oven gas that had necessarily had to be reduced tomaintain Coke quality. A fourth expansion completed in 1970 involved the installa-tion of a 400 TPD Sulphuric Acid plant based on pyrites and while not increasingthe output of Sulphates from the works had become necessary to augment supplies of-ypsum which were now being taken from Rajastham and were steadily decreasing inpurity.
1.4 The present facilities for the production of Ammonia and Urea there-fore consist of a large number of small scale plants based on obsolete processtechnologies and for which much of the equipment is approaching the end of itsuseful working life. Additionally, the Ammonium Sulphate unit is sufferingfrom the disadvantage of continually deteriorating quality of mined gypsum supplies
ANNEX4-Page 2
worsened by increasing transportation costs, and uncertainty of supplies. inorder to alleviate these problems the Corporation has already embarked on aRationalization programt involving the constructicn of a new 800 TPD SulphuricAcid plant, a 390 TPD Phosporic Acid plant according to the Prayon process,and a 1150 TPD TSP plant based on the Corporation's own technology. These uni+tswhich are expected to commence commercial production by mid 1975, will add3h6,000 TPA TSP to the works capaclty and additionally produce as a by-productfrom the phosphoric acid plant suf:ficient quantities of precipitated gypsum tomeet the full requirements of the Ammonium Sulphate unit.
1.5 In addition to the Rat:Lonalization program already underway theCorporation proposes to make an imiediate start on a modernization proJectinvolving the construction of a 90() TPD Ammonia plant based on the partial oxida-tion of heavy oil and a 1,000 TPD total recycle Urea plant. This project whichis scheduled for completion in 1!:77 will supply all Ammonia requirements of theexisting Ammonium Sulphate and Ammonium Nitrate plants and will thus permit theretirement at that time of all the present small scale and now obsolete Coke oven,gasification, Ammonia synthesis andl Urea units. In addition the production ofdouble salt will be discontinued. The rated output of the iforks after moderniza-tion will be 320,000 TPA Ammonium 8'ulphate, 330,000 TPA UTrea and 346,000 TPATSP.
1.6 Concurrently with the imolementation of the Rationalization andModernization projects, the Corporc.tion will undertake a rehabilitation andRenovation program under which the existing power plant, the Merseberg processAmmonium Sulphate unit and other utilities and services installations forming anecessary part of the modernized wcrks will be completely overhauled and necessaryreplacements effected.
1.7 Appreciating that the tasic characters of the works will be completelytransformed by the rationalization and modernization projects, the Corporationwishes to undertake a transformation and environmental study having as itsobjective the formulation of a plan to modernize all aspects of the presert opera-tions of the works concurrently with the installation of the new plant facilities,so that maximum benefits may be derived from the rebuilding of the works and thechangeover may be effected on the most economic, efficient and beneficial manner.
2. General Terms of Reference
It is envisaged that the study will cover four fundamental areasnamely, Environmental and Pollution; Manning, Systems and Safety; Works replanning;and labor utilization.
ANNEX 4-4iPage 3
2.1 Environmental and Pollution
2.1.1 This section of the study will cover a general survey of the emissionsand waste streams from the existing units and a review of the means to be providedfor handling effluents from the new facilities included under the rationalizationand modernization schemes. As an indication the following types of effluents,emissions, and general ecolcgical problems are to be found in connection with theexisting units.
Ammonium Sulphate Plant
Some Ammonium Sulphate is contained in the liquid effluent from theplant, and some Ammonia is lost to atmosphere in the carbonation section. A dustproblem sometimes occurs in the gypsum grinding section and some fine AmmoniumSulphate particles are unrecovered from the cyclone separation unit. Additionallyarsenic compounds are used as corrosion inhibitors in the evaporation section.
Nitric Acid Plant
Some oxides of nitrogen are emitted into the atmosphere and the plant'slicuid effluent contains some Amnonium nitrate and Nitric Acid.
Steam Generation Plant
A dust and ash disposal problem exists and some smoke is emittedinto the atmosphere.
Semi Water Gas Plant
A considerable dust problem exists arising from the intermittentemission of unburnt Coke and ash during the blow run.
Ammonia Plants
Some Ammonia vapours may be lost into the atmosphere and the liquideffluent contains some dissolved Ammonia, Alkali, oil from the gas compressors,and some copper compounds used in the removal of carbon monoxide from thesynthesis gas.
Coke Oven Battery
Dust presents a problem within the coal crushing plant and consider-able emission of dust and gas occurs when coal is charged to the ovens.
