Government plans to establish $1b fertilizer factory

- POST REPORT, Kathmandu
Government plans to establish $1b fertilizer factory

Sep 4, 2014-Investment Board Nepal (IBN) has invited prospective consultants to apply for a contract to prepare a detailed feasibility study for the establishment of a $ 1 billion ammonia and urea fertilizer plant in Nepal.

The move to erect the country’s first ever chemical fertilizer factory has been guided by the aim of ensuring an adequate and steady supply of plant nutrients and cushion the impact of volatile prices on the international market.

Nepal spends more than Rs 14 billion annually on importing fertilizers, and government subsidies amount to Rs 5 billion. Shortages of farm inputs are an annual occurrence in the country, and the deficit is routinely made up by smuggled stock.

The government has earmarked a budget of Rs 30 million to conduct the feasibility study for the proposed plant which is expected to reduce the country’s dependency on imports and lead it to self-sufficiency in soil fortifiers.

The study will cover three major areas, namely technical feasibility, economic and financial evaluation and Environment and Social Impact Assessment and Mitigation measures, IBN said on Wednesday. Applicants have been given 30 days to submit their expressions of interest. The study is estimated to take at least three months.

According to an IBN source, the proposed fertilizer plant that will be built with private sector investment will have an annual production capacity of 500,000 tonnes. Private companies in Nepal do not deal in fertilisers due to their high costs and risk factor, and all imports and distribution are done by government corporations.

State-owned Agriculture Inputs Company and Salt Trading Limited deal in subsidized chemical fertilizers. Government subsidized fertilisers fulfil just 25-30 percent of the total demand, and the rest is met by informal imports or contraband brought through the porous Nepal-India border.

In 2006, a study conducted by the Finance Ministry put the share of informal fertilizer imports at 71.6 percent. Nepal’s current annual requirement stands at 700,000 tonnes. The study showed that of the total imported fertilizers, around 50 percent is used for paddy and 15 percent for maize.

The Agriculture Ministry said that due to the high fertilizer subsidies provided by the Indian government to their farmers, massive amounts are estimated to be imported through illegal channels particularly in the Tarai region.

Nepali farmers do no worry much about their fertilizer supplies when the border is not strictly controlled and contraband flows freely. But when the border crossings are tightened, unrest ensues.

In the previous fiscal year, an acute fertilizer shortage compounded by a closure of smuggling routes led to protests by farmers across the country against the government’s inability to provide sufficient supplies during the peak paddy planting season.

Droughts and fertilizer shortages slowed the agricultural growth rate with the paddy output dropping 11.3 percent to 4.50 million tonnes in fiscal 2012-13. This pulled down the overall agricultural growth rate to a meagre 1.07 percent.

The government reinstated subsidies on fertilizers in 2009 to boost agricultural production and ensure food security. Acting on conditions laid down by donors, the government started deregulating the fertilizer trade in 1997 with subsidies on DAP and potash being completely removed.

Since 2009, the government has been providing 40-45 percent subsidies on fertilizers. However, a gradual increase in prices over the years has brought down subsidies to 20-25 percent.

The Agriculture Perspective Plan (APP) 1992-2015 had estimated that chemical fertilisers would contribute to a growth of 64-75 percent in the agriculture sector and recommended that the supply of fertilisers be increased by 8.5 percent per annum. The APP had targeted fertilizer consumption to reach 131 kg per hectare until 2015.

However, according to the Agriculture Ministry, the use of chemical fertilisers increased to 57 kg per hectare in the last fiscal year from 47 kg per hectare in the previous fiscal. During the last fiscal year, the government had supplied 134,500 tonnes of fertilizers.

Published: 05-09-2014 09:49

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