Indian's Reliance Industries plans to invest more than $3 billion over the next four to five years to build capacity for its entry into the fertilizer sector, a source with direct knowledge of the plan said.

The move is related to Chairman Mukesh Ambani's announcement on Friday to set up a giant coke gasification project at Jamnagar on India's west coast, where Reliance's two refineries are located. Reliance's refining complex, the largest in the world, can process 1.24 million barrels of crude a day.

"The entire project right from coke gasification to urea production will need an investment of over $3 billion," the source, who declined to be named, said, adding: "Reliance can also gasify coal in the same plant, in case there is a shortage of petcoke."

Urea is used as a fertiliser. The source said Reliance was evaluating proposals from global firms that have the technology to set up the plants.

"Reliance is in the process of evaluating proposals from global licensors to set up coke gasification and giant urea plants in India ... It is in advanced stages of financial closure," the source said.

Reliance is on an expansion spree. Last week, Ambani unveiled plans for Reliance to enter the power sector and expand its retail operations. It also recently returned to telecoms by agreeing to buy control of Infotel Broadband. Mukesh Ambani, the world's fourth-richest man, and his long-estranged younger brother Anil last month agreed to scrap a pact that prevented them from competing on the other's turf, opening up key sectors for the elder brother's firm, including power and telecoms.

Reliance, India's largest listed company, is also close to investing $1.35 billion in a shale gas field in Texas, according to the Financial Times, which would be its second such investment in the U.S. this year. The source said Jamnagar's refineries can together produce 180,000 tons of petcoke annually, which when gasified can be utilised as fuel for power generation for the two plants and as feed for producing ammonia and, in turn, urea.

Reliance plans to set up a plant that can process 7,000 tons of ammonia a day to produce 10,000 tons of urea, the source said.

Fertilizer Investment Sought 

India plans to further ease controls on urea pricing to strengthen private participation in the sector, which has not seen a new urea plant built in the past 12 years. Earlier this year, India eased controls over pricing of crop nutrients and raised prices of urea in a move aimed at capping subsidy spending. 

The source said Reliance's entry into urea production depends on government policy, and the firm also plans eventually to produce nitrogen, phosphate and potash (NPK) fertilizers.

"We have to protect farmers' interest. Food security is a big issue. Reliance eventually wants to come into NPK fertilisers - that is because crop productivity is dropping due to use of nitrogen fertilizer," the source said.

A Reliance spokesman said: "We do not comment on speculation as a matter of company policy."

Fertilizer use in India is heavily skewed towards urea. Nitrogen-based urea accounts for more than half of India's fertilizer consumption because of heavy government subsidies on the nutrient. Phosphate fertilisers account for a fifth of Indian demand, while potash accounts for 8%.

A government official said, "Even in the current scenario, Reliance can make good profit. If you have the raw material, production of urea costs much less than the government subsidy you get. Fertilizer subsidy is linked to import cost."

Satish Chander, director general of the Fertilizer Association of India, said Reliance's entry into urea production will help reduce fertiliser imports. India imports 6-7 million tons of nutrients annually, he said.

"Any investment which produces 2-5 million tons is always welcome ... Our average consumption of nutrients is much lower than neighboring countries. Per hectare use of nutrient in India is almost one-third of China."

(6/23/2010)