ANNEX h-LPage 4
Coke Oven Gas Purification
The liquid from the coke oven gas scrubbers contains Ammonia, phenol,cyanides and sulphates. Washings from the Benzol plant, overflow of Ammoniascrubber seal pots, and tarry matter are additional hazards containing Ammonia,oil, cyanides, phenols and organic matter.
400 TPD Sulphuric Acici Plant
A severe dust problem exists in the handling, crushing and screeningof pyrites. Being a single conversion process, considerable amounts of Su'-haroxides are discharged into the atmosphere and the liquid effluent sometiries eon-tains week acid. Additionally acid sludge is occasionally discharged fror T:hcplant.
2.1.2 In making its survey cf the ecological characteristics of the existingunits and the nature and method of disposal of the works effluents, the stud,, teamshould make full use of the data, measurements, and other technical informationalready available within the Corpcration, and should identify any additionalmeasurements and tests that may be necessary. The study team should also examinethe specifications of theplants to be constructed under the rationalization andmodernization programs, identify the likely sources and nature of noxious effluentsand emissions, and examine the means provided either to recycle or dispose of them,as well as the effect these plants will have on the effluent from the works as awhole.
2.1.3 Based on its survey, the study team should recommend any modificationsor revised operating procedures that should be adopted and any additional investi-gatory work that should be undertaken in order to ensure acceptable ecologicalstandards are met. In this connection it may be noted that tolerance limits forindustrial effluents discharged into inland surface waters are set forth inIndian Standard No. 2490. At present, although a draft has been prepared, thereis no statutory Indian Standard for atmospheric emissions and in this and othersuch cases typical US or Euronearn Standards should be adopted.
2.1.4 In making its recommenlations as per 2.1.3 above, the study teamshould take appropriate account of the plan for early retirement of many of theexisting units (See Para. 1.5) and the scope of the rehabilitation and renovationprograms to be applied to those units which will remain in service (See Para.1.6). Additionally, during the co-irse of its survey and particularly in the for-mulation of its recommendations thE study team should consult as appropriate wnththe Corporation's own Internal PolLution and Environment Committee.
2.1.5 The study team should also recommend any desirable revisions in thespecifications of new plant to be built under the modernization scheme, or modifi-cations to plant presently being constructed under the rationalization program,to achieve the standards outlined lmder 2.1.3. In this phase of its work thestudy team should additionally con3ult as appropriate with the groups within theCorporation responsible for these projects.
ANNEX -Page 5
2.1.6 Following definition of the measures to be taken as under 2.1.3 -2.1.5 above, the study team should prepare an estimate of the total cost involvedsuitably itemized and delineated into local currency and foreign exchange, andthe likely time schedule for completion. Additionally a plan of execution shouldse proposed aimed at achieving the most rapid results consistent with the objec-,ive of minimum cost and interruption to manufacturing schedules.
2.2 2Manning, Systems, and Safety
2.2.1 This section of the study will basically cover an analysis of themanning requirements of the new production facilities compared to those of theexistingunits, and the suitability of theexisting and pLanned maintenance facili-ties for the servicing of the modernized works. Examination of other auxiliaryservices such as transportation, materials management, packaging, utilitiessupplies etc. will not form part of this study. The objective of the study willbe to prepare a plan for reorganizing the manning, and works maintenance servicessmoothly and efficiently. Additionally this section of the study will aim atoutlining the safety standards and procedures which should be adopted for the newproduction facilities and for this purpose will recommend any desired changes inthe standards and procedures currently in use on the existing facilities.
2.2.2 The works presently employ 2209 staff on production, aid 2111 on plantmaintenance services as itemized below:
Maintanance
Mechanical 1501Electrical 409Instrumental 201
Total 2111
Production
Production Staff 70Coke Oven 270Gas Reforming and Purification 179Urea 61Double Salt, Ammonium Nitrateand Nitric Acid 141
Phosphoric Acid (77) - not yet producingT.S.P. (80) - not yet producing800 TPD SulphuricAcid (65) - not yet producingBagging Plant 73Chemical Testing 213
Total 2209
On completion of the modernization project, production units presently employin,approximately 1000 operators will te shut down and replaced by a new O00 TPDmodern technology centrifugal compressor type Ammonia plant and a 1000 T?D totalrecycle Urea plant. The operators required for these new plants should thereforebe drawn to the maximum extent possible from the available surplus and an in-depth study of how best to effect this reorganization is required as describedin the following paragraphs.
2.2.3 The study will assess the needs of the new production plants includedunder the modernization project in terms of the numbers and types of skilled andunskilled operators required, and the type and extent of training that should begiven and its duration will be included, leading up to a time schedule for thedeployment of the necessary operational labor force onto the new project. Inassessing the Manning strength of the units, the Consultants should pay anpro-priate regard to the prevailing Industrial labor practices in India.
