Ahead of the July 17 meeting of the AK Antony-led empowered group of ministers (EGoM) on gas allocation policy, the fertiliser ministry has pitched hard for continuation of its current highest-priority status among consumers of the fuel.
Stating that domestic gas-based urea plants have helped government save Rs 89,000 crore in subsidies in the five years through 2011-12, the ministry has said that any diversion of gas to other users like power plants would increase import of urea (which is double the cost of locally produced fertiliser) and force existing and upcoming urea plants to import higher quantities of expensive LNG (delivery price of LNG is a whopping $22-24/mmBtu at present).
Such import dependence would turn investments worth Rs 30,000 crore in domestic urea production into non-performing assets, besides putting additional burden on all stakeholders, including the government.
?The stranded assets problem (of) power plants shall shift to fertiliser plants. In addition, there shall be increase in additional subsidy outgo of about Rs 6,000 crore on import of urea every year at current prices.?
Drawing a distinction between the problems of the power and fertiliser sectors, the fertiliser ministry, in a note to the EGoM, said the subsidy implication of shortage of domestic gas to fertiliser units would be recurrent (annual), while the issue of stranded assets (of Rs 36,000 crore) which the power ministry is raising, would only have a ?one-time? implication for the exchequer.
The ministry is, however, silent on the problem that power companies might face when it comes to passing on the higher fuel costs to consumers.
?Scarce resource like natural gas should be used for (production of) value-added products like urea (rather than burn off at power plants),? the fertiliser ministry said, adding that many gas-based urea manufacturing plants might face a shutdown if the gas allocation from domestic resources is reduced. India currently imports 26% of its annual urea requirement of about 30 million tonne.
In 2012-13, under government’s direction, five naphtha-based urea plants were converted into gas-based ones with a combined investment of Rs 5,000 crore requiring 5 mmscmd of gas. These plants have now been commissioned using imported LNG. If the priority is changed, these units will have to sustain operations using expensive imported gas at $22-24/ mmbtu or else have to face shutdown, the ministry feels.
The power ministry, on the other hand, argued that around Rs36,000-crore assets will become NPAs for banks if gas is not allocated to them. The counter-argument from the fertiliser ministry is that the banks funding these power plants ?should have done a due diligence of availability of KG-D6 gas before granting loans and the government decision of the first priority to fertiliser and third priority to the power was also known to banks?.
?Therefore, any additional replacement of even 1 mmscmd of domestic gas with imported LNG will cost the exchequer almost Rs 1,000 crore,? said the ministry.