The government has spent four decades discussing the establishment of a chemical fertilizer factory in Nepal, but it still has not made a decision. The high investment required to set up the factory has kept the government in a state of uncertainty.

Each year, the government allocates around Rs 28 billion in subsidies to import chemical fertilizers from abroad. Back in 1984 (2041 BS), the Japan International Cooperation Agency (JICA) conducted a study on setting up a fertilizer factory in Nepal. Yet, even after forty years, the government has failed to move beyond the study phase.

Prime Minister KP Sharma Oli chaired a meeting of the Investment Board on Tuesday, where members decided to review and advance the final detailed feasibility study report on establishing a chemical fertilizer factory in Nepal. They also agreed to form a task force to evaluate and reassess the report submitted by Germany's DIAG Industries GmbH and recommend the best possible options.

The Nepal Investment Board had decided on June 18, 2020, to conduct the feasibility study. By choosing to review the report only after five years, the government has revealed its indecision.

Agricultural economist Dr Yogendra Kumar Karki blamed the delay in setting up the fertilizer factory on the government's lack of firm commitment. "The private sector is ready to invest in the fertilizer industry. We can establish the factory through a public-private partnership (PPP) model," said Karki, who is also a former agriculture secretary. He added that if the government commits around 20 percent of the investment, private investors and international agencies are willing to cover the rest.

In the current fiscal year's budget, the government allocated Rs 27.95 billion in subsidies to purchase chemical fertilizers. Including subsidies, Nepal annually imports fertilizers worth about Rs 40 billion. In fiscal year 2013/14 BS, then Finance Minister Shankar Prasad Koirala set aside funds to conduct a detailed feasibility study for establishing a chemical fertilizer factory. Likewise, in fiscal year 2016/17 BS, then Finance Minister Bishnu Paudel introduced a policy to encourage both domestic and foreign investors to build the factory.

Since then, almost every budget has included some mention of establishing a chemical fertilizer factory, but none of those plans have taken shape.

Dr Govinda Prasad Sharma, Secretary at the Ministry of Agriculture and Livestock Development (MoALD), said the country needs a chemical fertilizer factory, but setting one up remains a challenging task.

Dr Govinda Prasad Sharma said Nepal can establish a chemical fertilizer factory. However, he pointed out that securing investment, raw materials, managerial capacity, and deciding the plant's production scale are major challenges. He noted that the Ministry of Agriculture and Livestock Development spends a large portion of its subsidies on purchasing chemical fertilizers.

Prakash Kumar Sanjel, Director General of the Department of Agriculture, reported that chemical fertilizers consume 83.05 percent of the total agricultural subsidy. "Fertilizers take up the bulk of the subsidy," he said.

Nepal needs around 550,000 metric tons of fertilizer each year, but the country supplies only about 125,000 metric tons annually. Of the total fertilizer used, 65 percent is urea, 30 percent is DAP, and 5 percent is potash.

Natural gas, thermocol, and water electrolysis technologies drive chemical fertilizer production worldwide. Researchers have studied operating factories using gas, electricity, and coal-based models. The Investment Board recommended operating chemical fertilizer industries in Dhanusha's Dhalkewar, Udayapur's Jaljale, and Bardghat in Nawalparasi. The Indian company Infrastructure Development Corporation (Karnataka) Limited, the Institution of Agricultural Technologists (IAT), and Nepali partner Shah Consult International conducted the feasibility study and prepared the report.

Experts explain that importing natural gas from India to run the industry would cut costs. Karki noted that because water electrolysis technology costs more, Nepal would benefit more from a natural gas-based fertilizer industry.

After critics pointed out the government's failure to provide fertilizers during the planting season, officials stepped up efforts to establish a fertilizer factory. Last year, China expressed interest in investing in Nepal's chemical fertilizer factory. China's ambassador to Nepal, Chen Song, confirmed that the Chinese government stands ready to support the factory's establishment under the Belt and Road Initiative (BRI) project.

Last year in Shrawan (mid-July to mid-August), the Chinese ambassador told editors of major media outlets that China would help Nepal operate a fertilizer factory by utilizing the country's abundant electricity and water resources.

He warned that using fuels like coal to run the factory would keep Nepal dependent on imports and cause pollution, and suggested that Nepal use its available water and electricity for fertilizer production. He added that if Nepal approved, China could establish such an industry within a year.

Although officials have repeatedly discussed and debated the fertilizer factory, they have not finalized the issue. Both China and India have expressed interest in investing in a chemical fertilizer factory in Nepal. Indian Oil Corporation (IOC) has also held talks with Nepal Oil Corporation about establishing the factory. Dr Chandika Prasad Bhatt, Executive Director of Nepal Oil Corporation, said that the Indian government-owned IOC is willing to invest in the project.

The government hesitates because establishing a chemical fertilizer factory will cost more than 10 billion rupees. Stakeholders say foreign investors, the private sector, and the government can jointly operate the factory since the required investment exceeds about 10 billion rupees.

A study conducted a few years ago recommended establishing a chemical fertilizer factory using natural gas with an investment of around 10.3 billion rupees. However, this cost may have risen. Some experts argue that building a factory based on natural gas suits Nepal better because a factory using water electrolysis technology would cost more. Others believe Nepal should open a chemical fertilizer industry based on water and electricity to increase electricity consumption. They estimate that establishing a factory using water electrolysis technology would cost around 18.9 billion rupees.

The MoALD drafted a plan to establish a fertilizer factory by covering 65 percent of the total cost through loans and investing 35 percent from the government, private sector, and foreign partners. In 2020, the MoALD recommended establishing a chemical fertilizer industry under the PPP (public-private partnership) model. A team, including the secretaries of the Ministry of Finance, Ministry of Industry, Commerce and Supplies, and Ministry of Agriculture, prepared a report in 2020 on operating a chemical fertilizer industry.

By Dilip Paudel