For the last few years there has been much talk about the Indo-Oman joint venture urea company. Like any other government decision, much delay and a lot of controversies have surrounded the project.While the logic of setting up a urea manufacturing facility in a land endowed with plentiful natural gas has never been suspect, everything else about the decision -- right from who should be awarded the contract to build the project to the financing pattern for the venture -- has been a matter of much debate.
Finally, the much talked about Oman India Fertilizer Company appears to have made some headway with the setting up of its board last Thursday. The fact that Oman Oil Company director Salim Hassan Macki has been accepted as the first chairman without any hue and cry from any quarter is comforting.
Reports say that the work on the project will start by July and in about 33 months from then, production of granulated urea would start. Meanwhile, the Indian partners, RCF and Kribhco are believed to belaying the foundations for market acceptance of the product by educating farmers who have for long been used to prilled urea.
If the project does get implemented in a timely manner, it will result in an assured supply of 14.5 lakh tonnes of the nitrogenous fertiliser to meet the growing demand in India. The Indian partners believe that they would also make sufficient profits in the process -- which is how it should be considering that RCF and Kribhco are business entities. However, if it is indeed a profitable venture, why is it that the more enterprising private sector urea manufacturers have not yet ventured into similar arrangements in gas surplus countries? Probably they have noticed something that the RCF and Kribhco managements have so far failed to see.
Oman India Fertilizer Company is a 50:50 joint venture between Oman Oil Company and the two Indian counterparts, RCF and Kribhco. Hence, Oman and India should both derive an equal benefit from the project. But there are a few in the industry whobelieve that Oman would derive far more gains. Their argument is that not only has it assured a buyer for natural gas at predetermined terms, it has also absolved itself from the responsibility of marketing the urea produced. Considering that gas prices have continuously been falling and India is the largest market after China for urea, such an argument does appear to have carry some weight.
If Oman Oil Company had decided to go into the making of urea by itself, it would have faced two big problems. One, as it has no expertise in the manufacture of fertilisers, a learning period would be involved and as a result, production costs would be higher. Two, it would not have the assurance of a ready market that the joint venture has.
These two factors alone are enough to justify a bargaining position for the Indian partners and under the circumstances, as savvy business entities, they could have done much more to further their own interests.
For instance, since both RCF and Kribhco have the expertise to runa urea plant they could have bargained for the status of working partners.
In this way they could have derived the same benefits by picking up only a token equity in the project rather than forking out a 50 per cent. Concerns regarding control would not have arisen as the Indian partners hold the key to the markets, and this is what matters the most.
Copyright © 1998 Indian Express Newspapers (Bombay) Ltd.