2.2 .4 The study team will simaltaneously examine the numbers, classificationand experience of staff presently enployed on the existing production unitsidentifying the most suitably qualiCied and experienced groups for reassignmentto the new facilities and the most suitable categories to receive specializedtraining. The study team shall thea be required to formulate a plan of effectingthis redeployment so as to fully satisfy the requirements of the new project whileat the same time causingminimum disruption in production and most importantlyavoiding the need to supplement the total number of staff presently employed. Theplan ultimately formulated should i7lclude detailed analyses of the alternativesevaluated and be sufficiently detaiLed so that unforeseen complications whcen It isput into effect may be avoided.
2.2.5 A similar assessment of the W4ork's present and planned maintenancecapability in terms of skilled labor, workshop facilities and spare parts controlshall be made by the study team, in the coritext of its suitability and capacity toefficiently serve the modernized works inclusive of all remaining operationalfacilities after completion of the modernization project. The team shall recommendany changes in this maintenance operation which it deems necessary and shall addi-tionally make an estimate of cost should additional maintenance equiDment be con-sidered necessary.
ANNEX 4_hPage 7
2.2.6 In formulating the recommendations required under paras 2.2.4 and2.2.5 the study team should pay appropriate regard to the integration of thepro-osed olan into the remaining activities and operations of the works as a whole,and if necessary view these supplementary operations as a possible source of thenecessary resources. In carrying out all labor studies, the study team shouldclosely cooperate with the works management and should not pursue their investi-gations in this field outside of the works or with the representatives of organi-zed labor without the management's express permission.
2.3 Works Replanning
2.3.1 The Corporation desires as faras possible to demolish and remove theobsolete production facilities when they are retired, and restore the vacatedportions of the site to an aesthetic and usable condition. Additionally thecorporation desires to realize the maximum revenue from the sale and disposal ofredundant plant and equipment where this may have a market value.
2.3.2 The study team will therefore make an appraisal of the plant and equip-ment to be retired to identify those units which may be saleable either aspackaged units (e.g. Air Separation unit) or as broken down into individual com-ponents, those units which could be worth dismantling for their spare parts, and-those units which should be scrapped. This appraisal should include an estimateof the possible value of the saleable items and the cost of demolition, dismantlingand restoration.
2.3.3 The Corporation wishes to utilize staff presently employed at Sindriwho have become surplus to effect this dismantling, demolition and restorationwork. The study team should therefore identify the number of persons who canusefully be employed on these activities and the likely period for completion.
2.h Labor Utilization
2 .Lt.l The total staff strength of the Sindri Works at the commencement ofthe modernization project exclusive of staff engaged on the modernizationt.roject construction is expected to be 8566 some 1223 of whom are engaged on:>ro;iion: services to the town and the Corporation's nearby Planning and Develop-:''ent De?artinent. The Corporation's prime objective for the modernization projectis -that it be efficiently staffed and operated so as to achieve maximum outputof fertilizer at minimum cost. In order to achieve this object and to avoid theemergence of inefficient labor, operational and maintenance practices on thefacilities, the Corporation is determined that they will not become the mediumfor absorbing surplus labor when the existingobsolete units are retired. TheCorporation is equally desirous however that the surplus employees should not be
ANNEX -Page a
retrenched and accordingly is anxcous to develop programs for their meaningfuland gainful alternative occupation in activities related to the central productionoperations at Sindri. The study shall therefore survey the oossible means wherebythe numbers of staff estimated by the study team to be surplus may be so employed,in addition to the works Replanning Program described under 2.3 above.
2.i.2 After identifying possible avenues of alternati-ve occupation of theestimated surplus labor, the study team shall prepare a plan of implementationof the scheme or schemes proposed consistent with the ongoing manufacturing andother activities of the works and inclusive of implementation time schedule andanticipated costs and benefits.
3, Requirements of the Study Team
3.L L is anticipated that the study team shall spend at least one monthat the Sindri Works gathering data and informnation and making first hand observa-tions. Therefore, it is envisaged that the team's final report, including allplans, recommendations and supporting information will be completed within threemonLhs. Fifty copies of the report shall thereupon be submitted to theCorporation.
