After fertiliser companies rejected Reliance Industries? (RIL) draft gas sale and purchase agreement (GSPA), the ministry of petroleum and natural gas is left with no option but to intervene and come up with a model agreement.
?Now the issue would be discussed and decided among all stakeholders on March 28. The petroleum ministry has called a meeting on Friday to shape up the gas sale purchase agreement.? a senior fertiliser ministry official told FE.
In addition, the Fertilizer Association of India (FAI), the umbrella body representing most fertiliser companies in the country, has requested for a ‘model GSPA’ finalised by the petroleum ministry and uniformly signed by all the fertiliser companies are allocated gas. FAI director general Satish Chander communicated the same to fertiliser secretary Shaktikanta Das on March 21.
Reliance Industries signed GSPAs with 16 fertiliser units for sale of gas from KG-D6 in 2009. The GSPA expires on March 31. In the meantime, to continue gas supplies, RIL has forwarded a simplified term sheet to buyers, which will be valid till it is replaced by the final GSPA. The term sheet is under discussions with the fertiliser companies and is expected to be finalised shortly.
?The tenure of the proposed draft GSPA by RIL is only for one quarter, i.e., up to June 30, 2014 and further extension is on quarter to quarter basis at the discretion of sellers. Therefore, as far as determination of gas price is concerned, RIL envisages determining the gas price on their own instead of using the gas price notified by petroleum ministry from time to time. This will result in severe financial implications for fertiliser companies as well as the subsidy outgo of the government and will violate the Domestic Natural Gas Pricing Guidelines 2014,? the fertiliser ministry wrote earlier in a letter to the petroleum secretary.
The draft GSPA also proposes a marketing margin of $0.135/million metric British thermal units (mmBtu) to be levied on a gross calorific value instead of the net calorific value currently, which would effectively increase gas margins by 11%.
?We also request you that till such time the model GSPA is finalised by MOPNG, RIL may be instructed to continue supplies on the basis of the existing GSPA, of course with the change in the price of gas, as may be determined by the MoPNG,? the FAI letter said.
India produces about 22 million tonne (mt) of urea a year and consumes a little over 30 mt. The gap is met by imports. The fertiliser industry consumes 31.5 mmscmd of gas from domestic sources and gets top priority in allocation of domestic gas.
The price of urea, the most widely used fertiliser, is highly subsidised and fixed by the government. The last major revision was on April 1, 2010, when the price was increased to R5,310 per tonne from R4,830. In October 2012, the price was marginally hiked by R50 to R5,360 a tonne.