Cabinet approves uniform gas price for urea plants

The Cabinet Committee on Economic Affairs, chaired by the Prime Minister Narendra Modi, has approved a major policy intervention, to supply gas at uniform delivered price to all fertilizer plants on the gas grid for production of urea through a pooling mechanism.

It is expected that the cost of production of urea at pooled price would be less than the price of imported urea, which will encourage the existing urea units to produce beyond their reassessed capacity. The increase in urea manufacturing capacity will also contribute to the 'Make in India' initiative.

This reform measure is also expected to augment indigenous manufacturing capacities. It is expected to help in reviving the Gorakhpur, Barauni and Sindri urea plants. These three urea plants will serve as the anchor load customers for Jagdishpur Haldia pipeline. As a result, work on this pipeline which was approved in 2007 is expected to start in this financial year.

The Department of Fertilizer (DOF) has estimated that the decision will lead to additional production of around 37.13 Lakh MT of urea in existing fertilizers units over the next four years (i.e., 2015-16 to 2018-19).

This will reduce import dependence to this extent and result in saving of Rs. 1550 crore of subsidy. At present, there are 30 urea producing units in the country, out of which 27 units are gas based and three units viz Mangalore Chemicals and Fertilizers Limited (MCFL), Madras Fertilizers Limited (MFL) and Southern Petrochemicals Industries Limited (SPIC) are Naphtha based.

Out of the total consumption of about 30 Million Metric Tonne Per Annum (MMTPA) of urea, about 23 MMTPA of Urea is currently produced in the country. In addition to domestic production of Urea, around 2 MMTPA is imported from Oman under the Urea Off-Take Agreement (UOTA) which will continue upto 2020.

The shortfall of about 5 MMTPA Urea is being met through imports. Urea demand during 2017-18 is projected to be about 34 MMTPA and by 2024-25, it is expected to be 38 MMTPA. Hence, in absence of new capacity addition in the country, urea imports would have increased.

Further, DOF has estimated the saving in subsidy outgo due to revised energy norms of urea units of Rs. 6979 crore during the next four years.( i.e. 2015-16 to 2018-19).

The need for this intervention arose because, at present, the price of gas supplied to fertilizer units varies from plant to plant depending upon the combination of domestic gas and Regasified Liquefied Natural Gas (RLNG).

Hence, there is no uniformity in input price. Further, there is wide variation in the conversion efficiency of plants measured in Gcal/MT. As the variation in final urea production cost is a result of variation in two factors (gas price and conversion efficiency), it is necessary to separate the two effects. A uniform gas price at the input stage will achieve this objective and will help focus on improving plant efficiency.