INDIA: SINDRI FERTILIZER PROJECTINCREMENTAL WORKING CAPITAL
(Rs Million)
Amount
1. Accounts Receivable
Urea (1 month production)25,000 tons at Rs 1,479 per ton 37.0Ammonium Sulphate (1 month of incremental production)
11,000 tons at Rs 760 per tcn 8.4
Total Accounts Receivable 45.4
2. Inventory
Coal 15,000 tons at Rs 86 per ton 1.3Oil 20,000 tons at Rs 589 per ton 11.8Bags 4 .0Chemicals & Catalysts 1.3Work in Process 1.3Finished Goods - Urea (1 mont:h production at cost)25,000 tons of Rs 960 per to:a 24.0
Ammonium Sulphate (1 month pr2duction at cost)11,000 tons at Rs 621 per to:n 6.8
To convert incremental working capital required from current to 1974 Rupeesa conversion factor of 1.32 is used resulting in Rs 66.8 millions. Theincremental working capital theref'ore includes an amount of Rs 21 .5 millionfor escalation.
Industrial Projects DepartmentOctober 1974
ANNEX 5-2
MIDIA: SEMDRI FERTILIZER PROJECT
DISBURSEJDt'T SCHEDULE FOR IDA CREDIT
($000)
Calender Year Amount Undisbursedand Quarter Disbursement Outstanding Amount
1974 IV 0.0 0.0 91.0
1975 I 9.4 9.4 81.6II 2.5 11.9 79.1
III 3.6 15.5 75.5IV 5.2 20.7 70.3
1976 I 8.7 29.4 61.6II 22.3 51.7 39.3
III 19.1 70.8 20.2IV 12.9 83.7 7.3
1977 I 6.3 90.0 1.0II 0.4 90.4 0.6
III 0.3 90.7 0.317J 0.3 91.0 0.0
Industrial Projects DepartmentOctober 1974
fNDIAt SINLRI FERTILIZER PROJECT A 6-1
ASSUMPTIONS USED IN THE FINANCIAL ANALYSIS OF THE PROJECT Page 1
1. For preparation of incremental financial projections for theproject the following assumptions were made. All revenues and costs wereescalated to 1978 and kept constant thereafter. The inflation rates usedare 12%, 8%, 6%, and 2.5% (six months only) for FY 1975-1978 Costs andprices are in the following givea in FY 1975 Rupees to which the aboveinflation rates are applied.
A. Capacity and Capacity Utilization
2. It is assuned that the plants built under the project will startcommercial operations on FebruarY 1, 1978. During the first twelve monthsa 70% utilization is assumed which increases to 80 and 90% in the secondand third year and stays constan: thereafter. The economic life of the plantis assumed to be 12 years. A 901 capacity utilization corresponds to thefollowing production volumes:
Escess ammonia which might be corverted into nitric acid or sold as ammoniais assumed to be sold as ammonia.
B. Revenues
3. All revenues are at the ex-factory level and thus do not includethe Government levy, excise duty, wholesale margin, freLght or any othercharges that determine the spread between the ex-factory and the retailprice. The July, 1974 prices are as given below (in Rs/ton):
4. - Since the project provideas the ammonia for the ammonium sulphateand ammonium nitrate, the revenues and costs for these two products areincluded in the incremental analysis. Excess ammonia is amd to be goldat Rs 2,400 per ton (July 1974 pri,e) and is escalated the same qy asfertilizer ex-factory prices. Salas of by-products such as chalk, tar benzol,etc., are negligible.
C. Operating Costs
a. Fuel Oil
5. At time of appraisal the, official ex-refinery price for fuel oilwas Rs 605.07 per kilolitre. This, price includes a considerable amount ofduties and taxes most of which arel not being charged if the oil is used forthe production of fertilizer for iwhich only Rs 371.93 per kilolitre (Rs
jl The price for ammonium nitrate is negotiated between FCI and IndianExplosives Ltd., the sole purchaser of this product from the Sindri unit.
ANNA 6-1Page 2
397.96 per metric ton) is charged. The following FY 1975 fuel oil priceis therefore assumed for Sindri:
Rs per ton
Ex-refinery 398Rail freight 40Siding Charges 8Sindri delivered: M
6. The prices above are based on the assumption that about 2/3 ofIndia's crude oil requirements will come from imports, the remainder comingfrom domestic production. At 90% utilization the yearly production ofammonia would be 267,300 tons requiring 218,200 tons of heavy fuel oil.This assumes that 816 kg of fuel oil are required for each ton of amoniaproduced.
b. Steam Coal
7. The price for coal delivered to Sindri has recently been increasedand stands now at Rs 65 per ton.
8. At 90% capacity utilization 503,000 tons of coal would be requiredfor the project.
C. Bags
9. Sindri will use domestically produced polyethelene-lined jutebags. Bag sizes and prices are assumed as follows:
Unit Cost Unit CostBag Size (FT 1975 Rs)(FY 1979 Rs)
Urea 50 kg 3.55 4.93Ammonium Sulphate 100 kg 4.80 6.72Amoniu Nitrate 50 kg 8.60 11.95
d. Maintenance Materials
10. Cost of maintenance materials is assumed to be about 3% of thecapitalized value of the new plant.
e. Other Operating Expenses
11. Consumable stores expenses, which are mostly chemicals for treat-ment of water, are estimated on the incremental water usage required by theproject.
