Revival of India’s first coal-based urea plant may be taking shape

The promoters have repaid loans taken in 2021 to lenders led by State Bank of India (SBI), the people said on the condition of anonymity.

Talcher Fertilizers Ltd is owned by four state-run companies–GAIL (India) Ltd, Coal India Ltd, and Rashtriya Chemicals and Fertilizers Ltd control 31.85% stake each, while Fertilizer Corporation of India Ltd holds the rest.

The repayment by the promoters was necessary as loans would have otherwise turned sour since the project is yet to start operations. The Reserve Bank of India (RBI) norms prohibit banks from accommodating endless delays in projects.

The Talcher unit entails setting up India’s first coal gasification-based urea plant with a capacity of 12.7 lakh metric tonne per annum. Such facilities, which use coal instead of natural gas as fuel, are strategically important as coal prices are not volatile and the country has abundant reserves of the fossil fuel, according to a government statement from 2023. The Talcher plant will also reduce dependence on imported natural gas for producing urea, reducing the import bill, it said.

Although more than ₹9,000 crore worth of loans were sanctioned for the project in 2021, less than half the amount was utilised, which has now been returned, said the first of the two people quoted earlier.

“Now that the loans are cleared and the account closed, banks will soon start reassessing the project,” said the person. “In the meantime, the project cost has escalated from ₹13,000 crore to ₹17,000 crore, and the debt-to-equity ratio has also been tweaked from 70:30 to 60:40.”

Queries emailed to SBI, Talcher Fertilizers, GAIL, Coal India, Rashtriya Chemicals and Fertilizer Corporation of India remained unanswered.

Five-decade history

The project dates back to 1971 when the Fertilizer Corporation set up the Talcher unit in Odisha to produce urea. While production started nine years later, the plant could not sustain operations and was declared ‘sick’ in 1992. The government started the revival efforts in 2011 and roped in the state-run companies to start a joint venture in 2015.

The revival efforts are ongoing and the project should start operations in two years from now, according to the second person quoted earlier. The fresh loan assessment also faced delays as many banks did not want to go ahead unless India’s largest lender SBI started its project due diligence.

“Many public sector banks said they want to wait for the project note prepared by SBI, instead of conducting their own assessments,” said the first person.

Besides SBI, other lenders to the project include Punjab National Bank, Indian Bank, Indian Overseas Bank, Bank of India, Union Bank of India, according to data from rating firm Icra Ltd.

Rating downgrades

The delays in setting up the project left analysts worried, leading to rating downgrades. In February, Icra downgraded ratings on Talcher Fertilizers’s ₹9,560 crore loans by one notch to BBB+, from A-, while revising the outlook to negative, on account of “significant delays” in the construction of the plant.

“The scheduled commercial date of operation has now been shifted by almost three years to June 2027. Besides the delays in project execution, there have been significant cost overruns of about ₹3,800 crore owing to an increase in commodity prices, depreciation of the rupee and the changes in scope,” it said.

Icra also flagged that geopolitical issues could also upend plans as the project is being built by a Chinese company. According to a government statement, the company awarded a tender to Wuhuan Engineering Co. in 2019 to build the project.