Gas prices should be in tandem with priority allocation: DoF

Written by Sanjay Jog | Mumbai, Sep 29 | Updated: Sep 30 2008, 07:18am hrs
The department of fertilisers (DoF) has argued that even as the fertiliser sector has been provided the highest priority in the allocation of gas, the price discovery mechanism for domestic gas has been left open-ended, which may lead to very high prices of natural gas in the country, thereby making the priority in allocation of gas for fertiliser sector, redundant.

The DoF, while taking up the case of the ailing fertiliser industry with the petroleum ministry, said the pricing of gas needs to be in tandem with the allocation priority accorded to various sectors to fulfil the desired objective of the Gas Allocation Policy, in its true spirit.

DoF sources told FE it would not be possible for the fertiliser industry to regularly procure gas at the spot market, at $30 per million British thermal unit (mmBtu) and also from various sources at different prices, to sustain its operations. According to the DoF, the total requirement of the fertiliser sector should first be met by APM gas, then JV gas, RIL gas from KG D6 block and finally by regasified liquefied natural gas (RLNG).

Further, the RLNG contract of all fertiliser companies are coming to an end in December 2008. They have to take a call on the quantity under the RLNG contract, which can only be finalised only if the quantities to be available from RIL gas be clarifid to all the fertiliser units.

The DoF has made a strong pitch for a uniform gas price through a pool mechanism. The DoF said that when gas prices will be on account of fertiliser units, specifically for production from new investments in the urea sector, the price of gas will be a major detriment for the fertiliser units. Hence, the urgent need for a uniform price of gas through a pool mechanism.

US Jha, chairman and managing director, Rashtriya Chemicals & Fertilisers (RCF), said There should be a uniformity in gas price and it should be reasonable. The fertiliser industrys operations may not be sustainable even if the gas will be available at $5.5 per mmBtu (RILs gas price of $4.20 per mmBtu plus freight charges).

According to the DoF, due to shortfall in the availability of gas in the country, 22 fertiliser plants use costlier fuels like naphtha and fuel oil.

The current supply to these plants is around 28.2 mmscmd, against the requirement of 42 mmscmd, resulting in a shortfall of 13.8 mmscmd. In addition, there are 5 naphtha and 3 fuel oil-based plants and the gas need of these plants is 6.8 mmscmd and 3 mmscmd respectively.

The petroleum ministry has communicated to the DoF that while there is no connectivity to these plants as of now, authorisations have been issued for new pipelines and connectivity is expected to be established by 2010-11.