Necessity, they say, is the mother of invention. For Tata Chemicals, it also served as the mother of expansion. For, it was the necessity of securing a steady source of raw material that made Tata Chemicals look beyond Indian shores for reliable partners. In the last 12 months, the company has added the Morocco-based Imacid and the UK-based Brunner Mond to its ranks.

Following its acquisition of Hindustan Lever Chemicals, Tata Chemicals needed a steady supply of phosphoric acid, a key raw material requirement for its newly acquired Haldia plant. P. K. Ghose, chief financial officer, Tata Chemicals, says, "Morocco produces more than 50 per cent of the world's requirement of rock phosphate, the source of phosphoric acid." In the absence of a steady supply, says Mr Ghose, "one has to buy from the spot market at a higher rate than the government prescribes."

The fertiliser industry is government-subsidised. Buying from the spot market means losing out on subsidy, so it was vital for Tata Chemicals to tie up with a major supplier, and Morocco was the obvious location to scout for a partner.

Imacid was a joint venture between the Birlas and OCP, Morocco's major rock phosphate producer. Tata Chemicals joined as one-third partner; now, the company produces phosphoric acid only for its three partners.

Natural advantage
The need for soda ash as a raw material prompted the acquisition of Brunner Mond, which has a natural soda ash source in Kenya's Lake Magadi. The lake has reserves estimated to last over 450 years. Extracting soda ash from a natural source involves just a dredging and purifying operation; it is much cheaper than the expensive manufacturing processes in synthetic soda ash plants. "Natural soda ash is Rs 1,000 per tonne cheaper than that produced from a synthetic plant," Mr Ghose explains.

The company also owns three synthetic soda ash plants, two in the UK and one in the Netherlands. Though the Kenya plant produces just 365,000 tonnes per annum (tpa) of soda ash, this figure will be enhanced to 750,000 tpa, to satisfy the growing demand from the glass industry.  And, while synthetic plants are capital-intensive, the cost of building additional capacity in Magadi is nearly 50 per cent cheaper.

The strength of tradition
The Tata tradition and reputation helped the company secure both deals. "We convinced them that the Group looks after employee interests and believes in corporate social responsibility," explains Mr Ghose, "This was important in Kenya, where AIDS is a huge problem and education levels are low. We have followed the Tata tradition of participating in the management process without disturbing the existing management." Brunner Mond is now a 100-per cent subsidiary. Tata Chemicals has become the third-largest player in soda ash.

The acquisitions have added tremendous value in terms of securing a long-term assured supply of raw materials. Other advantages, Mr Ghose feels, can be leveraged as the relationship grows. For now, he only says, "We are happy to be able to exchange best practices and have bases in newer locations. We are set to consolidate and create value with these two companies."

Uploaded on May 17, 2006