Gas Woes Prevent Fert Firms From Pacts With ONGC, Gail

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Mumbai, May 2: With rising natural gas prices and disruption in gas supplies, majority of the fertiliser companies across the country have decided against signing the gas supply contract this year with suppliers like Gail India Ltd (Gail) and Oil and Natural Gas Corporation (ONGC). Fertiliser companies have already formed a consortium to ask the government for reasonable cost of energy consumption and allow free export and import of urea.

Indo Gulf Fertilisers managing director Rakesh Jain said: “The Indian Meteorological Department has predicted a favourable monsoon for the current year, both in terms of timing and distribution, which augurs well for the urea sector. Both khariff and rabi crops are expected to enhance acreage and yield under cultivation. This would lead to a higher consumption of urea by about four per cent to five per cent. The outlook, therefore, is positive.”

Mr Jain further added: “But the major constraint for growth of this industry is the price of natural gas. All fertiliser companies including Indo Gulf have joined hands and have not signed the contract with the gas suppliers, until and unless we get a positive response from the government. We have asked the government to bring down the price of natural gas at the level of around $3 per mmbtu which is viable for the industry.”

At present, most of the fertiliser companies are getting natural gas at around $2.5 mmbtu through the administered price mechanism (APM) which will be increased to over $4 mmbtu since APM has been dismantled. The government has notified the new energy norms, raw material mix and the mechanism for providing escalation or de-escalation in the prices of inputs for urea units during stage two of the group concession scheme which commenced on April 1.

According to Fitch Ratings’ special report on fertilisers: “Fitch expects the industry to move at a faster pace to add capacity by revamp or modernisation or debottlenecking, as also new expansion, as soon as the government is able to provide clarity on gas or LNG pricing. Clarity on gas/LNG pricing would also accelerate the conversion of naphtha-based plants to gas-based plants, thus lowering the subsidy burden on the exchequer.”

The fertiliser sector accounts for approximately 27 per cent of natural gas consumption in the country. Preference for natural gas or LNG over other feedstock for manufacturing urea is on account of high performance efficiency, ease of operation and lower capital and operating costs.