Hope for sick PSUs: New cash-rich PSUs-funded SPV to revive 3 shut urea units

REKINDLING hope for revival of ailing and shut PSUs, Prime Minister Narendra Modi last week decided to create a single special purpose vehicle — primarily funded by cash rich profitable PSUs— to revive the three closed-down urea plants of Hindustan Fertilizer Corporation (HFC) and Fertilizer Corporation of India (FCI).
In a deviation from a roadmap prepared by...
a panel of secretaries, Modi decided that one SPV be floated with Rs 5,100 crore collective equity from Coal India Ltd, National Thermal Power Corp and Oil & Natural Gas Corp and balance Rs 900 crore entry as contribution of HFC and FCI in the form of land and existing infrastructure. The debt portion of Rs 12,000 crore would be raised through SBI Caps for the SPV to set up and run 1.27 million tonne plant at each of the three locations.
The secretaries’ panel had recommended targeted equity contribution as well as management with FCI’s Sindri unit backed by Coal India Ltd, Gorakhpur by NTPC and HFC’s Barauni plant by ONGC. However, the PSUs were opposed to running fertiliser plants for lack of experience in the sector.
Modi’s decision is a marked departure from his Cabinet’s approval last year to restart FCI’s Sindri and Gorakhpur and HFC’s Barauni units by getting private firms to bid for them. That is because notices seeking Request for Quotation from private sector for each of the three plants got a lukewarm response and the bidding process was cancelled. Moreover, the fertiliser ministry told the panel on March 15 that it “apprehended that investors’ response may remain subdued even after making the terms and conditions more attractive”.
The decision now is to provide “assured market and additional concessions” to the SPV for these plants so that they do not face any viability issues and the PSUs’ investments are fully protected. The government would commit to off take the entire produce from these three plants for eight years.
The SPV would also be given a free hand to employ people for these plants. Modi also agreed to viability gap funding for GAIL in pumping Rs 8,000 crore for the first phase of Jagdishpur (Uttar Pradesh)-Haldia (West Bengal) pipeline project that would feed natural gas to these three plants. He asked for the revival scheme to be expedited and directed that SBI Caps and Engineers India Ltd start the preparatory work with discussions with PSU equity promoters and their administrative ministries.
The fertiliser ministry has already outlined a detailed information brochure of each unit highlighting all the assets including its land and other infrastructure, the required investment, the expected returns on investment and other supports to be provided by the government. NDA’s revival proposal is borrowed from UPA’s approval in April 2007 to restart all eight plants. An Empowered Committee of Secretaries recommended the revival of FCI’s Sindri, Ramagundam and Talchar units on nomination and the rest via open bidding process.
On March 31 last year, the Cabinet approved the revival of Barauni and Gorakhpur both non-operational since 2004. This was followed two months later by a similar approval to restart the Sindri plant that last produced urea in 2002.