Fertiliser stocks gain after CCEA approves gas pooling for fertiliser sector

Seven fertiliser stocks rose by 2.7% to 11.17% at 10:25 IST on BSE after the Cabinet Committee on Economic Affairs approved to supply gas at uniform delivered price to all fertilizer plants for production of urea through a pooling mechanism.

Meanwhile, the S&P BSE Sensex was up 11.02 points or 0.04% at 27,969.99.

Among fertiliser stocks, National Fertilizer (up 5.71%), Gujarat Narmada Valley Fertilizers & Chemicals (GNFC) (up 5.46%), Gujarat State Fertilizers & Chemicals (GSFC) (up 2.7%), Fertilizers & Chemicals Travancore (FACT) (up 6.76%), Zuari Agro Chemicals (up 11.17%), Rashtriya Chemicals & Fertilizers (up 4.62%), and Chambal Fertiliser & Chemicals (up 5.11%) gained. Tata Chemicals fell 0.09%.

The Cabinet Committee on Economic Affairs (CCEA), chaired by the Prime Minister Narendra Modi yesterday, 31 March 2015, 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, a statement from the Ministry of Petroleum & Natural Gas said.

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.

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 decision will lead to additional production of around 37.13 lakh metric tonne (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 & Fertilizers (MCFL), Madras Fertilizers (MFL) and Southern Petrochemicals Industries (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),official statement said.

Meanwhile, the Department of Fertilisers will reportedly determine the total requirement of natural gas and draw plant-wide requirement, which would then be informed to the pool operator, Gail (India). The pool operator will tie-up imports after considering domestic availability and after averaging out price of both, deliver the fuel at uniform rate to all plants. The pooling mechanism will be effective from next month.

Also, an Empowered Pool Management Committee (EPMC) comprising representatives of oil ministry, department of fertiliser, department of expenditure and Gail will be formed. The committee would approve the plant-wise gas supplies to be made under gas pool mechanism and LNG purchases, reports added.

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