12. Electricity duty is a duty of Rs 20 (1975) per Mvh payable forpower generated at Sindri's captive power plant.
13. Selling and administration and other expenses represent FCI staffestimates.
ANNEX 6-1Page 3
D. Other Costs
14. Depreciation is calculated straight line over 12 years equivalentto 8 1/3% of the capitalized value of the plant.
E. Income Tax
15. The income tax as shown represents only the increase ordecrease ofthe tax liability as caused by the project. Neither the project nor theSindriunit pay taxes directly, but taxes are determined and paid at thecorporate level only.
16. To determine Sindri's tax liability, account has been taken ofSindri's cumulative losses, which can indefinitely be carried forward andof a capital cost allowance calculated on the basis of an average 20% decliningbalance of the capitalized value of the plant which is allowable underIndian tax legislation. To calculate the tax liability caused by the project,the position of Sindri without the project has also been taken into account.
F. Balance Sheets
a. Cash
17. Cash requirements at Sindri are minimal since the head office ofFCI holds a large cash balance from which any operating unit can draw at shortnotice.
b. Accounts Receivable
18. It is assumed that one month of sales is outstanding in accountsreceivable. This depends very much on the relative supply position of fert-ilizer. In 1973, for example, when fertilizer was in extremely short supply,receivables were only 16 days.
c. Inventory
19. The breakdown for inventory for the years 1981 and thereafter isas follows:
imported, one month for others). 20Gods in Proress 1
T7T
d. Transfer Cash Balance
20. SLndri is transferring al its surplus cash to the FCI head officeand is in turn drawing fro its b e hen it requires additional cash.No interest is gained on a positive balance and none paid when the balanceis negative. The transfer cash balance here is used for balancing assetsand liabilities.
ANNEX 6-1Page 4
e. Gross Fixed Assets
21. The capitalized value of Rs 1,306 million corresponds to Rs 1,192million for the project and Rs 114 million for the renovation program.
f. Construction in Progress
22. The expenditures for the project and the renovation program areexpected to accrue as follows (Rs Million):
23. Capitalization would be at startup of commercial operations inFebruary, 1978.
g. Current Liabilities
2-4. Sundry creditors are based on FCI staff estimates and are about10% of the yearly operating costs.
25. It is assumed that a portion of the initial working capital require-ment is financed through a Rs 72 million cash credit from the State Bank ofIndia at an interest rate of 11% p.a.
h. Financing of Fixed Assets
26. Incremental expenditures amounting to Rs 1,530 million (Rs 1 ,1X16million for the project plus Rs 114 million for the renovation program) areassmed to be financed in the following way:
(Rs millions)EQUITY DEBT ST
Total Project Rn. arog. rioject Ren. Prog. Borrowings
27. The financial ratios as given below the fund flow statement aredefined as follows:
Operating Ratio Before Depreciation (OP RATIO BEF DEP) = Costof Goods Sold/Total Sales.
ANNEX 6-1Page 5
Operating Ratio After Depreciation (OP RATIO AFT DEP) =(Cost of Goods Sold + Depreciation)/Total Sales.
Debt Service Coverage (DEBT SERVICE COV.) = (Income beforeinterest but after taxes + depreciation)/(interest payments +loan repayments).
Current Ratio (CUMRENT RATIO) - Current Assets/CurrentLiabilities.
Debt/Equity Ratio (DEBT/EQU1TY RATIO) = Total Long-termDebt/(Total Equity + Total long-term Debt). The figure shown,if multiplied by 100%, thus gives the percentage of debt withrespect to total financing.
H. Definition of Break-Even Poixnts
28. The break-even points as given below the fbnd flow statement aredetermined as follows:
a. Profit Break-Even
29. The capacity utilization required to profit-wise break-even inany one year is determined as follows:
30. The resulting numbers indicate by how much the average capacityutilization or the average sales realization would have to change to exactlybreak-even.
31. A number of 1.38 for capacity, for example, means that in thatparticular year capacity utilizati.on or production would have to increase bya factory of 1.38 (or by 38%) in order to profit-wise break-even. Likewisea price level indicator of 0.89, for example, would indicate that the averagesales realization could fall by 11% and the unit would still break evenprofit-wise.
b. Cash Break-Even
32. The formula for determining the capacity and price level break-even points are the same as for the profit break-even, however, the definitionOf fixed costs is different. Fixed costs here include all fixed cashexpenditures, thus excluding depreciation, but including loan repayments.
