High gas price will hurt fertiliser sector: FAI

Contending that the government's new pricing guidelines stipulating much higher prices for domestic natural gas will make the Indian fertiliser industry uncompetitive, the Fertiliser Association of India (FAI) Wednesday called for delinking domestic gas from the price of imported liquefied natural gas (LNG).

"The price of domestic gas in India should not be linked to imported LNG price. The domestic gas price should be in Indian rupees, not US dollars. In fact, domestic gas price in dollars was introduced only five years ago -- consequently, the price of domestic gas is rising continuously in rupee terms," FAI said in a statement here.

"The proposed massive rise in gas price will increase the subsidy outgo of urea sales by Rs.10,000 to 15,000 crore per annum," it added.

Pointing at the pincer grip of high input price and delay in the government's payments of subsidy leading to negative growth in the industry, FAI suggested that the existing gas pricing formula, that is indexed to crude oil prices, may be continued after removing its price ceiling of $60 per barrel of crude.

"Alternatively, a new formula may be devised with 50 percent weightage of cost of production of domestic gas and 50 percent weightage of price of domestic gas traded in the US and Europe," FAI suggested.

Under the Domestic Natural Gas Pricing Guidelines, 2014, that will apply to all natural gas produced domestically, the fuel will be priced at an average price of liquid gas, or LNG, imports into India and benchmark global gas rates.

Meanwhile, oil and gas major Reliance Industries Ltd (RIL) has asked fertiliser companies, its sole consumers, to provide a guarantee for paying a higher price of gas despite the Election Commission's order that the petroleum ministry should defer implementation of a new pricing formula.

Fertiliser companies have refused to comply, saying that till a new price is officially implemented, the existing price of $4.20 per unit should hold without the need of a new guarantee.

"What RIL is demanding from fertiliser companies is a bank guarantee to compensate for a higher price effective April 1, which is not acceptable to us," FAI said.