Fert min seeks to pull plug on gas diversion plan

The petroleum ministry?s plan to give priority to the power sector in gas allocation has raised an alarm in the fertiliser ministry. The fertiliser ministry has written to the petroleum ministry that ?the diversion of allocation of gas from the fertiliser sector to the power sector? will lead to the subsidy burden on the exchequer rising sharply.

The fertiliser ministry contends that while the power sector has the option to charge higher/differential tariff or adopt the policy of fuel cost pass-through, such options are limited or non-existent in the fertiliser sector, where the final buyer is the farmer.

?In case of more dependency on imported urea, there would be cartelisation and it is likely that imported urea prices will shoot up,? a ministry note said. ?When the price of gas increases by $1/mmBtu (million metric British thermal units), the production cost of urea rises by $24.893/million tonnes.?

At present, gas-based fertiliser plants get top priority in allocation of scarce natural gas. They are followed by LPG-extraction units, with gas-based power plants placed third in the priority list. The petroleum ministry had earlier talked about giving top priority to the power sector, where fuel shortage has already impacted capacity addition plans in a big way.

India, the second largest consumer of fertilisers, imports about 8 million tonnes of urea of a total requirement of about 29 million tonnes. The domestic cost of production of urea using a mix of domestic and imported gas is R11,000 crore. Currently, urea is sold at a government-mandated rate of R5,360/tonne, and the government bears a subsidy of about R5,640/tonne on domestic urea, whereas on imported urea the subsidy is around R18,640 per tonne.

?In the absence of sufficient gas, the fertiliser plants are already using more than 9 mmscmd (5 million standard cubic metres per day) of liquefied natural gas (LNG) of the supply of about 42mmscmd. The shortage of 2 mmscmd is made up either with spot LNG or resulting in lower output,? a ministry official said, seeking anonymity.