The decline in natural gas output from RIL ?operated D6 block in the Krishna Godavari basin could lead to an increase in the the government?s fertiliser subsidy burden or an increase in the price of urea. Reduced availability of K-G D6 gas would force urea producers to cut down their output or go for costlier imported liquefied natural gas (LNG) for feedstock.
A fall in domestic fertiliser output would necessitate use of more of expensive imported fertiliser, which could increase the burden of subsidy on the fisc.
RIL has reduced gas supply by 8-10% to fertiliser plants since December last year, chemicals and fertilisers minister M K Alagiri informed oil minister Jaipal Reddy a week ago, quoting urea producers and the Fertilisers Association of India.
?This reduction in supply of gas has implications on the cost of urea production and on the government?s fertiliser subsidy budget. Any reduction in domestic production of fertilisers implies increased imports leading to higher subsidy outgo,? Alagiri said in a communication to the oil minister.
Urea now sells at about R 370 a tonne in global markets, costlier by 25% from a year ago. The government gave a fertiliser subsidy of R54,977 crore this fiscal ? about a tenth of its net tax revenue for the year–and intends to give R49,998 crore in the next.
Alagiri urged Reddy to intervene and restore normal supply of gas to fertiliser sector, which has been allocated 15.7 million metric standard cubic metres a day (mmscmd) of gas.
Fertilisers is the second largest consumer of KG D6 gas after the power sector, that gets half of the total 63 mmscmd gas firmly allocated to various sectors by a ministerial panel.
RIL is producing 50-51 mmscmd of gas from the D6 fields now, about 15% lower than what it produced in the middle of 2010, junior oil minister R P N Singh said in Parliament this month.Led by RIL, ONGC and Oil India, the country produces 169 mmscmd of gas, a quarter of which goes to the fertiliser sector.
The price of Urea is sensitive to gas price as 80% of the production cost of this fertiliser is attributed to gas. The government is banking on more fertiliser units to switch from naphtha, a liquid hydrocarbon, to the cleaner and more efficient natural gas in order to save subsidy on this price-controlled commodity.
But the limited availability of gas and competing user industries like power, oil refining and city gas distribution, have made it impossible for existing naphtha-based urea units to shift to gas as well as for new gas-based plants to come up.
The use of different feed stocks has also come in the way of reforms as price decontrol at this juncture will lead to different retail prices that would force the less competitive naphtha-based units to shut shop, leading to import dependence.