Government will subsidise fertilisers post-hike in gas price

Following an upward revision in natural gas price by nearly $2 per unit, Petroleum Minister Dharmendra Pradhan Monday reassured fertiliser producers that the government will give them additional subsidy to make up for the enhanced gas price.

"Fertiliser is already being subsidised by a mechanism that will continue. There is a market formula through which the differential amount is borne by the government (through subsidy)," Pradhan told a news channel here.

"The new formula is being worked out. Additional enhancement of price will pass on to the treasury. There will be no additional burden on the consumer," he added.

Under the Modified New Pricing Scheme, the government gives special compensation to urea plants which have completed 30 years and converted to gas besides phasing out old and inefficient units after adding new capacities. It was also decided to stop paying subsidy after June 30.

The government Saturday announced that the price from Nov 1 will be calculated on the heat value the gas will generate on gross calorific value (GCV) basis. As per the GCV methodology, the current $4.2 per unit, which is on net calorific value (NCV) basis, will rise to $6.1.

Gas makes up four-fifths of the production cost of urea, which accounts for more than half of India's annual fertiliser subsidy bill of Rs.66,000 crore. More than a third of the country's gas-based urea production depends on imported liquefied natural gas (LNG).

Informing that the fertiliser and power ministries were part of the consultation process the committee of government secretaries tasked to revise the gas price engaged with all stakeholders, Pradhan said: "Looking into all aspects, the committee came out with an affordable price regime for these sectors."

In another relief to the cash-starved fertiliser industry, the government Saturday also approved provision of a Rs.14,500 crore subsidy through a special banking arrangement (SBA) route.

Pradhan had on Saturday said Prime Minister Narendra Modi had made it clear that the common man should be protected from any major impact from the gas price hike.

The need to revise the recommendations on gas price made by the Rangarajan panel constituted by the UPA government arose due to opposition to the Rangarajan formula from various quarters on account of its likely impact on electricity tariff, urea cost, CNG rates and piped cooking gas price.

Every dollar increase in gas rates will lead to a Rs.1,370 per tonne rise in urea production cost and a 45 paise per unit increase in electricity tariff. There would be a minimum Rs.2.81 per kg increase in CNG rates, and a Rs.1.89 per standard cubic metre hike in piped cooking gas cost.