33. The meaning of the indicators is the same as explained abovefor profit break-even, here, howevar, the operational cash flow break-evenpoint is determined.
Industrial Projeots DepartmentOctober 1974
INDIA:SINDRI FERTILIZER PROJECTtROJECTIONS FOR THlE PROJECT ONLY
D. Capital Cost inFY 1979 PricesForeign 7e6 184 432 68 760Indian 2 215 507 81 895
Total T 399 939 1Y
2. All operating costs and revenues are taken directly from thefinancial statements as given in Annex 6-2 . It is assumed that productionwould continue over 12 years with-2 months production in 1978 and 10 monthsin 1990. After 12 years there would be no scrap value, but the marginalworking capital would be released and is treated as a benefit in 1990. Thecost and benefit streams then become:
ANNEX 6-3(Rs millions) Page 2
Capital Costs Operating Costs BenefitVariable Fixed Sales
Sub Total - - 1,020.0 - - - - 285.7 87.4 100.7 8.6 537.1
Transfer of Ammonia - - - - - - - - 8.2 89.5 184.0 4.0 - -
Yearly Production Cost Per Product - - 1,020.0 - - _ _ _ _ 176.9 284.7 12.6 537.1
Yearly Production in Tons - - - - - - - - 267,300 285,000 297,000 9,000 326,000
Production Cost in Rs/Ton - - - - - - - - - 1,069 621 960 1,400 1,648
Notes:
Assumption for production costs are consistent wi'h thnae made fcrfinancial analysis of the Sindri unit. Capacity utilization is assumed at 90% of design capacity.
All costs are in 1978 Rupees.
Production costs in Rs/ton reflect costs before financial charges, taxes and profits.
3/ For a breakdown of product costs on a per ton basis see page 2 of this Annex
Industrial Projects DepartientOotober 1974s
INDIA: SINDRI FERTILIZER PROJECT
PROJECTED PRODUCT COSTS ON A PER TON BASIS
(Es/ton) Amosia Ammonium Sulphate l Urea Amonium Nitrate TSPShare of Incremental Total Share of Incremental Total Sharc of Incremental Total
Total Amnmonia A.S. Costs A.S. Costs Asmonia Urea Costs Urea Costs Ammonia A.N. Costs A.N. Costs Total
Amnonia costs are for the intermediate product which is then transferred for producing Urea, Anmonium Nitrate, and Amwonium Sulphate, for which the share of ammonia of the total costs is givenseparately. The same assumption as made on Page 1 of this Annex are made.
Induatrial Projects DepartmentOctober 1974
W
ANNEX 7-1Page 1
INDIA: SINDRI FERTILIZER PROJECT
ASSUMPTIONS USED FOR CALCULATING THEECONOMIC RiTE OF RETUEN
A. Economic Costs
1. All economic costs and benefits are expressed in 1978 Rupees tocalculate the economic rate of return in real prices.
2. The financial capital cost of the project has been adjusted toarrive at the economic cost by taking out interest during construction,duties and sales tax. The unskilled labor portion of local civil worksis estimated to be about 25% of the cost of civil works which amouats toabout Rs 1.5 million or about 0.15% of the total economic capital cost.Because of the small amounts involved, the unskilled labor portion ofcivil works is not shadow priced.
(Rs million) RenovationProject Prga Total
Financial Capital Cost 1,416 114 1,530
Less
Interest during construction 107 -- 107Duty 146 146Sales Tax 8 -- 8DUty and Sales Tax on spares -- 14
Sub-total 275 __2
Economic Capital Cost (in current 1.141 il 1.25Rupees)
3. The economic cost of the renovation program which has also to beincluded in the analysis is conservatively approximated by using the fin-ancial costs. The program contains a very large number of small items whichmakes it difficult to determine the economic costs. The overall cost of theprogram is also small in comparison to the capital costs of the projectwhich means that the error thus introduced in the analysis is very small.
4. To convert the economic capital cost to 1978 Rupees it is necessaryto escalate the project expenditures from the time of disbursement to 1978.The following table shows the conversion to 1978 Rupees:
ANNE.X 7-1Page 2
(Rs millions)
Fiscal Years
1975 1976 1977 1978 Total
A. Economic CapitalCost ina CurentP'rices-foreign 57 148 383 60 648Local A 138 3 607
5. The economic cost of heavy fuel oil is taken as the cost of im-porting the total volume of oil to India and transporting it to Sindri.
