Nirmala Sitharaman calls high-level meet as concerns mount over Talcher fertiliser plant delay, cost escalation

With India's urea demand rising steadily, reducing import dependence has become a policy priority.

Finance Minister Nirmala Sitharaman has on June 6 called a high-level meeting to address concerns over delays and cost escalations at Talcher Fertilizers Ltd (TFL) project, vital to India’s plan to reduce its import bill, government sources said.

Financial services secretary M Nagaraju, fertiliser secretary Rajat Kumar Mishra and TFL chairman Deepak Gupta are expected at the meeting, which signals the Centre’s growing concern over the troubled project’s deteriorating financial and execution metrics.

“The finance minister has called for a meeting on June 6 on issues related to Talcher Fertilizers Ltd. The secretaries of financial services and fertilisers, along with the TFL chairman, will attend the meeting to chalk out a roadmap,” one of the sources told Moneycontrol,

The meeting follows a recent credit rating downgrade. On February 5, ICRA downgraded TFL’s long-term fund-based term loan rating to BBB+ from A-, revising the outlook to negative from stable.

The downgrade was attributed to “significant delays in construction” of the 1.27 million metric tonnes per annum (MMTPA) urea plant in Odisha’s Talcher, largely due to operational bottlenecks stemming from the Covid-19 pandemic and changes in project scope.

The meeting could play a pivotal role in determining the future of the project. With India's urea demand rising steadily, reducing import dependence has become a policy priority.

The project’s success is expected to demonstrate the viability of coal gasification in fertiliser manufacturing and contribute to India’s broader goal of achieving self-reliance in critical sectors, he said.

TFL is a joint venture of Coal India Limited (CIL), GAIL (India) Limited and Rashtriya Chemicals & Fertilisers (RCF).

Execution delays

The project’s scheduled commercial date of operation (SCOD) has been pushed back by nearly three years to June 2027.

The delay has been accompanied by cost overruns estimated at around Rs 3,800 crore. The cost is now projected to rise to Rs 17,080 crore from the initial estimate of Rs 13,277 crore, primarily due to higher commodity prices, rupee depreciation, and scope modifications, the ICRA report said.

Chinese contractor

Complicating the situation, the lump sum turnkey (LSTK) contractor for the project is a Chinese firm, which poses geopolitical and operational risks. Challenges in coordination and execution with the contractor have led to bottlenecks, while the use of indigenous coal with high ash content adds to the technological complexity.

TFL aims to mitigate this through advanced technology and feedstock blending but implementation risks remain high due to the scale and novelty of the coal gasification process.

Policy support

The project holds significant strategic value. It aims to leverage India’s domestic coal reserves to produce fuels, chemicals, and polymers through coal gasification, reducing reliance on imported natural gas for fertiliser production.

As of October 31, 2024, the project had progressed 63.75 percent, minister of state for chemicals and fertilisers Anupriya Patel's told Parliament.

To support the project, the fertilisers department approved a policy in 2021 assuring a 12 percent post-tax equity Internal Rate of Return (IRR) for eight years from the start of production. This was intended to ensure adequate profitability and smooth debt servicing.