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Note on fertilizer trading and potential locations for new entrant

Background

Over the last five years, before the recession in 2008-09, the industry had experienced sustained
growth in demand, rising operating rates and tightening supply. Owing to the global recession,
the year 2009 recorded very low activity in fertilizer trading as the global farming industry
aggressively cut the application rates.

However, riding on the global recovery, the trading is expected to resume primarily due to the
surpluses created due to dampened demand. In the short term lasting up to 2013, world
supply/demand conditions are seen with resilient annual potential surpluses, resultant of the
severe contraction in fertilizer consumption in 2008/09, and a forecast of gradual recovery.

KRIBHCO has approached KPMG to assess the market and evaluate opportunities in the
fertilizer trading landscape.

Opportunity

Trading in the sector is primarily driven by imbalances due to production heavy countries such
as Russia and UAE are not the largest consumption centers. The consumption centers such as
India, Latin America, Africa and S-E Asia are not producing enough to supply their demand.
While most of these countries are emerging economies and the regulatory landscape is evolving,
it is clear that there is an opportunity for a new entrant in the global fertilizer trade to potentially
realize gains from price fluctuations and stock arbitration.

Some of the more favorable tax regimes such as Netherlands, Singapore and UAE have
emerged as the trading hubs as the physical delivery of the commodities can be done directly
from production site to the purchasing country. However, over the last few years, an increasing
number of firms have set up trading activities either in the production heavy zones or the in the
consumption centers.

Production Countries Consumption Countries Trading Countries

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Russia South Africa UAE

India Thailand Netherlands

China Brazil Cyprus

UAE India Singapore

USA Malaysia UK

Vietnam

Argentina

Approach

KPMG proposes to follow the following approach in helping KRIBHCO in developing

a business plan and strategy for entering the fertilizer trading landscape.

Market Assessment
Deliberation and
Development selection of the right-
Internal Capability and of Strategic fit options for
Aspiration Assessment Options and KRIBHCOs proposed
Imperatives entry in the fertilizer
trading space.
Taxation and
Compliance
Assessment
Development of
Business Plan and
Market Entry Strategy

Reference Terms of Engagement

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Attested below is the suggested broad scope of engagement for the approach detailed above.

1 Market/Opportunity Identification
• Develop an understanding of the dynamics of fertilizer trade by studying
- historical patterns
- key drivers to growth
- future outlook and
- opportunities for market entry
• Conduct limited primary interviews with key players across the fertilizer trading value
chain combined with secondary research to establish a common view of fertilizer trading

2 KRIBHCO capability and aspiration assessment

• Assess the strategic imperatives and aspirations to gain deeper appreciation of the vision
and future plans with respect to fertilizer trading
• Assess the current linkages to fertilizer trading and develop an understanding of the
levers that KRIBHCO can exercise to extract maximum value

3 Development of Options
• Derivation of options for market entry based in the opportunity assessment and
KRIBHCO’s capabilities and aspirations
• Presentation of the options to the management and deliberation on the best fit with
strategic intent

4 Detailing of Selected Option/s

• Development of deeper understanding of the selected market entry strategy
• Determine feasibility of chosen option, develop business plan and roll-out strategy

5 Taxation Structuring
• Overall Transaction structuring: Overall transaction to be structured from tax and
regulatory perspective viz. Corporate tax, transfer pricing, customs duty, & VAT.
• Incorporating companies overseas: Assistance in establishing companies overseas.

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• Capital structuring: Finding the right debt-equity mix and selecting appropriate
instruments for funding.
• Review of agreements: Review of various agreements from tax and transfer pricing
perspective to avoid potential pitfalls.
• Transfer pricing Study: Conducting TP studies in India and overseas for implementing
transactions.
• Exit Planning: Planning repatriation of funds to India.
• Overseas assistance: Liaisoning with overseas offices for assistance

6 Regulatory Compliance
• Other compliance requirements under Indian laws

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