Crude oil (f.o.b.) $10.90 per barrelConversion ratio atheavy fuel oil to crudeoil price 0.65 per barrel
Shipping rate for crudleor heavy fuel oil 0.75 per barrel
Inland transport to Sindri Rs 55 per ton
With these assumptions the economic cost (in 1978 Rupees) of heavy fueloil becomes about $62 per ton (Rs 466 per ton). This compares to the fin-ancial costs in 1974 of Rs 4X6 per ton which takes into account the consider-able cheaper domestic production of crude oil.
6. Steam coal, the second most important raw material input isdomestically produced and is because of high ash and sulphur content con-sidered non-tradeable commodity. The economic cost thus becomes the marginalcost of additional production at social costs. The basic adjustments fromthe financial costs are for the vnskilled labor content and for transfer pay-ments which are estimated to total about Rs 7 per ton or approximately 10%of the 1974 financial cost of Rs 65 per ton. At present, with the coal in-dustry nationalized only recently, it is difficult to project the level oflikely cost increases in the industry. Here the same escalation rates asfor the financial analysis are assumed resulting in a coal price of aboutRs 75 per ton in 1978.
ANNEX 7-1Page 3
7. Other financial operating costs (bags, consumable stores, main-tenance materials and other fixed costs) have been adjusted downwards byabout 10% to take unskilled labor and transfer payments into account.
B. Economic Benefits
8. The economic benefits result from the fact that production ofthe project win substitute for fertilizer imports required otherwise. Thebenefits are thus measured by expected 1978 world-market prices for urea,ammonium sulphate and ammonium nitrate and by the expected shipping andinland transport costs for fertilizer. In addition, small amounts of ammoniaare assumed to be available for sale. It is assumed that ammonia and ureawould have a 1:1 price relationship by 1978.
9. The assumption has been made that the three fertilizers wiU havea rational price relationship to each other, i.e. that are a retail levelfertilizers will have the same price on a nutrient basis. This then requiresthat only one product price has to be estimated and the other would automatic-ally be determined. Because urea is the most widely traded nitrogenousfertilizer, and the major product of the project, the urea price is estimatedand the price for ammonium sulphate and azmonium nitrate deduced from that.
10. World urea prices have in the past widely fluctuated and thereare differing estimates for future prices. The selection of an urea price,however, is of great significance for the economic analysis, since theeconomic rates of return of fertilizer projects are very sensitive to thefertilizer price assumption. At present, it is estimated that the 1978urea price would likely be around $150 per ton (f.o.b.) and it is here assumedthat it would be $145 per ton of urea ($315 per ton of N). This bestestimate, however, does not reflect the great uncertainty inherent in theseprice assumptions and it is mainly for this reason that the economic rate ofreturn is calculated on a probabilistic basis, which is further discussedbelow.
11. Shipping rates are at present extremely high and there is consider-able uncertainty whether and to what extent they will decrease in the future.There is of course also uncertainty about the source of fertilizer exportswhich also affects the cost of shipping. Assuming that fertilizer wouldbe exported from countries close to India, a best estimate of $30 per tonhas been assumed here as the likely 1978 shipping rate, which includes $5per ton for past fees and handling.
12. The inlaad transport cost is small in comparison to fertilizerprices and shipping rates and does hardly affect the analysis. It is asswxedthat on the average Rs 40 per ton would be required to move fertilizer fromthe port of entry to Sindri.
13. The table below summarizesthe above assumptions on economicfertilizer prices and related costs:
Ammonium Ammonium.$/ton Urea Sulphate Nitrate
f.o.b. 145 47 102Shipping 25 25 25Port handling 5 5 5Inland transport 5 5 5Delivered to 180 __ 137
Market Area -per ton Nutrient
in Market Area 22 2L 2L
ANNEX 7-1Page 4
The cost and benefit streams resulting from the best estimate assumption aregiven on page 7 of this Annex.
C. Probability Analysig
14. As mentioned above, the main reason for calculating the economicrate of return on a Drobabilistic basis is the considerable uncertainty withrespect to futureworldfertilizer prices. Conventional sensitivity analysiscan show the effect of changing the price assumptions, but it falls shortof expressing judgment on the likelihood of changes in fertilizer pricesand its effects on the economic rate of return.
15. The basic assumptions about the type and value of distributionsfor the variables entering the rate of return calculation are given intabular form on page 9 . The table gives IDA's estimate of the likelyvariations from the best estimates which were arrived at in consultationwith other staff members.
16. The escalated cost of the project was broken down into 14 itemmd separate estimates were made for the local and for the foreign costs,which were converted into 1978 costs and were for each year accumulated.As a result, the economic capital cost of the project is expected to showthe following likelihood of deviating from the best estimate:
Value Deviation Prom Cumulativebest estimate Probability
17. As the table indicates., we are about 75% certain that the economiccapital cost of the project wil:l not exceed Rs 1,520 million, which is only4% higher than the best estimato. A deviation of 8% or higher has only achance of 10%. This relatively small range in which the capital costs areexpected to fall is explained by the fact that individual cost items arequite well known particularly since many cost estimates could be derived fromrecent information obtained on the Nangal project. The only major source ofuncertainty are the escalation rates over the next four years, which areassumed to vary between -50% and +100% of the best estimates.
