Naphtha Price Move To Hit Fertiliser Cos
The indigenous fertiliser production will not be able to compete with imported urea if the concessional price of naphtha is withdrawn for the sector, says a feasibility report on naphtha-based fertiliser plants.
The report, commissioned by public sector fertiliser undertakings, comes at a time when major oil companies have expressed inability to supply naphtha at concessional prices to new fertiliser plants.
The feasibility report indicated that the cost of production will increase by $43-57 (Rs 1,500-Rs 2,000) per tonne for both expansion and grassroots projects in case concessions are withdrawn.
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However, the report states that there is no escape from setting up naphtha-based ammonia-urea plants due to constraints in the availability of natural gas. Already, the naphtha-based Phulpur expansion project of Iffco is under implementation while expansion projects of Kribhco at Hazira, of National Fertiliser Corporation at Panipat and Rashtriya Chemicals & Fertilisers at Thal are on the anvil.
It also states that the project will be viable if a domestic producer is able to sell urea at less than Rs 7,005 per tonne. At present, the controlled price of urea is Rs 3,660 per tonne.
To offset the increase, the government will be forced to enhance the subsidy again. For 1996-97, an allocation of Rs 6,148 crore was made towards fertiliser subsidy which consisted of Rs 4,500 on indigenous urea and Rs 1,648 crore on imported material.
Oil companies have already written to the ministry that by the year 2000, only about 3.8 million tonnes of naphtha would be available for consumption whereas its demand in the fertiliser sector would increase to about 11 million tonnes.
The requirement of naphtha for ammonia production has been estimated at 4.8 million tonnes in 1997-98 which is expected to increase to 8.5 million tonnes in 2000-2001. Therefore, the oil companies have asked the fertiliser units to import the feedstock at international prices which are much higher than currently prevailing naphtha prices.
When naphtha is imported, its C&F (carrying and forwarding) price is expected to be around Rs 6,200-Rs 7,000 per tonne while the retention price of urea will be around Rs 9,950 per tonne.
Industry sources say that in case new fertiliser plants are forced to import naphtha, not only would the subsidy amount cross the Rs 10,000 crore mark but also its international price will shoot up.
The projected shortfall has also been communicated to companies which are either planning to set up new fertiliser plants or are in the process of setting up a unit.
The oil companies supply naphtha to fertiliser companies at rates prescribed by the government.
Before the July 1996 increase, the ex-refinery price of naphtha for fertilisers was Rs 3,723 per tonne against Rs 6,076 per tonne for non-fertiliser use. After the hike, the ex-refinery price went up to Rs 4,840 per tonne for fertilisers and Rs 6,683 per tonne for non-fertiliser use. The international price of naphtha at present is around $180-$200 per tonne.
The supply of naphtha till now has been comfortable even though out of the total consumption about 75 per cent goes towards the fertiliser industry. Among the existing plants in the country, 28 per cent of them use naphtha as feedstock. In 1992-93, while production of naphtha was 4.586 million tonnes, its consumption was 3.380 million tonnes.
In 1993-94, its production went up to 4.670 million tonne, while consumption dropped to 3.190 million tonnes and in 1994-95, production touched 5.570 million tonnes and consumption shot up to 3.480 million tonnes.
For the Ninth Plan period, demand for naphtha is expected to increase from 4.790 million tonne in 1997-98 to 11 million tonne in 2001-02.