The government targets to save R6,979 crore on urea subsidy outgo in the next four years (FY16-FY19) after the gas pooling mechanism would facilitate fuel at same cost to all manufacturing units. The government’s move is targeted to push for urea manufacturing at home in sync with the ‘Make in India’ campaign and curb imports to meet the increasing demand for the fertiliser.
On Tuesday, the Cabinet Committee on Economic Affairs decided to supply gas at a uniform price to all fertiliser plants on the gas grid through a pooling mechanism. This means the cost of production of urea at pooled price would be similar for all plants and less than the price of imported urea.
Sources told FE that currently the production cost for every tonne of urea varies between R14,000 and R20,000. This is because of different gas procurement sources. On the other hand, each tonne of imported urea costs about R19,000. The government’s subsidy bill for urea has increased from R33,924 crore in FY12 to R35,398 crore in FY13 and further to R38,545 crore in FY14.
The supply of gas to urea units through the pooling mechanism is estimated to increase output of the fertiliser by about 3.71 million tonnes (mt) in the next four years. Currently, India consumes about 30.5 mt of urea a year. Of this, 22.5 mt is indigenously produced, while about 8 mt is procured from overseas.
At present, there are 30 urea producing units in the country, out of which 27 units are gas-based and three units including Mangalore Chemicals & Fertilizers (MCFL), Madras Fertilizers (MFL) and Southern Petrochemicals Industries (SPIC) based on naphtha.
India imports about 2 mt of urea every year from Oman under the Urea Off-Take Agreement (UOTA) which will continue up to 2020. Urea demand in the country is pegged to touch 34 mt a year by 2017-18. This would further go up to 38 mt a year by 2024-25.
In addition, the gas pooling mechanism is expected to revive idle plants at Gorakhpur, Barauni and Sindri. These three urea plants will serve as the anchor load customers for the Jagdishpur Haldia pipeline, which the government has recently revived. The pipeline was conceived in 2007 by GAIL (India), but no work was done in absence of anchor customers in its route.