18. In addition to the assumptions about individual operating costs,the analysis also includes an assumption about the likely capacity utilization.It is estimated that at the worsit, the capacity utilization would be only90% of the best estimate and wolad at best exceed the best estimate by 5%.For the years 1981 and beyond the capacity utilization would thus rangebetween 81% and 94.5% with 90% being the most likely.
19. The distribution and values of the economic oost of fuel oil areobtained by sampling from all the relevant variable distributions with thefollowing result:
ANNEX 7-1Page 5
Value 1/ Deviation from Cumulative($ /ton) best estimate Probability
20. The range here is again quite sall with about 75% certaintythatthe deviation from the best estimate will not exceed +h%, and only a 10%chance that fuel oil would be more than $67 per ton. The explanation ismainly to be found in the assumption of expected crude oil prices whichare projected to range uniformly between $9.90 and $11.90 per barrel, whichis only about a +10% deviation from the best estimate of $10.90 per barrel.
21* Steam coal, where there is some uncertainty about future pricelevels is assumed to range between Rs 70 to Rs 90 per ton (a -7% to a +20%deviation from the best estimate of Rs 75 per ton). Other costs are expectedto have a distribution ranging between -5 and +15% of the best estimate.
22. The greatest uncertainty, is with the assumption of future fert-ilizer prices. Estimated distributions for the 1978 urea price indicate avery wide range, starting at about $90 per ton (f .o.b.) for the lowest pos-sible value to $250 per ton for the highest possible value. Discounting theextremes, a range between $100 and $200 per ton was assumed with the bestestimate at $145 per ton. Correspondingly ammonium sulphate would rangebetween $32 and $65 per ton and ammonium nitrate between $70 and $1 hi per ton.The shipping rate is assumed to vary between $20 and $40 per ton and theinland transport between Rs 30 and Rs 50 per ton. By also taking thedistribution of the capacity utilization into account, the distribution ofyearly economic benefits of the project for the years 1981 and beyond isas follows:
Value Deviation from Cumulative(Es million) best estimate Probability
23. As expected, the range for the benefits is with about + 25% sign-ificantly above that for the costs. The table indicates that we can be about75% certain that the benefits will deviate not more than + 15% from the bestestimate.
ANNEX 7-1Page 6
D. Results
24. Taking the cost and benefit streams as given on page 7 , whichrepresent the best estimates for all the variables concerned, the economicrate of return becomes about 16%. A slightly lower value, 15%, is obtained as themean of the probability distribution determined through a probabilisticanalysis using the inputs as described in C. above. In addition, probabilitysampling also gives the distribution of the economic rate of return asfollows:
25. This indicates that thers is only a 10% chance that the projectwill return less than 10% and a 25, probability that the return will fallbelow 12%. On the other hand, there is a 10% chance that the project'sreturn will be more than 20%. The project can thus be described as beingeconomically very attractive, with very little chance that the economicrate of return will be marginal.
26. To demonstrate that the wide range in which the economic ratesof return fall is basically determined by the uncertainty associated withdetermining the benefits of the prcj ect, a probability analysis was made inwhich only the best estimates were used for the beneifts, and all coststreams were left with their respective uncertainties. The result issummarized below:
Economic Rate of Return Cumulative Probability
14.0% 5%14.5% 20%15.0% 50%16.o% 80%17.0% 95%
27. The possible values fall now in a range of about 3% comparedto a range of 11% when the benefit imcertainties were included.
Industrial ProJects DepartmentOctober 1974
INDIA: SINDRI FERTILIZER PROJECT
ECONOMIC COSTS AND BENEFITS - BEST ESTIMATES
(Rs Million)
Years Ebding March 31
Capital Cost of Project Variable Fixed AmUonium Ammoniumand Renovation Program Costs Costs Urea Sulphate Nitrate Ammonia
1/ Based on Rs 1350 per ton ($180) CIF2/Based on Rs 615 per ton ($82) CIF3/Based on Rs 1028 per ton ($137) CIF1/Based on Rsl1350 per ton ($ 180) CIF~/Based on 2/3 of oil requirement being met through imports at Rs 82.5
(US$11.) per barrel6/ Estimated by FCI at 10% of total consumable stores7/ E-stimated by FOI at 46% of total maintenance materials
Industrial Projects Department,October 1 974~
INDxIA
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